1、Transforming post-trade operations November 2022Special report1 November 20222 Trading technology Cloud and APIs begin to(slowly)permeate the post-trade space5 Thought leadership Why post-trade still needs more attention7 Back-office technology If it aint broke,break it:Back-office tech reform may b

2、enefit front-office returns9 Q&A with Broadridge Post-trade tech and the back/front office11 Regulation Europe could face settlement squeeze with T+1 proposals and CSDR fines13 Data management Banks corporate actions overhaul saves hours,but industry still seeks elusive silver bulletContents2 Tradin

3、g technology5 Thought leadership7 Back-office technology 9 Q&A with BroadridgeTrading technology2Transforming post-trade operationsF ront-office trading platforms are increasingly getting cloud make-overs.The same is true for risk systems sitting in the middle office.The next frontier for cloud evol

4、ution would logi-cally be post-trade and the back office.But the back office is an area that is notoriously underfunded and contains a hodgepodge of legacy systems that connect to myriad different applica-tionswhether thats data coming into the firm,or data moving from the front and middle offices i

5、nto the back office,and vice versa.However,as more banks and asset managers embrace the cloud and want tools delivered as a service or as a managed service,more vendors are responding to demand in the post-trade space to help customers figure out where they should focus their attention as they migra

6、te systems to the cloud.Firms could start,for example,with position management,says Danny Green,head of international post-trade at Broadridge,as this is an area where multiple systems are performing the same function.“In theory,you could deliver a general position management component,and then ulti

7、mately switch it off from all of the multiple systems,”he says.“By doing that,you get to have a global position management capability quite quickly.So instead of replacing the entire system,you start with replacing position management,but everywhere.”That way,firms can have visibility of global posi

8、tions in real time,and provide that data via application pro-gramming interfaces(APIs)from the back office to the front office.“That would be a function you could deliver as a single component,for example.That then shrinks the overall footprint of your legacy systems and gets you on that journey of

9、slowly replacing them,”Green says.James Marsden,managing director and head of post-trade business for the Asia-Pacific region at Broadridge,says its easier to put something new in the cloud than to migrate a legacy platform to the cloud.“Sometimes in a legacy platform,the code has grown over 20 or 3

10、0 years,and nobody quite knows what it does.But when you implement a new platform,or a new componentlike position management,for examplewe can implement that as a cloud-enabled component.And it doesnt have to be everything in one shot,”he says.He recommends finding areas that logically lend themselv

11、es to tools that dont have so much coding drama underneath.Green says Broadridge has been looking at transaction capture,a middle-office function,since its acqui-sition of Itiviti.If firms put a layer between the front office and all their post-trade systems by looking first at the middle office,the

12、y could improve how they send trade confirmations to clients,and how they communicate generally with clients,he says.“Weve been doing a lot of studies of that kind of front-to-back relationship,and that whole transaction-capture,middle-office piece is another good place to start,”he says.The key,Gre

13、en says,is to plan care-fully before deciding on any innovation program.“What does the future look like for you?That could include things like data,the use of APIs and other technologies such as cloud and distributed-ledger technology.Once youve got the target operating model of what you want to ach

14、ieve,now lets work with you to create a road map of how you can achieve that,”he says.The API playMany banks core systems reside in the back office,making ripping out and replacingthose systems a nightmare.Gurvinder Singh,chief executive at New York-based trading,risk,report-ing,and data management

15、solutions provider Indus Valley Partners,says that,where possible,firms should look to lift-and-shift monolithic applications from on-premises to the cloud.From there,the key is to re-architecture appli-cations and services to a microservices model so that they can more easily be transitioned,should

16、 the need arise,in the future.“The next stage after the lift-and-shift is to start carving services out that make sense,while preserving legacy monolith cores where there are no functional or performance challenges,”he says.“This is the design pattern that Cloud and APIs begin to(slowly)permeate the

17、 post-trade spaceAs financial firms turn their attention towards modernizing the back office,how they approach these projects comes under new scrutiny.By Wei-Shen Wong“When you implement a new platform,or a new componentlike position management,for examplewe can implement that as a cloud-enabled com

18、ponent.And it doesnt have to be everything in one shot.”James Marsden,BroadridgeTrading technology3 November 2022has been successfully implemented by many enterprise B2B firms,and is the way to go for all.”These systems have been built over many decades,with some still running on the Cobol programmi

19、ng language.“Theyre older,theyve got a lot of logic and nuances that are not as easily migrat-able to cloud infrastructures,”says Neelesh Prabhu,managing director of architecture and enterprise services in information technology at the Depository Trust&Clearing Corporation(DTCC).This means that firm

20、s approach these modernization efforts incrementally,so there wont be a big-bang approach to innovation in the space.Prabhu says,though,that its relatively straightforward to move systems that sit on the edge of the IT ecosystem to the cloud.“That is the web front-ends,and the systems of engagements

21、 that banks and larger financial institutions have built.Those are relatively modern as theyve been built in the last 10 to 15 years,and can be easily adapted to the cloud,”Prabhu says.This is where APIs come inprovided theyre done right.With APIs,banks are moving small processes/pieces to the cloud

22、,and in doing so,de-risking the programs in question.“On the front end,there is heavy migration.On data,there is a lot of interest and migration.And on the core systems side,there is migration,but firms are choosing to do it in a way thats mindful of the risk that moving some of these systems to the

23、 cloud may bring to them,”Prabhu says.He says APIs provide the ability for firms to connect the logic and the functional-ity provided by a particular system with other systems,but at the same time,lets the teams hide the internal details of how those functionalities are implemented.Say theres a syst

24、em built on mainframe technology.The first thing to do is build an API layer around that system to create an endpoint for all the other systems connecting to it.Once thats done,the firm can replace the internal technology with a more modern system.“Its the idea of using the API as a construct of enc

