Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Back Office

What it is:

In the finance world, a back office processes the day-to-day paperwork and record-keeping associated with trades, confirmations, settlements and other financial transactions.

How it works (Example):

For example, let’s assume you visit your broker in her office at 123 Main Street in Anytown, USA. You chat for a while, then give her instructions to execute three trades in your portfolio.

Your broker executes the trades, and although she does handle some paperwork regarding the trades, the broker’s back office creates and processes most of that paperwork, including the confirmation statements, account records, clearinghouse matters, and proofs of settlement. The back office might also do the accounting for the broker’s team, deal with legal matters as they arise, and communicate with regulators on compliance issues. This back office does not necessarily share the same location with your broker; a back office can be virtually anywhere.

Why it Matters:

It’s easy to say that the back office is simply “administrative support” for “the people that matter,” but the truth is back offices are massive, crucial, often-unseen and usually unappreciated segments of the financial services industry. In many ways, they are the sausage factory that does the day-to-day work of the industry; without back offices, the financial industry would not work. Back offices are also responsible for managing the regulatory compliance related to trade execution and account records.

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