Is a waiting game a smart approach for post-trade service efficiency?
It’s often been said that the financial services industry is evolutionary rather than revolutionary, and in some instances this may have proved to be a safe bet. The industry is littered with systems that have grown out of cottage industry and ‘fitting square pegs into round hole, writes Paul Taylor, director global matching, Swift.
However, we are in a world that has truly embraced technology, and are now able to measure the processing of data in nano-seconds. Investors and the trading community have a huge amount of data and information at their disposal. Organisations have access to a wide range of products that could appeal to their demanding client base and the emphasis is on offering sophisticated and attractive investment products, many with a short shelf life and completing deals quickly. It is also expected that the liquidity or collateral involved in these deals is maximised 24×7, not frozen by hold-ups with post-trade processing for example. Moving, as we are, towards T+2 (spare a thought for nano-second trading), there is further emphasis on the need for process automation from front to back office, with full straight-through-processing. Without streamlined, fully automated processes in place, organisations are in danger of causing a magnificent and expensive disaster.
We really cannot and do not want to slow down the momentum of the financial services sector in these challenging economic times. An efficient, regulated and dynamic financial services system is the essence of a thriving economy. With such a vast amount of information at our fingertips and some very clever technologies that are fuelling the demand for flexible and speedy trading of securities both nationally and internationally, it seems we are now perfectly poised to reconsider current operational models in light of the changes that regulation and the need for business growth are placing upon us.
Why now? Due to a combination of moves towards a T+2 settlement cycle and the demand for further regulatory control over central securities depositories (CSDs). Yes, there has been quite a bit of discussion about the pros and cons, but the reality is that we have to harmonise settlement periods across the industry and we do need these regulatory controls. Whilst some alarm bells are raised about the amount of red tape that will ensue, the reality is that there are technologies available today that can ready the post-trade activities and take away a lot of the headaches associated with implementing T+2 and embracing regulatory changes today and into the future.
At the recent Swift Business Forum London, the session on cost effective post-trade processing attracted a “standing room only” crowd and the topic was vigorously discussed and debated. The challenges of costly failed trades and the need to increase operational efficiency while streamlining post-trade processing is very real and pressing. Investment will be required from front through to back office in order that timely and successful matching and the settlement of trades can be a reality within a framework of continual regulatory change.
While there are a number of variables to contend with, such as on-exchange versus off-exchange or whether the match should take place in the front or middle office, the reality is business continues to be done and efficient post-trade processing is required today.
There is a choice of solutions available but there are a few key questions that need to be addressed by post-trade operations executives on the buy-side. “Sitting on the fence” is stifling the sell-side’s ability to invest in the appropriate technologies and streamline their businesses.
Can the buy-side community continue to sit on the fence? Yes they can, but it will be at a cost and the longer the delay the greater the risk. Regulation and indeed change of any nature is a fact of doing business. It should be embraced, the investment to automate necessary processes as much as possible identified and committed, so the changes required can become part of the natural order of growing the business.
Is there really a technology solution today that has the flexibility and scalability to justify investment now? Will it be robust and serve the future needs of the buy-side? Yes, such a solution is available and indeed in production with some of the industry leaders today.
Who is best placed to provide this solution and what are their credentials in our industry and indeed worldwide? Does it need to be part led also by the sell side? It has to be an organisation that has a global presence, a wealth and depth of experience in the financial services industry, and a track record of providing secure and reliable solutions based on industry standards. Choose an organisation that is also in constant dialogue with the entire community involved in the securities industry.
And then the final question really is, why not investigate your options now? Be the organisation that is prepared to meet the challenges of reduced settlement cycles and regulatory demands? Others are already enjoying the benefits of making the move. Avoid wasting even more money on expensive failed trades and seriously inefficient processes and invest wisely in your post-trade services environment.
When an organisation is paralysed by indecision, it is really saying no to growth. There is much to be gained by accepting that change is inevitable and regulatory requirements will always be an issue. However, ensuring that your business is fit for purpose and empowering the people who drive growth and customer satisfaction with efficient, streamlined trade processing technologies across the organisation will ensure that the assets of the business are fully utilised and the organisation can grow and prosper.