25、apsulation and the cloud to bring functionality quickly,”he says.But the key to these platform Trading technology4Transforming post-trade operationsconversions is for both the business and technology teams to work together.The design of the API needs to make sense in the business context.“As these s

26、ystems talk to each other,its not just one connectivity point,but that the structure is built with business understanding that they can stand the test of time,”Prabhu says.“The structure youre putting in place is foundational to future connectivity points which could exist or come into play.”Born fr

27、eeInnovation in the capital markets is often cyclical.Pre-2008,banks were all about building proprietary systems;after the financial crisis,because of a flood of new regulatory demands,banks cut IT staff to the bone and leaned heavily on third-party providers to lower costs and improve margins.The i

28、dea of leaning on a major public cloud provider like Amazon Web Services,Google Cloud,Microsoft Azure or IBM Cloud for key trading and data management needs was dismissed on sight.But slowly,banksand even asset managershave begun to consider cloud.New regulations led to firms having to suck in and s

29、tore increasingly larger amounts of data.At the same time,new datasets became available as,vitally,the ability to store and run compute on massive datasets became more viable as public cloud providers made these ser-vices more cost-effective and improved time to market on new tools.This gave birth t

30、o the fields of alter-native data and software-as-a-service models.More data and the availability of tools to analyze dataand,thus,find previously unforeseen correlations or areas of risk or productivity enhance-mentled to firms wanting not only more data,but context wrapped around that data.This is

31、 a major reason why firms want to modernize their post-trade processes:it provides more and better-structured data from which to derive insights,rather than leaning on creaky legacy platforms.It provides the potential to deliver alpha and reduce risk.As more vendors look to shift their legacy platfo

32、rms to the cloud,several startups have come to market looking to jump ahead of stalwart vendors because their tools are born in the cloud and utilize new data delivery systems,most notably APIs.“Cloud creates the infrastructure for allowing the automation of expensive and risky workflows,creating a

33、situation where staff can focus on areas to create value,”says Brad Bailey,head of market intelligence at broker-dealer Clear Street.“APIs are another key tool to facilitate the exchange of information.”Clear Street launched in 2018 and its mission is“to build better infrastructure to improve market

34、 access for all partici-pants.”As a startup,it has its sights set high and theres no way of knowing whether it will succeed,but if the company can figure out a way to streamline the post-trade space,that could give it a leg up on competitors that are in the process of migrating legacy systems to the

35、 cloud.“Solving the fundamental problems in the post-trade ecosystem requires a native rebuild for core problems to be addressed,”Bailey says.Then there is RQD,a company that obtained a limited clearing license in 2018.Instead of establishing presences at Equinix datacenters,it decided to go all-in

36、on the cloud.RQD uses Microsoft Azure and other Microsoft technologies,such as SQL Server and.Net.RQD COO Nicolas Louis says the company had the luxury of starting the process from scratch.“When you are a clearing firm thats been around for a long time you may have thousands of processes run-ning ag

37、ainst your on-premises systems every daywhether its a margin calcu-lation,updating a position,or building a report for Finra,those systems are working non-stop.So now,people have been saying,You need to maintain these systems,and thats expensive and hardware can fail.Lets move to the cloud,”Louis sa

38、ys.But this is where firms encounter a challenge because moving features to the cloud is easier said than done.One reason for that is they are moving it bit by bit,taking very specific pieces of their process,isolating it and moving it to the cloud while everything else runs on-premises.“So you have

39、 this hybrid setup,which sounds like a great idea,but all you did was add more points of failure,”Louis says.“For example,you may lose the connection to your cloud,and end up in a worse position,with processes running on different environments but not able to communicate with each other.”Stability,r

40、esilience and the availability of post-trade systems are hugely impor-tant.If the lights go out,it could result in duplication of transactions or settle-ment failures for which firms could be penalized.So they end up running both systems in parallel.“You have the new environment run-ning in the clou

41、d for a specific need,and you have a shadow back-up envi-ronment running on-premises that still needs to be supported,”he says.The arrival of startups like these,paired with the modernization efforts at established players like Broadridge,DTCC and Indus Valley Partners,shows that there is a shift un

42、derway when it comes to cloud and post-trade.As ever,the back office will lag behind the front office,but nevertheless,change is coming.Firms will have to consider what they aim to achieve in their mod-ernization process,and then only look at applying or using technologies such as cloud and APIs to

43、help them get there.Applying the hammer-looking-for-a-nail ideology will not fly.Previously published on “What does the future look like for you?That could include things like data,the use of APIs and other technologies such as cloud and distributed-ledger technology.Once youve got the target operat

44、ing model of what you want to achieve,now lets work with you to create a road map of how you can achieve that.”Danny Green,BroadridgeThought leadership5Transforming post-trade operationsWhy post-trade still needs more attentionAfter years of neglect,back-office processes are beginning to garner the

45、attention they deserve.However,the post-trade technology landscape remains fragmented and opportunities are being left uncaptured.By Vijay Mayadas,president,capital markets at BroadridgeM ost senior leaders will tell you that technology innovation is synonymous with competitive advan-tage.The 2022 B

46、roadridge digital transformation and next-generation technology survey of capital market executives recently confirmed this,with industry leaders reporting expec-tations of increased revenues,improved profitability and better strategic decision-making from digital transfor-mation initiatives.1 In pr

47、actice,we are witnessing firms doubling down on their technology investments in a tight race to secure these benefits and cap-ture defensible market share.At the same time,however,execu-tives recognize that the daunting pace of technological change is exacerbating practical operational and regulator

48、y challenges,putting hurdles in the way of rapid progress on the digitalization front.Furthermore,much of the value-add from innovation over the years has primarily accrued to the front and middle office,leaving back-end capa-bilities wanting.There are many reasons for this,including an early strate

