Global post-trade services sales could grow by around 50% by 2018 compared to 2012, but will be driven by market performance, a report from consultancy Celent charting the evolution of the global settlement industry for cash products over the next five years, has predicted.
In a bull market scenario, Celent predicts the post trade services for the US market could grow by 50%, but pitted likely growth at 17%. For Europe, the bull scenario suggests a possible 64% growth rate, but expected growth will match that of the US, while Asia promises the most significant growth, currently tipped at 45% in 2018 over 2012 figures, the report states.
While growth of post-trade service consumption will correlate with market performance, the industry as a whole will be marked by the on-going concentration of post-trade providers. A wave of post-crisis regulation affecting central securities depositories (CSDs) alongside the implementation of Target2-Securities will have the biggest impact on the number of players in the market.
“Driven by these changes, some global custodians could decide to create their own CSD,” the report read. “We expect significant consolidation among local subcustodians, and the market will ultimately be left with a few regional players and some niche players in local markets.”
For asset managers and broker dealers, however, recent regulations such as the Volcker Rule and similar proposals put forward in the Liikanen report to ring-fence proprietary trading will result in a drop of concentration, the report states. These changes, together with requirements under Basel III that limit banks’ ability to hold a deep inventory of fixed income products will see a number of new entrants in the market as larger firms continue to spin off trading desks.
“The myriad drivers of settlement volume that we have analysed make foresee significant consolidation along the entire trading value chain, from exchanges to local subcustodians, with broker-dealers also being impacted,” said Josephine de Chazournes, senior analyst with Celent’s securities and investments group, who co-authored the report with Arin Ray.
“These developments will mean smaller players will need to consider strategies for survival, while larger players will need to explore opportunities to gain market share in businesses that are increasingly based on scale,” she said.
Celent predicts the post-trade environment will also be marked increasingly by a shift to big data and the adoption of new SWIFT messaging standard ISO20022.