What is the key challenge facing the post-trade landscape in 2025?
The first thing which comes to mind is regulation. Post global financial crisis, regulators were obviously focused on the financial stability of the global banking system. Much work has been done to increase capital requirements, enhance risk management, improve liquidity, reduce leverage, and improve oversight. Regulators today are shifting more towards market resilience and infrastructure. Whilst mandatory clearing may reduce risk – and some may debate that – it does bring a host of post-trade operational efficiencies.
Shorter settlement cycles reduce overall risk and, if executed properly and automated, speed up the movement of collateral and capital. Fail penalties, like CSDR and TMPG, are blunt tools in forcing operational efficiency. With the levels of government debt exploding, the need for efficient financial markets and operational efficiency is clearly at the forefront of regulator minds, globally.
Secondly, cost awareness – highly correlated to operational efficiency is the higher cost of being inefficient. We can debate where inflation will settle, but most folks would agree that the days of 0% interest rates are not coming back anytime soon. Unsecured borrowing costs, as a result of operational inefficiency, is exponentially more expensive and global financial institutions are wrestling with this for the first time in decades.
Third is the need for scalability. As trading merges with computational ability and auto execution, the volume of trades in the global marketplace is only going one way – dramatically higher. The ability of the post-trade architecture to keep pace with this growth will be challenged. Antiquated systems and processes will be severely tested. Firms should be taking a hard look at their whole post-trade operations and taking the steps today to deal with the markets of tomorrow.
How important is data in pre-trade and across the full lifecycle of the trading process?
The importance of data and analytics for large financial institutions cannot be overstated. It’s simply crucial for those wanting to succeed and grow in the medium to long term.
To exploit hugely powerful tech like AI and blockchain, financial institutions have to collect, manipulate and analyse data across their front- to back-office, as well as across their divisional structures – within information barriers/ethical walls and regulatory requirements, of course. But it’s more than that, because this sort of efficiency, transparency and reporting capability – which we offer – is increasingly being demanded by regulators.
What’s front of mind when it comes to T+1 developments across Europe?
UK alignment with the EU and Switzerland on T+1 is unsurprising and natural, especially given the shift in North America last year. The trend is set, T+1 is going global. Next stop, T+0. However, even though vendors like us are ready for it, arguably much of the industry isn’t. The direction of travel is clear, and securities finance will follow the same evolution to real-time processes as many other sectors already have.
T+1 is also reducing counterparty risk, this makes markets more efficient and improves liquidity but comes at the cost of a raft of operational challenges. Desks can choose to build their own solutions or engage vendors like us.
In view of these three trends – increasing regulation, cost awareness and the need for scalability – enterprise data, flowing in real time across the full trade lifecycle can offer an entirely new level of operational and strategic intelligence and capability. True cost of trade, enterprise intelligence, operational efficiency, etc. Exciting!