49、gic focus on reimagining customer experiences,value propositions and retention that most obviously held the promise of expanding revenues and growth through greater differentiation.This is a criti-cal objective for executives faced with rising competition.These highly visible parts of the business h

50、ave also typically been perceived as offering companies“quicker wins”and“more digestible”project scopes than more ambitious plans to upgrade core technology sys-tems on the back end.Where this leaves firms todayAlthough it may seem that neglect-ing the back office has been a benign trade-off for sel

51、l-side firms over the years,this couldnt be further from the truth.Many of the post-trade technol-ogy platforms that firms have in place are not built to handle the realities and needs of todays investing community.As global buy-side trading volumes continue to rise,and asset allocations become incr

52、easingly diversified across the investment risk spectrum to include less traditional asset exposures,the inad-equacy of current systems has become more obvious to market participants.Cracks are starting to form under the pressures of rising complexity.Even if we ignore increasing asset flows into al

53、ternative investments,the magni-tude of demands placed on the sell side is clear.For example,$160.95 trillion was traded electronically in 2021 across nearly 46 billion trades,which represents a 16.9%rise in equity value traded and a 20.4%increase in volumes,according to the World Federation of Exch

54、anges.2 Statistics from the Futures Industry Association(FIA)indicate the total volume of exchange-traded derivatives worldwide in 2021 recorded a fourth consecutive year of record-setting activ-ity,jumping 33.7%from the previous year to 62.58 billion contracts.3Although these figures seem to indi-c

55、ate significant opportunities for sell-side players,they also mask brewing trouble.This has manifested in the rise of settle-ment failures during times of heightened volume,volatility and market stress.In February,the European Securities and Markets Authority(Esma)published its first Report on trend

56、s,risks and vulnerabilities for 2022,which showed that failed set-tlement instructions as a share of total value across the 30 European Economic Area countries climbed to around 14%for equities and close to 6%for govern-ment and corporate bonds at the height of Covid-19-pandemic-induced volatil-ity

57、in March 2020.4,5This compares to an average range of 510%and 24%for equites and all bonds traded between 2018 to 2020,respec-tively.6 Equity settlement failures were more frequent in 2021 than before the pandemic,and slightly above the second half of 2020 levels across other asset classes.Post-trad

58、e advantage:Simplicity amid complexityThese single-digit percentage point increases may not seem much,but the volume of transactions being settled globally each day is in the trillions.These increases are only a snapshot of the much larger challenges intensifying on the horizon,with the implementati

59、on of new regulations such as the European Unions Central Securities Depositories Regulation Settlement Discipline Regime and the decision by some mar-kets to move towards T+1.Firms unwilling to enhance their back-end capabilities for the needs of this tomorrow will face an erosion in com-petitive p

60、ositioning.Most sell-side firms continue having to manage highly frag-mented,complex technology stacks.Silos divided by by asset class and geographic region are common.Even as staff shift toward multi-asset coverage,the systems that support their activities remain sepa-rate.Many traders use differen

61、t systems Thought leadership6 November 2022to manage orders and execute trades as a result,while operational staff wrestle with multiple middle-and back-office infra-structures.This is no longer good enough.Its time for the industry to embrace the simplicity of global multi-asset post-trade solution

62、s that can empower a consolidated,automated workflow across asset classes to reduce the cost,complex-ity and risks of running multiple operations and technology silos.Advances in artificial intelligence,dis-tributed ledger and other next-generation technologies are already raising expecta-tions and

63、separating forward-thinking innovators from the rest.1.Broadridge(2022),How leaders are accelerating digital transformation,https:/bit.ly/3VRbp6D2.World Federation of Exchanges(February 2022),FY 2021 market highlights report,https:/bit.ly/3SfjdvR3.FIA(January 2022),Global futures and options trading

64、 hits another record in 2021,https:/bit.ly/3eJpuly4.Esma(2022),Esmareport on trends,risks and vulnerabilities,No.1,2022,https:/bit.ly/3F1HkLg5.Esma(2022),Esmareport on trends,risks and vulnerabilities,No.2,2022,https:/bit.ly/3gm5pCw6.Esma(September2022),Esma report on trends,risks and vulnerabilitie

65、s,No.2,2020,https:/bit.ly/3MJTYR8 Back-office technology7Transforming post-trade operationsIf it aint broke,break it:Back-office tech reform may benefit front-office returnsBetter data visibility across multiple systems could provide a driver for technological change in the world of post-trade.By We

66、i-Shen WongI f the post-trade world has a mantra,it would be,“If it aint broke,dont fix it.”If the data is flowing,trades are settling smoothly,payments are going to the right place,clients are getting the right reports and settlement notifica-tions,then dont mess with it.Dont introduce any more com

67、plexity.Dont roll out anything new that might inter-fere with processes that are running fine.Behemoth back-office infrastructures are highly fragile and sensitive to change.The“if it aint broke,dont fix it”approach may keep critical post-trade processes running smoothly,but it fosters stagnation,a

68、false sense of security,and inhibits firms ability to implement meaningful change elsewhere in their organizationsafter all,any enterprise-wide change must not only include the back office;some say it should be driven by it.“Banks and asset managers are start-ing to realize that if we can reduce our

69、 costs in the middle and back office,that could give the front-office guys some new ways to either cut costs or find additional alpha,”says Nick Gordon,chief executive and co-founder of London-based tech startup Adnitio.He says the post-trade environment has traditionally been considered a cost cent

70、er,while the front-office receives greater focus because of its status as a revenue-generator,but this is starting to change.Gordon was one of the original founders of transaction monitoring and analytics provider Velocimetrics(now known as Beeks Group).Adnitios middle-and back-office real-time trac

71、king tool is based on Velocimetrics network monitoring and packet cap-ture and analysis solutions,which were originally developed for low-latency and high-frequency trading clients.Why would latency-monitoring tools be relevant to post-trade processes?Brad Bailey,head of market intelligence at broke

