Investment bank wraps up major tech overhaul after Covid-19 setback

Major technology overhauls like replacing middle- and back-office functions are complex beasts to tackle at the best of times, but trying to complete this kind of project in the midst of a pandemic comes with a host of new challenges. John Owen, COO at mid-market investment bank Stifel Financial, learned this the hard way. In March 2020, Stifel was just a month away from going live with the first stage of its implementation of Torstone Technology, consolidating its middle-office and post-trade operations in Europe, when the Covid-19 pandemic hit the continent.

From that point on, it was all hands on deck, Owen says, for the initial few weeks of the first lockdowns. The implementation had to be paused to allow the trading and risk desks to cope with extreme levels of volatility, and the workforce had to adjust to working remotely.

“The trading business went berserk. Volatility was all over the place, which was great for us, but our operations team had no time at all to even think about doing a parallel run or a conversion,” Owen says.

Six months into the global health crisis, in the autumn, the operations teams adjusted to the new way of working and began revisiting the implementation. Owen says because the teams were dispersed, they had to become accustomed to running parallel tests remotely. This was done by what he describes as “overcommunicating”—constantly being on open Zoom calls and having frequent check-ins at the beginning and end of the day.

The project took an extra year to complete in Covid conditions, including all the necessary testing hurdles that had to be satisfied while working remotely. As a benchmark, a typical middle- or back-office migration for a small organization trading a simpler asset class like equities, can take anywhere between six and nine months to finalize, says Mack Gill, Torstone COO.

“This is the books and records of an organization,” Gill says. “This is not a fancy tool in the front office or some risk tool; this is core. You have to make sure the testing is ready and make sure it works.”

For Stifel, matters were made more challenging as its essential workers had to follow a rotation system for going into the office where only a fraction of its risk team could be in the office at any one point under covid circumstances.  Despite the implementation delay, Owen credits his team and Torstone for getting the project over the line.

“Timing-wise, this is not something you could take as an example on the face of it. If you looked at it [in abstract], you would think it’s incredibly bad, but actually, we’ve done an incredibly good job under the circumstances,” Owen says.

As part of the first implementation, for the last six weeks, Stifel’s fixed income and convertibles business has been live on Torstone’s new middle-office solution, which automates allocation and confirmation processing, and its post-trade platform. In the next phase of the project, scheduled to be completed by September, the bank will migrate its Keefe, Bruyette, and Woods equities unit in Europe onto the third-party platforms, consolidating the various business lines and making them accessible via a single user interface.

Prior to this, Stifel used BNY Mellon subsidiary Pershing’s outsourced solutions for its middle- and back-office functions. There were several reasons the bank decided to re-platform its European and UK businesses, including its need to scale, consolidate its product lines, and benefit from bespoke functionality. But Owen says flagging these needs became a challenge when competing for attention among a large group of clients.

“We were also one client of many. We happened to be one of the bigger ones, but Pershing as an organization is servicing all of its clients. So, anything that we needed was in a queue and our needs outgrew what Pershing could offer,” Owen says.

Owen says that Stifel Europe has grown a lot over the last seven years, expanding from a 100-person organization to some 550 people today, across seven locations. Rather than hiring more staff, the bank is choosing to invest in its technology and infrastructure to support its roadmap for growth and client demand, he says.

“In terms of our trade volume, we have more than doubled in the last year, and we will be able to kick on and double again without hiring any more people,” Owen says.

Taking back control

Another driver for the bank to change providers was its need for better control over its technical footprint, its data, and its third-party vendors. Owen hopes that the bank’s shift from Pershing’s outsourced model to Torstone’s cloud-based, software-as-a-service (SaaS) model will simplify its operations, enable the bank to have better control over its change management, and more easily switch out other third-party vendors, such as who it uses in the front office. Today, the bank uses Bloomberg and Thomson Reuters to trade and manage its fixed-income portfolios, Leversys for its convertibles business, and Fidessa for equities trading.

“The driver was our ability to be the master of our own destiny, rather than be in somebody else’s hands, and everything stems from that. That is the eureka moment, and to be able to say, ‘Look, we can do what we want in our own time,’” Owen says.

Prior to the implementation, Stifel’s middle and back-office was siloed based on each of its product or asset classes, but now its teams leverage the same interface across its middle- and back-office functions. Gill says simplifying the middle-office functions can make it easier for Stifel to have control over its third-party landscape and be more thoughtful about other vendors it chooses to plug into.

“A lot of front-office providers try to lock in their part of the middle office, which makes it difficult if you’re a client of theirs to actually change front offices, whereas if you standardize across to your middle office, across the asset classes, you then switch the power dynamics in a way that you make sure that you know your vendors are working for you because it’s easier to change them,” he says.

As Stifel continues to grow its presence in the US, the bank will also look at whether it should migrate its non-dollar clearing business to Torstone’s post-trade platform. For now, Owen says, it’s too soon to tell. “We have to see what happens in the US, as we move forward in the next couple of years,” he says.