Principles of Quantitative Development

2.1 THE OFFICES

From a trading perspective, a bank is roughly divided into four abstract classes of business units. They are the front office (FO), the middle office (MO), the back office (BO) and the support. In any one bank or financial institution, this division may not be as clear-cut as we present it here. The division is based on a rough depiction of the trade workflow, which tends to be standardized across the industry.

The front office is where a trade originates. It then flows back and forth between the FO and MO validation, and the various monitoring and regular processing purposes. It finally gets settled in the BO. All three ‘offices’ get help from the support staff, who may also be stakeholders in the performance of the trade. This high-level structure of the bank is illustrated in Figure 2.1.

Note again that the organization in any one financial institution may only be an approximate match to the structure described here. Moreover, even in a faithful implementation of our structure, multiple business functions cut across these ‘office’ boundaries. Market risk management, for instance, may find its place both in the FO and MO, with different emphasis.