72、r-dealer Clear Street,says the post-trade world is beset by barriers to data flows.“If we consider the post-trade ecosystem holistically across functions and firm types,the main choke points often stem from the same fundamental problems:poor or inaccessible data,manual processes and highly fragmente

73、d,antiquated technology.From a functional perspective,these issues create choke points around trade processing,alloca-tions,corporate actions,collateral access and movement,and settlement,”he says.And parts of the industry seem con-tent to leave things that way.In some cases,this is because of the p

74、otential cost of making changes.In others,its the sheer complexity involved in keeping all the disparate systems and processes that comprise a post-trade environ-menteverything from clearing and settlement to asset servicing,custody and reportingrunning smoothly.One reason for the fragility of these

75、 environments is that systems are often woven into many legacy upstream and downstream systems.According to a study conducted by Broadridge Financial Solutions and Firebrand Research,1 most sell-side firms have siloed infrastructures across the range of asset classes,often maintaining separate middl

76、e-and back-office operations and technologies for equities,fixed income and derivatives.“Some medium-sized organizations have,on average,nine post-trade solu-tions.Youve got organizations working in silos across asset classes and business lines,”says Danny Green,head of inter-national post-trade at

77、Broadridge.“So what happens when you want to try and increase your levels of efficiency?When you launch an initiative,youve got to impact,on average,nine different ecosys-tems.Therefore,change becomes difficult to implement,and quite expensive.”Despite the cost and complexity,firms are beginning to

78、realize that they need to innovate.For example,BNPParibas is investing in its back-office process,particularly within corporate actions,and Societe Generale is leading a consortium of banks to solve data management issues using privacy-enhancing technologies.However,thats where firms run into anothe

79、r challenge:all these innovation projects are run separately in disparate business areas,such as corporate actions,which is an area under asset servicing.Mark Wootton,regional head of local custody and clearing for Asia-Pacific at BNP Paribas,recently described the banks back-office overhaul to Wate

80、rsTechnology,highlighting how all participants play a significant part throughout the lifecycle of one corporate action event.However,while each par-ticipant involved understands their own process well,there isnt a consolidated“Part of me thinks the industry is still comfortable with the process tha

81、t has existed for 20 years.”Mark Wootton,BNP ParibasBack-office technology8 November 2022view of the challenges thateveryone else goes through in the same lifecycle.“Part of me thinks the industry is still comfortable with the process that has existed for 20 years,”Wootton says.Thats where vendors l

82、ike Adnitio could help the industry kick-start mean-ingful change:Gordon set up Adnitio to help banks have visibility of their end-to-end process across the middle and back offices by processing each data event in real time and providing users with a live,up-to-date view of traffic and activity.“The

83、 whole idea behind the company is that you can get all your business data out in real time,tracking it end-to-end with zero impact on your underlying sys-tems.What that means is you dont have to go through any change management;youre using existing applications to basi-cally stitch together the life

84、cycle of your transaction as it moves across your systems from the post-execution point,all the way through all your settlements,funding,process payments,FX,netting,and so on,”Gordon says.“Its a highly complex space,and seeing how that data moves across systems has always been the challenge.”For exa

85、mple,Adnitio provides dash-boards that can show where exactly a trade is stuck.“Say for your number one client,youve got a trade that is worth several million and its been stuck in clearing and needs to go through a manual process.Maybe you want to clear that so that they can do another trade becaus

86、e theyre waiting for that liquidity to be released.Thats where its all changing,”he says.Adnitio pre-processes and links data across various systems,collects data using messaging queue tools like Apache Kafka and IBM MQSeries,and also collects data by monitoring APIs within applications with a low i

87、mpact,which Gordon says is measured in nanoseconds,as well as from databases.“Thats when the teams are asking to confirm that theyve got the data in their system of record,so that their ana-lysts and quants can act on it.The quants are getting involved in this process to see how they can add value t

88、o the trading in the front end,”Gordon says.Beyond contributing to revenue gen-eration or cost cutting,theres another reason for firms to strengthen their post-trade processes:regulation.For example,the UKs Financial Conduct Authority(FCA)has issued its rules and guidance on requirements to strength

89、en operational resilience in the financial services sector.2 Firms have until March 31,2025,to show the FCA that their critical systems can perform within impact tolerances and that they have made the necessary investments for those systems to operate consistently.That doesnt necessarily require fir

90、ms to switch out a legacy system for a new one,but it may prompt them to better understand how data flows across existing systems,which in turn will enable them to focus any change projects where real problems already exist,ratherthan create new ones by introducing a completely new architecture.As p

91、art of that process,gaining complete visibility of systems could serve as a benchmark for firms to then implement any major change to middle-and back-office systems.Still,even regulators are having a dif-ficult time changing hearts and minds when it comes to post-trade.Gordon recalls an end-of-life

92、project he was tasked with 20 years ago.“They said it would only take a year to take this small application out of the bank.Six years later,they still couldnt take it out,because what they hadnt realized is that it had been providing data to lots of upstream and downstream process,”he says.“So,until

93、 youve got your bench-mark numbers and know exactly whats going on,youre going to struggle.”Previously published on 1.Broadridge and Firebrand Research(2021),The case for a multi-asset post-trade approach:Why the industry needs to be more joined-up across asset classes,https:/bit.ly/3s4gE552.FCA(Mar

94、ch 2021),PS21/3 Building operational resilience,https:/bit.ly/3CHg6a9Q&A with Broadridge9Transforming post-trade operationsVijay MayadasBroadridge The back office has typically been neglected in terms of funding.Is more money being pumped into the back office?Vijay Mayadas:Yes,we are seeing more foc

