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Northern Trust White Paper Explores Outsourced Trading

As the industry adapts to increasing competition, fee compression, regulatory and compliance challenges, and technology costs, more firms are outsourcing core business functions beyond traditional back-office tasks. What consultants have termed the “third wave of outsourcing” covers a broader spectrum of operations, including not only trading desks, but front office functions such as foreign exchange and transition management capabilities, according to a new report from Northern Trust. The Northern Trust report tightens its focus on trading and predicts that many asset managers will outsource some or all trading costs and related complexities to a third party that can replicate the function of the trading desk. The authors advise that chief among the goals of any outsourced trading function are reduced cost and risk, enhanced scale and efficiency and compliance with regulations. The authors list several considerations and questions that can inform diligence on an outsourced trading provider, including: (1) is the counterparty safe, well-capitalized and free from conflicts; (2) does it have experience as an outsourcing provider; and (3) can it integrate trading solutions seamlessly across the front, back and middle office?

 
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