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The back office and Middle office operation functions are plagued by numerous conceptual and fundamental problems. The main culprit is the lack of understanding by traders and managers of the holistic approach to what entails a good back and middle office operations. Companies and institutions spend millions of dollars on ensuring that trades are booked correctly, cash moved smoothly, and accounts are monitored continuously. Large and small companies suffer sometimes from the lack of expertise, resources and talents to advance the core benefits of their businesses. The allocation of large amount of funds to operation has not solved the problems and the need for alternatives and more radical approach must actively sought.
Small start up hedge funds are acute sufferers of lack of operational skills. Traders who are well versed in the business of trading stocks, options, swaps and other products know little about how a back office operates. This is not a bad thing by itself as their focus should be mostly on generating clients and profits for the organization they work for. Back office operation entails dedicated individuals who are equipped of the necessary knowledge to manage a trade after it was executed.
If small hedge funds are unable to tackle this function due to either financial or technological obstacles and economy of scale, then the alternative for them is to outsource this operation to middle and back office administrative company who will assume all responsibilities to resolving trade issues. A skeletal team from the hedge fund should be coordinating trades issues with the administrative office.
This Middle Office company should provide all the chronological and system support in addition to the human support. Since they are specialized in such functions, the outsource will save hedge funds money and above all the headache associated with settlements and reconciliations. one such company is Global Derivatives Operation who is highly specialized in such activities.