95、us on how to streamline the back office and modern-ise technology stacks.All of that is driven by the macro trend of low-touch trading,electronification,margin pressure and demand for new products and new markets.Theres a much stronger focus on figuring out what the next-generation back office shoul

96、d look like.The focus is on how to decommission existing legacy plat-forms to enable firms to get higher levels of scale and straight-through-processing benefits.How does the back office provide data and insights to the front office today?Vijay Mayadas:Back-office data is increasingly important to t

97、he front office because of the increas-ingly real-time nature of trading.Using back-office data to help the front office make better trading decisions and manage risk and inventory more effectively is a key area of focus.Theres a lot of variation in terms of exactly what firms are doing to surface b

98、ack-office data into the front office,but the underlying driver of constraints and opportunity is driven by the technology architecture in place.How is the back office approaching its technology transformation journey?Vijay Mayadas:Most firms were speaking with are trying to think of the back office

99、 holistically,so the entire trade life cycle front,middle and back.Whats our journey to modernise that entire technology stack?How should the back office fit into that?Its about really understanding your target state and designing that jour-ney in a series of very incremental steps with quick wins.M

100、any firms are looking to avoid the big-bang type of technology transformation.Modern technology architecture really gives you the opportunity to make this journey in a more incremental manner.In what circumstances is the back office using technologies such as cloud,APIs,microservices,AI and machine

101、learning?Vijay Mayadas:Most firms now build their new components to be What are the current specific operational challenges facing the back office?Vijay Mayadas:A complex technology footprint is the number one challenge,particularly for larger investment banks that have built up siloed technology st

102、acks over time with multiple vendors and home-grown systems.As these systems have been built and added to over time,there are different types of data ontologiesways of describing the same or similar underlying sets of data.Data fragmentation and data complexity are often the root cause as to why it

103、is so difficult to work with and transform a lot of post-trade technology.Continuous regulatory burdens are another chal-lenge.The Fundamental Review of the Trading Book is one example of the more complex regulations that impact the front office and flow throughto the back office.A fragmented silo t

104、ech-nology stack makes it more difficult to absorb that kind of change.Post-trade covers clearing and settlement,asset servicing,custody and reporting.Which specific areas within these activities have processes that are“easier”to automate,or to innovate?Vijay Mayadas:Regulatory reporting is a little

105、 easier to drive more technological change because its a fairly siloed activity.Once you can get the data from your core systems into the right format,reporting off of that data becomes easier.There is a lot of complex domain expertise and business logic deeply embedded in post-trade systems.Its a r

106、eal focus area:how you unlock that with more modular-based,microservices-based technology principles.Im seeing innovation using artificial intelligence(AI)and machine learning to predict outcomes,such as the likelihood of a trade failing.We see needle-moving projects in distributed-ledger technology

107、 and smart contracts that are creating real benefits for firms very quickly,particularly in clearing and settlement.An example of this is how we have taken a core trading and settle-ment process in the repo markets and put it on a smart contract.This simplifies the way clearance and settlement works

108、 and creates immediate savings.Robotic process automation is also becoming embedded into asset-servicing technology stacks to manage the long tail of exceptions that require a lot of manual intervention.Vijay Mayadas,president,capital markets at Broadridge,discusses the biggest challenges in the bac

109、k office and how post-trade technology is transforming the relationship between the front and back office.Post-trade tech and the back/front office Q&A with Broadridge10 November 2022cloud-ready.The cloud specifically is very beneficial if you have processes that require high spikes in computing pow

110、er,but are not necessarily con-sistent over the course of the day.The cloud brings a lot of benefits for those sorts of complex activities,such as running a Monte Carlo simula-tion for a trading strategy.Im seeing a lot more adoption of cloud for front-office technol-ogy components than in the back

111、office,but it is definitely an area weve invested in,with many of our existing components already cloud-enabled.How important is interoperability between a firms front-,middle-and back-office systems and workflows?Vijay Mayadas:Modular interoperability is very important to help firms communicate bet

112、ter between the front,middle and back office.For example,interoperability helps you introduce new asset classes more efficiently because youre essentially creating a new module for that asset class,which then plugs into your existing stack.You minimise the code changes you must make deeper into the

113、technology stack.The key is data ontology.A common data ontology that gives you the ability to create APIs is more effective.This then provides the abil-ity to enable real-time and much simpler data interfaces between the different systems.A lot of operational processes within the back office requir

114、e specialists.When performing large-scale transformation from legacy systems to new digital technologies,what methods are companies using to refocus their existing specialists to the new value-added tasks?Vijay Mayadas:Firms are refocusing talent to drive modernization of the back office,by having t

115、eams work together in squads.So,youll have someone who maybe has very deep domain expertise in some part of back-office operationsand then partner them up with someone who is a forward-thinking technologist along with someone from the business.If you can get those squads humming along nicely you can

116、 actually get the benefits of technology modernization,deep post-trade domain expertise with a real business focus to create really good outcomes.Regulation11Transforming post-trade operationsEurope could face settlement squeeze with T+1 proposals and CSDR finesMoves to shorten the settlement cycle

117、in the US could have knock-on implications for other markets,as the European Union grapples with a new penalty regime.By Josephine GallagherF or all the talk of“real-time settle-ment”,it wasnt until 2014 that Europe moved from a settlement cycle of three business days after the trade date(T+3)to(T+2

118、).And the US only fol-lowed suit in 2017.“We like to think were in a fast-paced environment but significant structural changes take time to materialize,because we work in an industry where we cant just hit the pause button and rewrite everything,”says Sachin Mohindra,executive director of global mar

119、kets and market solutions at Goldman Sachs.Mohindra has held a range of post-trade roles during his 18 years at the bank.“Its like were on a moving train and were trying to service that moving train at the same time,”he says.Now,five years later,the US markets regulator is pushing for a T+1 settleme

