INSIGHT, IIT-BOMBAY PRESENTS : THE INTERNSHIPS LIVE BLOG

BACKGROUND

This summer, I completed an internship at a firm known as “Nomura” as part of the Change Management Team (CMT). Before I get into the details of what the CMT is and, I’d like to provide some background on the company itself. Primarily operating in Japan, Nomura is an Investment Bank that came to the global forefront after its acquisition of the European and Asian Operations of Lehman Brothers, the Investment Bank that went bankrupt in September, 2008. Lehman operated a Captive Unit in Powai, Mumbai which mainly serviced the European and Indian Front Office Operations of the Firm. Under this deal, the Powai entity was also to be taken over by Nomura. Nomura themselves had no presence in India prior to this.

To service their large, not to mention very profitable front offices, such companies set up Operations Divisions consisting of Middle and Back Offices, Finance and IT, which execute processes that are continuously running behind the scenes. Captive units opened in developing countries such as India represent a major cost arbitrage to these Firms, who can save as much as 50% by simply moving (read outsourcing) their operations here. The Powai Office itself has a strength of 2500 Full Time Employees (FTEs). Note that apart from the above mentioned support divisions, Powai also has an Investment Banking Centre, where one can find Front Office Investment Bank work outsourced, a Global Markets centre, where one can find Equity Research, Equity & Fixed Income Quants, Structuring Teams (as those mentioned by Pupun & Rohit). For that matter, these are the teams which guys from the IITs and IIMs join. Lehman also had an India Front Office in Worli mainly dealing with Indian Investment Banking and Trading/Sales. I am not aware of any person from an IIT who worked there immediately after graduation.

THE ROLE OF CMT

Now given the scale of these operations, the split of work between the Regional & India offices, the continuous new stream of work being migrated, there exists a clear business case for the CMT. Who are parts of CMT and what do they do? CMT has three sub-divisions - Transitions, Business Analytics and Quality. Transitions, deals with deciding which new processes are to be “transitioned” from the Region to the Powai Office and also seeing these through till they are performed in Powai as Business as Usual. Business Analytics assists operations with the implentation of any Process Improvement projects. Quality (which is the team I was part of), deals with understanding processes, their core & auxiliary aspects, and identifying areas of improvement. In other words, CMT is essentially an inhouse consulting group comprising of Six Sigma Master Black Belts (the highest formal educational qualification in consulting) and Business graduates (MBAs) who are substitutes for large consulting firms like Opera, Deloitte and the like. Essentially, CMT is the in-house consulting group with different functions of the Operations division as its clients. Also notice the similarity between Manufacturing Processes and Financial Processes. The entire concept of a Quality team is borrowed from the Manufacturing Industry. And, as it turns out so are most of the people. You can find ex-ITC, ex-P&G and ex-GE people working in this team after having performed similar tasks in the manufacturing sector.

What does CMT do? Due to the very scale and split of operations/IT, there exist many situations, where improvements maybe possible, either in the processes itself or in systems. CMTs role is to identify these opportunties by in-depth studies, suggest changes and lead any initiatives which are begun as a result. As it turns out, most of these projects require specialized knowledge – they cannot be done without knowledge of the process which only comes with having worked on the process first hand. As a result CMT also has to drive participation of line managers in these initiatives, without which, they cannot be done. In management lingo, this is what is known as “Project Management”. For the same reason, it is strongly advised to join a role in a quality team after one has gained some experience in the field, the requisite people skills and analytical mindset. In an ideal world, one would not need a CMT. But as it turns out, Process Managers in Operations tend to be very occupied (to say the least) in their day to day routines. In absence of strong leadership and mandates, they fail to devote time to activities such as this, to the extent that they don’t perceive value in the initiatives at all. Thus, the CMT comes into being. It tends to be a team leveraged by Senior Management to drive large scale changes in parts of the organization.

IN CONCLUSION

However, the criticisms of CMT are similar to those of consulting – lack of understanding of the practicalities of the business, theoretical improvement schemes, not practically implementable and the like. But in the right company, having the right mandates and senior management support, the work can be a great value addition.

Since Rohit has already written about most of the stuff that I am writing about, you might want to read this in conjunction with his piece.

An internship is that summer when your seniors suddenly transform from lukkha geeks into bonafide been-there-done-that studs, bursting with fundae, money, and for the lucky ones, PPOs. Case in point.

My 2 cents.

Where?

Barclays Capital, Mumbai.

How?

They came. They interviewed. And in a moment of colossal stupidity, they chose.

What?

Investment Banking, duh.

Ya, right.

Investment Banking is banking for the rich. That’s how somebody explained it to me, before the aforementioned interview, and I did not believe it. It could not be. That so many bright people led such glamorous lives of glorious debauchery doing such simple, mundane work. I cooked up several complex definitions over the last year, before coming full circle into understanding that I-Banking is indeed, banking for the rich.

