Why did you decide to join Synechron?
Sander Baauw: Raymond Vuyst and I were both at ABN AMRO, and before that we were at Fortis GSLA for more than 10 years. I was running the equity finance desk and Raymond Vuyst was running the IT solutions department for equity finance and equity derivatives. We never thought about leaving ABN AMRO, but Synechron gave us the unique opportunity to set up a fully fledged global securities financing business consultancy practice on top of the already existing successful IT solutions and services practice.
Raymond Vuyst: Synechron is a privately owned young, dynamic company that was founded in 2001. It is profitable since inception and is growing every year—it has 4000 members of staff at the moment but that is increasing every month—and it has an open culture that stimulates any new idea. We thought that this is the kind of company that we want to work for and move ahead with.
Where do you see the consultancy practice heading?
Baauw: There are different kinds of consultants around in the market, but they can usually be put into four categories. There are the pure business consultants that do very expensive 200-page presentations on organisation and governance, which are general and not really specific to a particular market, such as securities finance. Then there are the massive IT consultancy firms from India that service a variety of industries but with a limited amount of specialised domain expertise in a niche market such as securities financing. And there is the one-man band that does specialised work.
Vuyst: We do not fall into any of these categories—we fall into the fourth category. In the past, Synechron’s practice has always been focused on banking, financial services and insurance IT services and solutions. Now, with the new strategy, business consultancy is an extra specialty on top of it. Our style of consultancy is really hands-on and focused on pragmatic execution. We do not have a consultancy background, but our differentiator is that we have been practitioners for a long time in the centre of the entire value chain of securities financing and we have experienced it all ourselves. In addition to this, we have enough back up from our very experienced IT staff to scale up and down fairly easily during a project.
What do you do when you are called into a business?
Baauw: We see what we do as a four-step programme. We do business consultancy as step one and this could cover, for example, a SWOT analysis, a gap analysis and an execution plan for the next couple of years. This could then result in strategic decisions such as opening a desk in a new jurisdiction because there is more flow coming up due to new market circumstances. The second step is analysing the existing IT environment that is in place. This means that we look at the current IT systems and review whether these systems will continue to function properly during the next few years according to the requirements. The other options are to build an entirely new system or to buy one.
Vuyst: Once this analysis is made, we move to the third step, which is testing, application development, documentation, and making sure that everything has been executed and implemented according to the client requirements. The fourth and final step is support and monitoring, from both a functional and a technical angle. This can all be done in cooperation with the internal IT department and/or other vendors. Alongside this, a key component of each project is to decide with the client what the optimal ratio between onsite and offshore recourses is in relation to quality and cost.
Baauw: Those are the four steps that we offer when going into a business, but some clients do not require us to carry out all of them. Some clients will need just consultancy services, while others want us to analyse, implement and execute, and then carry out testing and so on. Of course, a specific combination of these steps is always possible, but what we also heard a lot when we were speaking with people at the International Securities Lending Association conference in Madrid was that opting for a combination of steps could cause problems.
Vuyst: The main problem that could arise is the interpretation of documentation that is created by another participant in the value chain and this could result in a lack of clarity and disconnect. But of course we offer and do all four disciplines separately or in any possible combination.
How do securities finance businesses tend to operate—do they go for all four steps or a combination?
Baauw: Most of the time you see a combination, but from time to time you see the entire chain. You see this, for example, in the set up of a new desk or when the plan is to launch a new product. But there is not really one answer to this question because every bank and trading desk has a different structure, scale, number of entities, complexity of products, and so on.
Vuyst: We have seen companies with really sophisticated IT environments, which only look at step four, so we monitor and maintain their legacy systems offshore. Others could be a start up, in a growing phase or undergoing a re-organisation, so they need all kinds of advice and analysis on all kind of topics.
Baauw: On the other hand, sometimes you see trading desks or investment banks thinking that they require a different system to adapt to upcoming changes so they can grow to the next level, but they do not really need it. They only want to buy and bring in a brand new system because they have worked with their existing system for so long and they think the grass looks greener elsewhere. When we come in, we can look at these things with a fresh pair of independent eyes and advise accordingly. If we do not need think that the systems or processes need to change, then this is what we will advise because we always aim to have a transparent relationship with our clients for the long run.
How are securities finance trading desks doing at the moment?
Baauw: Everybody knows that the golden years are behind us and I doubt if they will come back in the next coming years. The securities finance trading desks are trying to keep up flow, which is certainly not always easy, and they are also dependent sometimes on external factors. The larger firms will always get some flow and most of the time they will try to spread it to the larger firms on the other side. But the smaller or medium-size trading desks have the advantage that they can quickly change to a different strategy or adapt to a new situation. This is also what we sometimes see on the IT side. If there is a large bank with multiple locations and with 10 different systems, it is not always easy to change something. If you have one desk with four equity finance traders, two people on the collateral desk, one repo trader and a couple of people on the operations, it is easier to change the IT environment.
Vuyst: The trading desks are always looking for new opportunities, but that is not easy to find these days. On the other hand, the result of this is that the front office is not only becoming more cost aware, but is also becoming more value aware. They are assessing whether the environments and processes in which they operate are still optimal for them. They are very aware of other things—not just trades and new opportunities and so on—they are also looking at the operational and technical sides.
Baauw: The process that Ray Vuyst described has of course had the same impact on on profit and loss. Another aspect, which is also changed, is the client side. In the past, it was easier to grow profit on the client side. Finding new clients was just easier to do 10 years ago. It was possible to visit all kinds of countries and find smaller, new players that you had never traded with before. Nowadays, if you—under the existing circumstances—try to do the same you will experience more obstacles from the enabling units that are more careful about risk, compliance and procedures.
Vuyst: One of the other major shifts in interest of the trading desks for the last couple of years is on the collateral side. The pricing of asset classes is done in detail these days and this can make or break your trade. Next to this, the global inventory management of collateral for an entire company is extremely important across all disciplines. To have this entirely automated and with real time reporting and dashboards is one of the biggest challenges for all stakeholders.
What are you charged with achieving at Synechron?
Baauw: We are focusing on securities finance worldwide with a strong focus on business consultancy and IT solutions and services. But in Europe, we are also trying to expand in other areas of the capital markets, such as commodities, via the existing contacts that we have built up in the securities finance market during the last decade.
Most of Synechron’s clients have stayed with the company for years and they continue to do so. Without achieving customer satisfaction and creating that staying power, a company can have a very bumpy clientele where clients come and go, which means that there is no pulling power behind the brand. Synechron is not in this situation—when it attracts clients, they stick around.
Vuyst: This is what we want to replicate and build on in securities finance. We want to develop an even better brand and also become well known in our market. We can do this on three ways: (i) expand the work that we do with current clients, not only in securities finance but in different areas that the client operates in as well; (ii) attract new clients, because there is still a lot of potential clients that do not know Synechron, especially in this area; and (iii) set up and expand the business consultancy practice.
Although we are a fast growing company, our goal is not to be the biggest in the market, but we try to be the best in the market. This way we automatically gain good and solid client references by focusing on client satisfaction. This is a core value of the company. In securities finance, we will get customer satisfaction through excellent execution and being able to work in an agile way with a client and other parties that are involved.
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