120、nt cycle.In February,the US Securities and Exchange Commission(SEC)published a proposal that would make amendments to existing rules for broker-dealers,investment advisers and certain clear-ing agencies,with a view to shortening the standard settlement cycle for most broker-dealer transactions from

121、T+2 to T+1.1 The comment period for these changes closed on April 11.If adopted as a concrete set of rules,T+1 settlement would come into effect in the US on March 31,2024.The SECs proposal considers a report published in late 2021 by the Depository Trust&Clearing Corporation(DTCC),the Investment Co

122、mpany Institute and the Securities Industry and Financial Markets Association(Sifma),which made recommendations to implement a T+1 settlement cycle in the US.In the proposal,the regulator quotes the adage that“time equals risk”less time between a transaction and its com-pletion reduces risk.Moving t

123、o a shorter settlement window would reduce risk in the clearing and settlement process,and increase operational efficiency across the trade lifecycle.2 The commission says that moving to T+1 was especially attrac-tive considering two recent episodes of extreme market volatilityduring the“meme stock”

124、frenzy and the Covid-19 pandemicwhich“highlighted the sig-nificance of the settlement cycle to the calculation of financial exposures and exposed potential risks to the stability of the US securities markets.”Some securities industry participants,however,say that,for T+1 to work,all jurisdictions sh

125、ould make the move at the same time.If one market moves to T+1 before others,a disjointed settle-ment framework emerges.These critics are concerned that the move to T+1 could have knock-on effects on other markets,especially considering new regulations in Europe that require investment firms to pay

126、cash penalties for settlement fail-ures.Most notable is the Settlement Discipline Regime,a central piece of the European Commissions(ECS)review of the Central Securities Depositories Regulation(CSDR),which came into force on February 1,2022.3 European investment firms trading US securities will have

127、 a shorter time frameespecially factoring in time-zone differencesto allocate and fund securities,fix settle-ment issues and comply with CSDRs new penalty rules.“This is an area that still needs a lot more thought within the US,and its a question weve posed to Sifma,various trading groups,and the DT

128、CC.Weve said Great,you have figured it all out Regulation12 November 2022in terms of which batches you need to change at the DTCC,what reports need to be updated for your local brokers,but we havent really thought enough about the international community.So,a bit more work still needs to be done the

129、re,”Mohindra tellsWatersTechnology.He says some participants might look at the move to T+1 in the US as simply losing a full business day to trade and settle a transaction.But the situation is more complex than that.In Europe,the settlement time could go from a 12-hour window down to two hours.“If y

130、ou go from 12 hours down to two,that equates to something like an 83%reduction in that post-trade processing time,”Mohindra says.“I think a lot of people dont appreciate that because everyone thinks going from T+2 to T+1 is a 50%reduction in time,but actually its an 83%reduction ahead of the settle-

131、ment date.”Non-US firms also face technical challenges if the SECs proposed rule amendments are passed.Many invest-ment firms are still dependent on legacy technologies and manual practices for managing their post-trade operations,an area that still struggles to attract much investment from business

132、es.“There is still that rump of transactions that require some level of manual process-ing.For example,your client might be a bit more technically illiterate and is still sending their trade allocations via email,which requires manual translation into your central securities depository CSD system,”s

133、ays an industry source with knowledge of the USs T+1 discussions.Adding to the possible confusion is that,while the US is home to three central securities depositories and one legal structure under the SEC,the EU manages 30 CSDs(31 if you include the UKs Euroclear)and has 27 different legal and tax

134、frameworks for each EU member state.4T+1 in the US would also affect mar-kets in Asia,says the industry source.“In Europe,we have some level of overlap with the US and Asia,but its a challenge for those in Asia who wake up and the settlement window is already closed and you have no opportunity to fi

135、x any issues,”they say.A possible solution is for counter-parties on either side of a trade to agree to pre-match trades before settlement.This would require matching instructions on either side to be ready,ensuring both counterparties have their cash and securi-ties secured and systems prepped befo

136、re the trade is settled.But this setup might not work for the buy side,Mohindra says.“Its not always the most effective process for an asset manager.You cant have everything pre-allocated and pre-agreed,because sometimes an asset manager reacts to their order being filled throughout the day and then

137、 figures out the most optimal way to allocate it.So,sometimes these things must happen in post-trade and cant always happen in pre-trade,”he says.Dj vuJohn Abel,executive director of clearance and settlement product management at the DTCC,says that,in trying to accommodate a T+1 cycle,the industry c

138、an learn from the past decades initiatives to shorten the settle-ment cycle,as well as the markets that already operate on a T+1 basis,such as US government securities.If the US adopts the proposals,he says,non-US investors will be able to choose from a variety of vendor tools to help them meet the

139、new deadlines for trade alloca-tions,confirmations and affirmations.“Most of the non-US members also employ custodians,which are very active in the US markets,and they offer their own tools and processes to help non-US investors,”he adds.One head of product at a broker-dealer says that,historically,

140、when one jurisdic-tion moves,it speeds up the process for other markets to follow suit.If the US moves,it provides impetus for EU firms to align their own systems and practices.“This has happened before,when Europe moved and then the US moved,and it helped to lay the groundwork for all the other sys

141、tem and operational changes,”says the executive.But Mohindra says industry partici-pants across the European market need to consider why settlement problems happen in the first place before T+1 can become a reality in the region.For example,why does the sell side suffer from inventory problems that

142、lead to failures?Data from the International Capital Market Association shows that a large majority of settlement fails are because the seller is unable to deliver the sold securities on time,accounting for more than 70%of all fails.5Goldman Sachs,alongside other investment firms,has asked the SEC f

143、or a two-year implementation window from when the rule is finalized to when it must be implemented.In one scenario,Mohindra says,European and Asian asset managers might have to give power of attorney to local brokers or pass on some outsourced func-tion to a third party locally in the US time zone t

