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Why the industry needs to be more joined-up across asset classes
The case for a multi-asset approach
to post-trade processing
GLOBAL MARKET STUDY
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%
86
of sell-side firms have silos for processing their instruments by asset class and geography according to a global market survey conducted by capital markets research specialist, Firebrand Research.
86
%
86
%
The operational structure of a firm tends to reflect its organic and inorganic growth over time. If, for example, a firm started life focused on servicing the requirements of a specific set of clients or market sector and then was later acquired by a larger firm primarily focused on other areas, technology silos are likely to have persisted post-acquisition. Technology debt in the post-trade realm has also built up over time for many large and medium-sized firms as they have built on top of their legacy platforms to meet changing regulatory or client requirements. Post-trade system replacements have often been deferred in favour of build-outs for a variety of reasons including concern about high costs and project risk.
Firms are struggling with silos
System testing by operations staff and others
Internal IT staff time and
effort to support various technology platforms
Data mapping and reconciliation for client and regulatory reporting
Resources required
for upgrades
Training staff to use the new features across multiple platforms
Annual license costs
Costs considerations for a multi-asset system investment
Cost reduction
Compliance-related objectives
Operational risk
reduction
Business expansion
and support
Consolidation of vendor relationships and better oversight
Business-wide position management
Scalability
The ability to focus
on transformation
Cost Reduction:
This could be tied to decommissioning existing silo-based systems and transforming to a strategicmulti-asset solution, and/or in consolidating or redirecting operational and support resources by eliminatingduplicative and manual processes.
Compliance-related objectives:
There are many different regulations that could be aided by a consolidated view ofclients, data and a more harmonised approach to asset class processing. Consistency of systems and controls is alsoa huge part of the ongoing regulatory focus on operational resilience. Compliance risk is much lower when there isgreater transparency of processes across the whole firm.
Operational risk reduction:
Risk reduction might be a difficult metric to judge if firms don’t have a good handle ontheir operational risk dynamics and core business management metrics, but it is an important benefit of investment ina more consolidated approach to post-trade. Teams are better able to focus on managing exceptions centrally acrossbusiness lines, automating as many processes as possible, and centralising their risk management framework acrossasset types.
Business expansion and support:
Deploying a streamlined and unified technology platform that can support multipleasset types and that has a modern, more flexible architecture allows firms to scale up their capabilities to meet therequirements of new markets and new asset classes.
Consolidation of relationships and better oversight:
Third party provider oversight has increased in industryimportance over recent years, so there is a solid business case for a strategic vendor relationship covering all assettypes that plays into operational risk reduction, cost reduction, and increased governance and accountability. Costsare much more predictable year-on-year with a more consolidated approach to vendor relationship management.
Business-wide position management:
Collateral management, financing and margining activities across assetclasses are much easier with a consolidated view of holdings and positions. Firms can also garner a better view of riskexposures across positions and therefore become more proactive in their management of those risks.
Scalability:
As recent volatility has highlighted, some firms have been challenged to scale to meet marketrequirements and volume spikes—a more consolidated approach enables firms to scale-up in the required areas whenneeded by reducing duplicative processes and eliminating system redundancy.
The ability to focus on transformation:
The efficiencies gained by consolidating andindustrialising post-trade processes means firms can redirect staff and investment resources toward developing newcapabilities and digitally transforming other areas of the business.
A business case for investment in a multi-asset class approach to post-trade can be built using the following aspects
