Join our investing community

Behind the Scenes ...

Discussion in 'Shares' started by Tropo, 5th Oct, 2006.

  1. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    Behind the Scenes - What happens in a stockbrokers back office?
    by Evan McQuire

    If you were to ask someone on the street what happens in a stock broking office, the general response would probably be "that there are men and women in plush offices, sitting behind lots of computers, frantically placing orders and answering phones - buying and selling stocks for clients". Sure, this does happen (but not always with the intensity people think). A lot of people don't realise there is another crucial part to a stockbrokers office and that is - the Back Office.

    What is back office I hear you ask? The back office is where the bulk of administrative work is done to support front office (Brokers, Advisers and Dealers). New accounts are opened in back office and other general administrative tasks are performed there too. After a trade is made, the Bookings Department will book or allocate the trade to the client's account and a contract note will be dispatched to the client. The Bookings Department is also responsible for any cancellations and rebooking of trades, and some bookings departments will be responsible for adjusting brokerage.
    Once a trade has been done and booked to a client, it is the responsibility of the Settlements Department to settle the trade. The settlements officer or clerk will check to make sure the trade will settle by cross checking that there is enough money available for a buy, and making sure the client holds the stock if it is a sale. If there are any problems, the settlements clerk will inform the broker or adviser. The settlements clerk will also liaise with external parties like margin lenders, to make sure CHESS messages are matched and to confirm an order will be good for settlement. Brokers will also have a Corporate Actions department that is responsible for any corporate action - be it a dividend, rights issue or buyback. They monitor company announcements about dividends and the like and ensure that clients' portfolios and holdings are adjusted accordingly.

    You will also find in a stockbroker's back office, general administration staff. They look after opening and closing of accounts, change of address and other administrative tasks that need to be performed. Generally you will find there is a physical separation between front and back office (this is called a Chinese Wall and is also used between research and corporate finance departments). This is to ensure that there is no sensitive information moving from front office to back office and that front office staff are not involved in client payments etc.

    As you can tell there are many other functions that are performed within a stockbroker's office and it is true that front office could not live without back office and vice versa. In recent years there has been an increase in outsourcing back office functionality to market clearers. Some firms have outsourced their back office functionality and this will probably continue over the next few years.