• As an analogy with the regular bank people we meet, in I-Banking too, there are relationship managers, sales people and ecommerce platforms, that liaise with clients - corporates, governments, institutional investors, wealth management companies, hedge funds and other I-banks. Making gross simplifications, as with normal banks, these clients are looking to either a) Invest  money they already have or b) Get money (loans) to invest in plans they already have. What Ibanks do is try and move money from a) to b).

• As with banks, there are those people who help the sales people in suggesting a loan/product that would fit the client’s needs - the sales and structuring departments.

• And finally, actually executing the product. IPO, Bond Issuance in case of a loan (Category b). Trading in liquid markets such as equities (stocks), foreign exchange, other commodities,  in case of investment (Category a). Trading is done in the market in such a way that the clients get their required returns; The way in which it is to be traded, is decided by the structurers. The actual trading is done by, well, traders. Traders have some of the toughest and most stressful jobs in the industry. In very liquid markets, prices move very rapidly by the clock tick and trying to maintain a position, booking profits needs quick decisions, some algorithmic strategies, a good sense of the underlying economics, and common sense.

Is that all?

No. The above departments make-up the so-called front office of I-banks. As with any other bank / company, you would need an army of  people - the so called middle and back office.

• The operations guys - who actually execute all market orders, book trades, after sales/trading has given the order
• The product control guys - who check that nobody’s cheating the company
• Compliance/legal  - headmasters who ensure we are within bounds of the law
• IT - the software guys,
• Risk management - who’ll tell us whether or not we can take the risk of doing a particular deal with a particular client etc. etc.
• Research - who publish research reports for clients

Also, due to oversimplifying, I might have left out quite a few departments which do not come under broad classifications, one key example being Mergers & Acquisitions (M&A)

So, where’s the big deal?

The amount of money, and the increasing complexity of products, is mind-boggling. With clients looking for smarter ways to invest more money, Ibankers came up with ideas to create extremely complex and sometimes outrageous products. This coupled, with the fast paced deal-to-deal based style of working, as opposed to a research or process based style, has led to a projection of glamour, riches, brains (not always - as seen in the recent credit crisis) and even a sense of mystery in media and peer groups.

Where do IITians come in?

IITians’ quantitative analytical skills make them ideal for the complex structuring and other trading based jobs, especially if the products in question are exotic derivatives kind of stuff. The job could include use of stochastic modelling of stock markets to predict returns, find probabilistic future payoffs for a product bought now, and models to calculate the fair price of a product. Or analysing data and using models and extrapolation to come up with research reports. Or building algorithmic trading strategies.

I worked in the Equity Derivatives Group as a structurer. My main project was to analyse feasibility and pricing a class of options (a type of derivative) called cliquet options using 2 mathematical models and suggest changes to adapt them to NIFTY. Cliquet options are  not sold in India currently. At the end of the project, I was to suggest a model to use to price and sell cliquet options on NIFTY in India. I had to make sure that the price wasn’t too conservative (too high), making it unsaleable or too competitive (too low). I used models used in Korean and UK markets and used a sort of trial and error method to come up with modifications. To test them, I applied the models to NIFTY historic data to come up with a safe fair price.

Lessons from the experience?

A lot. In terms of soft skills, life-lessons, this internship went a long way. If I had to enlist -

Professionalism - The foremost quality that any intern working in a decent professional environment would talk about. Keeping deadlines, working steadily and smartly instead of last minute night outs, rolling out complete usable-saleable deliverables, as opposed to half baked projects we do in IIT. A simulation of real-life corporate pressure if you are not delivering. Professional conduct and communication.

A lot about finance.

And the 2 most important tools in similar firms - Microsoft Excel and Microsoft Powerpoint.

Barclays as an experience?

Great. Barclays has in the past recruited for the Singapore IT office. Given that both of us were not very enthusiastic about the IT profile, we were lucky to be placed in a front office position.

There was a lot of time and money invested into our learning - there’s a two day training in investment banking from a reputed educational firm in the field in Singapore. A flat hierarchy meant that we got to interact with everybody upto Managing Directors, who not only gave a great bird’s eye view of the economy but also acted as guides in choosing career paths. The projects are actual products they are looking to sell and were great learning opportunities to understand the field and also know the state of the market. It was overwhelming to understand how such a huge globally spread behemoth works. For our projects, we could be talking to anybody from New York to Hong Kong to Tokyo on different days. Everybody is willing to take time out to help an intern.The best part, for me, was the people that we interacted with - some of the smartest, talented and most humble people who treated us with a lot of respect.

And it pays well.

Buzz Rohit, if you have any doubts. Apparently he is entertaining questions.