Many capital markets firms have been asking themselves the following: “How confident is my expense management team in the accuracy and validation of trade expense costs when paying vendor invoices?” – or – “Have we compared trade execution fees across vendors for optimal pricing?”
These questions stem from not only the on-going demands of financial regulations but also from the CFO’s office in terms of improving audit and control and optimizing the costs of vendor relationships.
The push for improved efficiency in expense and vendor invoice reconciliation processes is being driven by the higher volume of trades which requires a more automated trade expense and vendor invoice validation process. Many capital markets firms have hundreds of contractual relationships with multiple vendors such as exchanges and broker-dealers -each trading desk at these firms oftentimes has its own individual contract. These contracts can have completely different pricing for the same service. The daunting task of ensuring invoices are reconciled and paid in a timely manner leaves many firms with a “finger in the wind” decision-making process using manual reconciliation methods. The constant flow of incoming bills, the task of manual reconciliation and the pressure of paying invoices becomes prohibitively expensive, time consuming and increases the chance of error resulting in overpaying fees.
A fundamental shift is taking place within the industry to streamline the manual process of validation and reconciliation of vendor contracts and invoices. For the first time, the capital markets community is gaining valuable intelligence on not only the accuracy of trade execution expenses, but also on the efficiency of vendor pricing. Many firms are pursuing new software systems to facilitate better data management and transparency, as well as forecast future costs using “what if” scenarios, enabling firms to negotiate optimized fee contracts with vendors.
The growing challenge of automating the trade execution expense management process must be addressed sooner rather than later – otherwise, firms will continue to make potentially expensive errors that can equate to hundreds of thousands of dollars in avoidable overpayments.