Settling trades faster with a system of action
Jefferies is a leading investment banking and capital markets firm. It executes hundreds of thousands of daily trades in its fixed income and equity trading businesses. Across the financial services industry, the majority of trades settle without manual intervention.
Straight-through processing enables massive daily volumes and easy exchange of capital and securities. While only a small fraction of settlements break, firms bear a high cost to track and resolve them before the settlement deadline, currently two days after trade (T+2) and soon to drop to one (T+1).
Jefferies began streamlining its trading operations in anticipation of T+1 to address requirements and reduce the risk of penalties if trades fail to settle on time. Having just implemented ServiceNow IT Service Management, Ryan Clare, Head of Corporate Program Management at Jefferies, led the effort. The system of action he envisioned, built on ServiceNow Financial Services Operations, gives Jefferies greater visibility to exceptions, easy prioritization, faster resolution, and instant auditability—all essential for meeting T+1 demands.
Increasing trade processing efficiency
The operations team at Jefferies is responsible for making sure that trades settle on time without incurring charges or funding concerns. Problems can be as simple as incomplete instructions or as complex as a chain of settlement breaks, requiring counterparties to collaborate on a solution.
The team commonly accesses investment banking systems of record and uses common industry productivity tools including Outlook, Word, Excel, Symphony, and Teams in the resolution process. For example, an Operations Settlements professional may send emails to the counterparty and talk to them over Symphony, interact with the trader using Bloomberg chat, and speak with a colleague in London using Teams.
Most problems can be resolved within the time limit and the back office completes the rest, using securities lending or capital outlays to avoid any impact on clients. But while straight-through processing is lightning fast, the middle office post-trade settlement has remained largely manual. Clare saw the opportunity to improve trade processing efficiency and reduce settlement failures by linking systems with ServiceNow.
In the legacy exception-handling process, the operations team pulled reports from systems of record and then manually filtered, classified, and prioritized exceptions. Thousands of emails related to these exceptions flooded shared email inboxes, where they were manually sorted and assigned, and then correlated to exceptions using spreadsheets or documents.
With the help of ServiceNow, Jefferies was able to add an overlay to create a more seamless workflow for each exception, with all communications tracked within the environment. Now, exception workflows can be generated directly from systems of record data and work items are created from emails and added to a related workflow. This simplifies task management, improves management oversight, and creates an easy audit trail. Further, the team has instant visibility to trades that settle and can easily cancel outstanding work items.
With more time to focus on true exceptions, the team can reduce exposure to capital cost and risk. And with greater process efficiency, unexpected spikes in volume are easier to manage. “With ServiceNow, our platforms are interlinked and consolidated, enabling us to handle volume growth without adding FTEs,” says Clare.
Consolidating services into one workflow application
At the heart of the solution is the Operations Workstation, built on Financial Services Operations, which provides single-pane access to all systems of record and communications tools. Settlement clerks can move easily between systems while remaining focused on the case.
With direct access to data from systems of record, the team eliminated the need to export reports for manual identification and classification of exceptions. Instead, workflows for exceptions are created directly with ServiceNow.
The team also built integrations with its Exchange server so that all emails for shared inboxes go directly into ServiceNow as work items and teams have immediate access to the latest communications. Integrations with various communications apps are in the works.
Jefferies ran a proof of concept (POC) that initially focused on exceptions for Central Securities Depositories Regulation (CSDR) violation. By automating this highly manual process, Jefferies reduced the resolution time for each case from 30 minutes to a few minutes and cut the risk of forced buy-in, particularly for T+1 settlements.
Delivered into production in four months, Financial Services Operations allows Jefferies to expand the scope to all exceptions and begin a phased rollout to teams in the middle office that will grow to hundreds of people across all operations. “Over time, everyone will use our ServiceNow-based workstation, with all trade processing communication captured in the tool rather than lost in the ether,” says Clare. Future plans include automation for predictable communications.
Enhancing controls through greater visibility
Managers now have enhanced digital capabilities related to risk intelligence, including the ability to quickly classify, assess risk, and assign exceptions in real time, to address the highest priority problems. Managers also have advanced functionality related to analyzing exceptions by location or client, which can be useful for examining edge cases or pattern recognition. For example, when economic sanctions against a country are lifted, Jefferies may focus on settling trades in that country before sanctions are reinstated.
“With ServiceNow, managers can easily assess risk, prioritize, categorize, and assign exceptions for resolution,” says Clare. “All exceptions are visible, reducing risk of failure.”
Accelerating audit response
Jefferies is in a highly regulated industry, so audits are common. Audits can be initiated by regulators like NFA and FINRA, internal auditing, or external auditors. The operations team must demonstrate compliance and the proper management of controls.
Previously this work had to be done manually. People would have to pull emails together, produce reports, and walk auditors through the process, which could take hours. Now the operations team can just bring any exception up in the workstation and walk the auditors through it in minutes.
Leveraging task intelligence for T+0
With T+0 on the horizon, Jefferies is proactively using artificial intelligence and machine learning (AI/ML) to develop task intelligence. To that end, Clare headed up a POC on auto-categorization, language detection, and sentiment extraction using AI/ML as a gatekeeper for a shared inbox.
The first model was 65% faster than the current process, saving five hours per day. Clare is confident that with more training, the models could be as much as 90% faster. With at least 20 major inboxes, that’s a savings of up to 200 employee-hours per day.
For additional efficiency and control, Clare expects to leverage AI/ML and process mining capabilities native to Financial Services Operations. He has even deployed the POC model in accounts payable to address similar underlying challenges in that area.
“Our success with the digital global settlements team using Financial Services Operations, yielded tremendous reusability that we expect to apply to other functions across the firm,” says Clare. “By partnering with ServiceNow, our technology team continues to achieve dramatic impacts.”
About Jefferies
Jefferies is a leading global, full-service investment banking and capital markets firm that provides advisory, sales and trading, research and wealth and asset management services. With more than 40 offices around the world, the firm offers insights and expertise to investors, companies, and governments.