Hybrid Outsourcing

Brokerages must upgrade their core back-office clearing and settlement systems to handle the growth in alternative investments.

Amid shrinking margins and increasing volume, brokerages must upgrade their core back-office clearing and settlement systems to, for example, handle the growth in alternative investments such as derivatives, according to a recent TowerGroup (Needham, Mass.) report. Hybrid outsourcing—a model under which companies outsource nonessential processes while retaining control over critical applications—is proving to be an effective method for improving back-office systems while trimming costs, the report adds.

This is reflected in a predicted increase in spending on vendor systems and simultaneous decline in overall IT spending on back-office systems. By 2008, businesses will offshore as much incremental development as possible, resulting in new functionality at lower costs, TowerGroup says. In turn, those savings will be used to acquire new applications to support clearance and settlement of global markets and alternative products.