The Trade Lifecycle: Behind the Scenes of the Trading Process, 2nd Edition

Chapter 21 Developing Processes for New Products (and Improving Processes for Existing Products)

Investment banking is an evolving business. Processes are continually required to solve new problems or improve existing practices. Sometimes changes come because of the desire to trade new products, other times regulators may impose new requirements or the need to catch up or overtake competitors forces banks to consider change. Here we consider processes. Note that the term ‘process’ is agnostic – it could be something carried out by computers or by human beings.

21.1 What is a process?

We consider a process to be an activity performed on a trade or related to the existence of a trade. Examples of processes are:

• book trade in a system
• calculate fair value of a trade
• settle a trade
• stress test a trade under different scenarios of market conditions.

Processes run the entire business of trading. These occur at all stages of the trade lifecycle. They can be automated by computers, operated by human hand or a mixture of both. Later in this chapter, we will discuss the building and running of a brand new process, but before that we will describe a common situation in many financial entities.

21.2 The status quo

There is an old joke about a man who is asked how to get from Liverpool to Birmingham. He answers: ‘if you want to go to Birmingham, don't start from Liverpool!’ Many organisations have a complete tangle of existing processes and anyone trying to rationalise them would ...