If you delve into the murky world of investment banking, you will soon hear the terms ‘front office’, ‘middle office’ and ‘back office’.

When people talk about the front office, they’re talking about the ‘sexy’ areas of investment banking – mergers and acquisitions or sales and trading. When people talk about the middle office, they are referring to functions such as IT, accounting (finance) and risk management. When they talk about the back office, they’re talking about operations.

Unlike the people in the front office, people working in operations do not liaise with clients to generate revenues and profits for the bank. Instead, the division is a support function – operations professionals support people in the front office to make sure everything works smoothly and the bank gets paid.

The main business of operations is clearing and settling trades. Clearing trades involves making sure that the records one bank has kept of the sale of a financial security match those of the bank or organisation it sold the security to. In most cases, simple trades are cleared automatically through huge electronic systems such as the Brussels-based Euroclear.

‘Settlements’ covers everything from preparing the documentation required for a sale, to making sure the bank has been paid for all the shares it has sold and bought. Settlements professionals ensure that stocks or shares bought and sold by the bank’s traders are exchanged for the correct amount of money.

Roles and career paths

As a junior working in clearing and settlements, your job will mainly involve intervening when computer systems fail. Every now and then, automatic clearing systems break down in a so-called ‘exception’. Clearing specialists spend most of their time dealing with these exceptions, trying to work out what went wrong.

If you work as an exception manager on a settlement desk, you might talk to traders who claim to have sold shares for $3 each when the buyer says the price was only $2, for example. However, there are some areas of the market where clearing is not automated and if you work in one of these, you will be expected to do a lot more than simply sort out failures in the electronic clearing and settlements process. In particular, the huge $600 trillion over-the-counter (OTC) derivatives market still relies heavily on a lot of manual processing, which is creating problems. Moves are being
made to automate and centralize the clearing and settlements process in the OTC derivatives market but until this happens, people are needed to fill in and fax through the documentation.

Closer to the trading floor is the role of the trade support officer, which can cover a range of different asset classes, from equities and bonds to commodities or derivatives. Here, you are in the firing line for any queries a trader might have – everything from reconciliation issues to any discrepancies between the various counterparties involved in the trades.

As you work your way up the operations hierarchy you will progress to more strategic roles, looking at issues such as how to streamline the exceptions process or which functions should be moved offshore.

Pay and bonuses

As a general rule, the more exotic or specialised the product you’re working on, the higher the pay.

In London, a manager working on equity and fixed-income settlements receives an average salary of £60k-75k ($97k-121k), according to recruiters Robert Walters. Thisrises to a maximum of £78k ($126k) for someone working on OTC derivatives or foreign exchange options and £65k-80k ($105k-130k) for commodities or listed derivatives.

As a junior, you should expect around £30k-40k ($49k-65k) as a starting salary, with a bonus of around £5k ($8k).

Settlements professionals working on derivative products in Hong Kong can expect HK$380k-520k at a junior level ($48.7k-66.6k), rising to HK$900k-1.3m ($115.4k166.7k) at the senior end.

Meanwhile, US-based settlements professionals earn $55k-165k at associate to senior VP level. Chief operating officers can earn $185k-300k.

Skills sought

When banks are filling operations roles, they look for a combination of problem-solving, interpersonal and time management skills. In a role where accuracy and consistency are absolutely key, attention to detail is also a must. Aside from that, if you want to progress, it pays to hone your skills in various areas of the business.

“You may begin in operations, in an area such as settlements and reconciliation, but you can also get exposure to accounting and fund administration,” says Andrew Dougherty, managing director, head of alternative and institutional solutions at BNP Paribas in the US. “Find a firm that creates an environment that provides exposure to all aspects of the business. That will allow you to become well-rounded and knowledgeable on the different areas in operations.”

While operations professionals have few client-facing responsibilities, they are essentially ensuring the smooth running of the organisation and therefore any problems they solve help enhance the ‘client experience’. Good communications skills are therefore important, because people in operations deal with many other divisions and functions within the bank. Would you be comfortable, for example, dealing with an impatient trader?

Vikram Sud, Asia-Pacific head, operations and technology at Citi, says candidates should have “strong interpersonal skills to lead teams and interact well with the business and clients. While process-oriented, they will continuously challenge the status quo and make effective use of technology to improve the customer experience and drive efficiency.”