144、o effect settlement processes on their behalf and prevent failures.Alternatively,if there is enough volume to warrant it,European buy-side firms might decide to set up branches in the US to be responsible for settlement decisions.But much of this is yet to be worked out.“Were asking for those two ye

145、ars from when the rule is published to allow for all these creases to be ironed out in the process,”he adds.An EC official tells WatersTechnology that,following its“extensive consultation process”on CSDR,the EC had received no comments or concerns regarding the shortening of the blocs settlement cyc

146、le from T+2 to T+1.However,the EU legislator says it is still monitoring regulatory changes occurring in other jurisdictions,including the US,to see how any changes play out.“We are following international dis-cussions on this issue closely,”the official says.“It should be noted,how-ever,that CSDR c

147、urrently mandates a maximum of T+2 and,as such,does not prevent industry to use shorter set-tlement cycles.”Previously published on 1.SEC(February 2022),Shortening the securities transaction settlement cycle,Federal Register:The Daily Journal of the United States Government,https:/bit.ly/3giWTUS2.SE

148、C(February 2022),SEC issues proposal to reduce risks in clearance and settlement,https:/bit.ly/3gksBRB3.European Securities and Markets Authority(August2020),Final report:CSDR RTS on settlement discipline postponement until 1 February 2022,https:/bit.ly/3CNDCSS4.European Central Securities Depositor

149、ies Association(2019),List of members,https:/bit.ly/3D6TgKA5.International Capital Market Assocation(February 2022),Optimising settlement efficiency:A European repo&collateral council discussion paper,https:/bit.ly/3SderPiData management13Transforming post-trade operationsBanks corporate actions ove

150、rhaul saves hours,but industry still seeks elusive silver bulletAlthough some market participants are trying to automate corporate actions internally,full straight-through processing is unattainable without end-to-end buy-in from all participants along the event lifecycle.By Wei-Shen WongC orporate

151、actions,a largely manual function,has historically struggled to gain the attention of management,or to innovate.But BNP Paribas securities services business has decided to invest in the back-office process.In doing so,the bank estimates it has shaved three to four hours off the time it took for its

152、ops team to process corporate action events per day.“Someone had to put it into a template,review it,validate it with a four-eye check and input it into the system.But all of that has now disappeared,”says Mark Wootton,regional head of local custody and clear-ing for the Asia-Pacific(Apac)region at

153、BNP Paribas.As part of its strategy to automate cor-porate actions functions,BNP Paribas has implemented the Australian Securities Exchanges real-time corporate actions straight-through processing(STP)feed.The feed,which ASX launched in June last year,is designed to deliver corporate actions event n

154、otifications to inves-tors in an accurate,comprehensive and timely manner.Prior to using the STP feed,the banks corporate actions events team had to split the work into different buckets.For instance,companies whose names began with letters A through D would be managed by one corporate actions emplo

155、yee in the ops team,while com-panies beginning with D through G would be handled by another member of the team,and so on.As part of the workflow,employees would log on to both company registry websites and the ASX site to download what is known internally as a“daily diary,”and try to contextualize a

156、nd summarize large amounts of corporate actions information.“Take BHP,for example.Its a big mining stock in Australia.If BHP announces a dividend,that will come as a 6070-page PDF and then the corporate actions team would have to read all the pages and translate that into one message that we can sen

157、d to our clients,”Wootton says.Turning that 70-page PDF into mean-ingful data that clients can decipher can be an exhaustive and time-consuming task.This was the catalyst that prompted BNP Paribas to adopt ASXs STP feed,a decision that Wootton describes as a“no-brainer”.“Its not just bringing those

158、opera-tional benefits to us,its also getting vital information to our clients in a timelier manner,”because whether a client elects to receive cash or stock can affect a companys share price at that time,and impact clients investment decisions.“The quicker we can get vital informa-tion to our client

159、s is also a competitive advantage to us,”he says.By using the ASX feed,the banks clients now receive corporate actions information four to six hours earlier than before.Wootton says many clients have welcomed this efficiency because it also means they have more time to relay the information to their

160、 own downstream customers.Innovation breeds innovationIn addition to saving time,implement-ing the ASX STP solution has enabled BNP Paribas to innovate in other parts of the corporate actions process,Wootton says.As a custodian,after sending the cor-porate actions information to clients,BNP Paribas

161、needs to collect clients instructions on the event,reconcile them,and then send that information to the relevant share registry.“Weve fully automated the cor-porate actions reconciliation process using robotic process automation,and the beauty of having a staff member that is a bot is they can work

162、around the clock,”Wootton says.BNP Paribas has built two bots that fully automate the corporate actions“The beauty of having a staff member that is a bot is they can work around the clock.”Mark Wootton,BNP ParibasData management14 November 2022reconciliation process.The banks secu-rities services ar

163、m has also developed a bot that logs into company registries and sends out automated emails on corporate action events.In one use-case,the bank has a bot that can log into the website of one of the biggest company registries and elect on events,such as a decision about dividend payouts or a merger v

164、ote.But many challenges remain,espe-cially since some registries still ask to receive corporate action event elections by fax,which is further com-plicated by the way companies present the information in inconsistent formats on paper.BNP Paribas looked at implementing a fax bot that could transpose

165、an event elec-tion into readable and non-readable fields,but rather than create a workaround,Wootton says,the industry should work to remove the problem altogether.“Weve looked at that a few times,but we would rather push the registries to not use fax,and to either use an API interface,log into thei

166、r GUI or imple-ment another more automated way of doing that.In the modern day we are not fans of fax machines,”he says.Work smarter,not harderBNP Paribas has also run an internal proof of concept(PoC)with Digital Asset,using smart contracts to automate elections on behalf of its clients.1 Clients p

