Investment Bank (IB) in 80s and today


Let me write something on this, its been long time since I wrote something on my blog.

Coming to the point, IB is a straight forward business with many regulations coming in. It is ideal to bring Dodd frank 165 and 166 into the context to support constant change in an organization and its operations. Operations and mainly IT operations are middle office functions in any investment bank.

The more I am interacting with higher management people the more I am realizing the essence of MBA. Now I can understand the problems well and at least suggest something to the management when asked, earlier in my career I was just focused on my work, and always kept my mouth shut in conferences and meetings.

Let’s go in 80s to explain you investment bank operations, I will not use bank name or tools to maintain confidentiality. In 80s there were no computers, no internet, no google, and guess what life was miserable for the traders and operations people. At that age investment banks got divided into 3 sectors, front office – the sales people, and traders, middle office – people who maintains books and records, and the back office – people who reconcile the trades before payment. Without computers operation people had to maintain boxes of records which had divided sections into it on the basis of asset class, country, types and other attributes. Imagine you have a box with different labels (par/distressed) for secondary loan agreement (Trade confirmation, Assignments and assumption, and funding memo documentation scripts) segregated on deal/trade level.

Sales people like today had to go out and search for investments, with beautiful dress and pleasant smell. Once the deal is initiated, sales people had to fill the values on the agreement document with rates, maturity dates, and other conditions, and pass them to traders. Trader finds the trick where to invest and how much, keeping an eye on market conditions, play with futures/forwards, options, swap to build profits. Maintaining records has always been middle office job. Middle office had to confirm rates that has been told to customers and the rate that trader has used for trading are same maintaining data consistency throughout the process. I cannot imagine how trade amendments were done in the past since every documents need sign off at certain check gates during the process, today sign offs are done electronically which made the process must faster and has less risk. Earlier there were people carrying documents personally to the customer for sign-offs whenever needed. As I wrote earlier in my blog how secondary loan functions need agent bank as well, and documentation would’ve become more and more complex in 80s and before. Think about hundreds of thousands of trades coming everyday, and maintaining legal requirements and keeping customers satisfied wouldn’t have been possible without smart investment bankers. IB style in 80s and before gave the real feel of IB and how it works, you knew what you were doing, everything was manual, things in text-book were applied in the same fashion how it works. When computers started coming in IB, it demanded data entry job for many years. I know many people serving at top level management who once had engaged in data entry job in 80s. Slowly tools started to grow so as business and internet revolutionized the finance market. Now there is high frequency trading considering millisecond taking account of clicks you make for buy and sell. The delay between you decide to buy a stock and your click on computer screen can make or break things in high frequency trading.

Finance is an interesting place to be, trillions are traded everyday. It brings competition and excitation. It has plenty of opportunities, and always need new products. I would say it is a business which sits in between government and customers. Regulations come everyday, and you have to follow mandatory obligation. It demands a lot of people in operations to run the business. Operation is basically a residual work of sales/traders, but very critical area for building and maintaining brands. Middle office operation decides process inside the organization, which is very important in finding head counts for employees. Efficient process needs fewer people to work, that is the current focus for every organization since the word “cost cutting” couldn’t have become so popular itself. Automation, data consistency, and control are the main focus, and machines are better doing that.

IB feel has gone long back since computers are smarter than people.

Rest Later! Many Thanks.


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