167、rovide cus-todians with instructions to follow during a corporate action event:for example,in a dividend payment,the client might want certain criteria to be met before it elects to receive a cash payout,versus different criteria that would prompt it to elect a stock payout instead.By using smart co

168、ntracts,Wootton says BNP Paribas is trying to develop thresholds or“cutoffs”for when an instruction should be followed and to provide the client with a pricing feed to support their decisions.“We could use a smart contract to work out,if the price is above x,to take stock,and if the price is below x

169、 or y,to take cash,”he adds.The PoC was run from the banks Apac presence,but was based on a multi-market approach.While the smart contracts service for client elections was designed for the Apac region,accounting for synergies between the Hong Kong and Singapore markets,in addition to other local ma

170、rkets,the DAML Digital Assets smart contract language-based tech will be adjusted to meet other regional specifications around the globe and incorporate new possible use cases.“Were also thinking of the next catalog of ideas and iterations,not necessarily all for corporate actions,but also what else

171、 can that technology do in our ecosystem,”Wootton says.Data management15Transforming post-trade operationsAll custodians want to offer their clients better automation and the best cutoff timeframes possible,Wootton says.The closer BNP Paribas can bring that cutoff to the time the registry needs to p

172、rocess the corporate action election information,the better it will be for clients and consumers of corpo-rate actions data.“Whether theyre based in Paris or the US,giving clients an extra five to 10 hours still adds value so they can make decisions as late as possible.Important information in our c

173、lients hands is one benefit,but the second element of which were working on,and doing some inter-nal automation around,is streamlining our processing to leave that cut off as late as we physically can for our clients to be able to instruct on what their intention for the event is,”he says.If it aint

174、 brokeMany industry participants believe,or want to believe,that the corporate actions data process is just not that broken,says Barnaby Nelson,chief executive of Toronto-based research,benchmark-ing and sales enablement advisory firm The ValueExchange.Nelson knows BNP Paribas corporate actions firs

175、t-hand,having served as head of business development and sales for Asia at BNP Paribas between 2008 and 2014.According to a survey authored by The ValueExchange,there is a clear case for transforming the corporate actions process but many participants that took part expect savings of only 23%from au

176、tomating the processing of corporate actions data.2Nelson says that the market has evolved to the point where the cor-porate actions space isnt setting off any big alarms,and where there are no immediate“fires”to put out.He notes this has led to complacency and a lack of innovation.Many firms in the

177、 corporate actions lifecycle also strug-gle to see the gravity of the potential risks of not innovating and the ultimate benefits of any investment.Another issue the Australian market faces is despondency around whether a solution like ASXs real-time STP feed can work.Nelson says that there are stro

178、ngly divided opinions between those who have used the ASX feed and those that havent.The skeptics believe“Its not that broken,its alright,we can manage,”he says,but those that have trialed and tested it have seen a major reduction in inefficiencies.“They say it has triggered an increase of 80%in the

179、ir STP,and its letting them restructure their data models.Its weird,this general despondency around the ability to change,but when people have made the change,the size of the change is incredible,”he says.This feeling of despondency is not unique to Australia.The inefficiencies around corporate acti

180、ons processing are a global problem that has existed for more than 30 years,Nelson says,and there is no silver bullet.“Theres a lot of manual work,so its more a case of peeling away the prob-lem rather than solving it in one go.So,people must buy into the journey,”he adds.Karen Webb,senior manager f

181、or issuer services,securities and pay-ments at the ASX,says another reason why participants are more reluctant to change is the reliance on corporate actions experts.Yet,this could change if the pool of corporate action talent continues to shrink.Research from Firebrand Research suggests corporate a

182、ction specialists are leaving the space,with older specialists moving on to more exciting roles in the industry.And its becoming harder to attract younger people to fill these roles.“Many of those experts have been around for a long time and were start-ing to see attrition.Some of the work has moved

183、 offshore,and the experts are relied on only on a need-to-know basis.So,there might come a point where they market participants might be forced to make a change because of that,”Webb says.Industry buy-inAutomating corporate actions fully would also require end-to-end,industry-wide buy-in and investm

184、ent.Participantsregistries,issuers,custo-dians,brokers and their clientsmust identify the business case and the work needed to take on a straight-through process and how to build towards it.Some ASX customers are automating the corporate actions process today,says Webb,though such an implementa-tion

185、 is a long-term commitment,and the exchange needs to convince those participating of the future benefits they could reap.She adds that part of the problem is that everyone along the corporate action lifecycle understands their issues but is not necessarily look-ing at the bigger picture.BNP Paribas

186、Wootton says all participants play a significant part throughout the lifecycle of one corpo-rate actionevent.“Everyone understands intimately their own process but there hasnt yet been a consolidated view of all the players getting together and under-standing the pain points that everyone goes throu

187、gh,”he says.So while BNP Paribas can enhance its internal processes,it does not solve the overall market issue when dealing with corporate actions.“Part of me thinks that the industry is still comfortable with the process that has existed for 20 years,”Woottonsays.“There are some registries that are

188、 fur-ther advanced than others,but if one registry doesnt advance,that means youve only got 95%and not 100%of the solution.”Previously published on WatersT1.BNP Paribas(September 2020),BNP Paribas Securities Services joins forces with Digital Asset to develop DLT trade and settlement apps,https:/bit

189、.ly/3s1rSr92.The ValueExchange,Corporate actions in Australia:The case for transformation,https:/bit.ly/3VMmRQS“Many of those experts have been around for a long time and were starting to see attrition.Some of the work has moved offshore,and the experts are relied on only on a need-to-know basis.So,there might come a point where they market participants might be forced to make a change because of that.”Karen Webb,ASXGAIN COMPETITIVE EDGETHROUGHOUT THE TRADELIFE CYCLE WITH TECHNOLOGYSIMPLIFICATIONMovingForward