Sibos: industry suffering from a ‘lack of collaboration’
07 October 2020 London
Image: Photographee.eu/Adobe Stock
There is a lack of collaboration and lots of different actors but if we could agree on some standards at points in the supply chain then competition could really focus on where it adds value - such as innovation and scale, according to Hannah Elson, head of global custody, Europe, Middle East and Africa (EMEA) at J.P. Morgan during the Sibos panel session on the future of post trade.
Elson explained that competition is not just about price but it is also about choice and “there is no shortage of choice”.
Looking at innovation and change over the last few years, this is all being driven by competition and although Elson says this is a good thing, she explained that “there are certain parts of what we do that only needs to be done once; it is not a competitive advantage that we have all these inefficiencies processes”.
She added: “Margins are decreasing on traditional services in post trade. The industry is also stuck between clients wanting to drive down costs and the costs of supporting volumes and processes. There are too many steps in different layers of the supply chain instead of point to point.”
Although there is a lot of innovation within the industry, clients' needs are getting more sophisticated. Panellists explained that if unnecessary layers were removed and certain areas were standardised then more money could be spent on driving forward innovation.
Nadine Chakar, head of global markets, executive vice president, management committee member, State Street, stated that competition has always been “extremely intense” to the point where pricing is being driven down.
Chakar said: “I think the buy side is witnessing the same pressures that banks have been experiencing for a long period of time. There is another element to this, however, and it is not just about cost. The industry is pivoting to solve larger solutions and without them it is going to be extremely difficult for them to compete.”
Despite being a trillion-dollar industry, securities market participants operate with narrow margins. It was noted that those active in post-trade devote 50 percent of their cost-base to non-core activities.
The panel also discussed that cost is not always a control of the firm and is sometimes driven by regulation and taxes.
Morgan Stanley’s head of global securities Michael Fiscella suggested that although the cost of investing has come down, it is far from free.
Fiscella commented: “There has been great progress in the market but there is still clearly more work to do. Internally at Morgan Stanley, we are looking holistically, front and back and targeting solutions towards areas of opportunities. It is important to make business solutions that are grounded in data and that is a never-ending journey. It is an ongoing area of focus for us.”
Also weighing in on this, Stephen Pemberton, global head of product, Banks & Broker Dealers, Securities Services at HSBC, said: “With the downward pressure on fees, the industry has to focus on costs. Looking at cost challenges, we are working with clients on costs solutions. The removal of legacy and inefficient practices not only removes inefficiencies but also removes costs.”
The panel then looked at a survey that asked the audience if their organisation was at or close to the point in which it cannot reduce its own costs any further without the collaboration of clients.
Over half, 62 percent, of those that responded said they were not at that point, while 23 percent said they were. A further 15 percent said they did not know.
Discussing the survey results, the moderator asked the panel whether the biggest obstacle is clients or counterparties. Stephan Leithner, member of the executive board of Deutsche Boerse Group and chairman of Clearstream, said data shows the importance and contribution that financial market infrastructure can make.
Leithner stated: “Our role is providing a safe and reliable framework but providing and ensuring scale. It is a very valid description of sentiment. It will require custodians to be able to agree and join market infrastructure initiatives. Our key ability and role is to provide common standards and get the buy in from many market participants.”
The panel also noted that in the past, most custodians were trying to build their way into asset management but now they are moving away from a closed architecture to an open architecture where clients can use whatever systems they want.
Chakar observed that there is a trend in building an open system, however, she pointed out that it is “easier said than done”, and a lot of money is being spent behind the scenes to “remove the ‘gunk’ behind the system” so you can go from front to back very smoothly.
“In order for it to have the impact you want then it needs to move smoothly and you need to build a good network. It did take a while to fully appreciate the fact we can't solve the world's problems on our own,” Chakar stated.
COVID-19
Some final thoughts during the panel discussion turned to the impact that the COVID-19 pandemic has had on the industry and whether or not it has accelerated progress.
Elson stated: “We are at a turning point in our industry and we cannot afford to step back. There is no reason we can't deploy many of the technologies to digitise things day in and day out.”
Similarly, Pemberton noted that the pandemic has seen the industry accelerate in a remarkable way. “It is really incumbent to embed the lessons that we have learned into our future operations. We need to review and rethink some of our operation programmes before the pandemic and make sure we incorporate all of the good lessons. But shame on us if we go back to the old ways of learning because it has been really enlightening,” he said.
Fiscella commented: “Never waste a crisis. There have been plenty of lessons learned and still being learned. Remote working is proving to be much more viable as a long term business continuity plan strategy and that won't go away post COVID-19.”
“We are all learning to use tools that allow us to collaborate more. However, I do believe that collaboration and innovation are most effective in person but there will be a balance that can be struck,” Fiscella added.
Finally, Leithner concluded: “I think the crisis helped on immediate action which is great in terms of helping on proof of resilience but in a world where people are unable to connect in person and battle things out in intense discussions, then I think that remains a challenge. Being face to face will always remain really important.”
Elson explained that competition is not just about price but it is also about choice and “there is no shortage of choice”.
Looking at innovation and change over the last few years, this is all being driven by competition and although Elson says this is a good thing, she explained that “there are certain parts of what we do that only needs to be done once; it is not a competitive advantage that we have all these inefficiencies processes”.
She added: “Margins are decreasing on traditional services in post trade. The industry is also stuck between clients wanting to drive down costs and the costs of supporting volumes and processes. There are too many steps in different layers of the supply chain instead of point to point.”
Although there is a lot of innovation within the industry, clients' needs are getting more sophisticated. Panellists explained that if unnecessary layers were removed and certain areas were standardised then more money could be spent on driving forward innovation.
Nadine Chakar, head of global markets, executive vice president, management committee member, State Street, stated that competition has always been “extremely intense” to the point where pricing is being driven down.
Chakar said: “I think the buy side is witnessing the same pressures that banks have been experiencing for a long period of time. There is another element to this, however, and it is not just about cost. The industry is pivoting to solve larger solutions and without them it is going to be extremely difficult for them to compete.”
Despite being a trillion-dollar industry, securities market participants operate with narrow margins. It was noted that those active in post-trade devote 50 percent of their cost-base to non-core activities.
The panel also discussed that cost is not always a control of the firm and is sometimes driven by regulation and taxes.
Morgan Stanley’s head of global securities Michael Fiscella suggested that although the cost of investing has come down, it is far from free.
Fiscella commented: “There has been great progress in the market but there is still clearly more work to do. Internally at Morgan Stanley, we are looking holistically, front and back and targeting solutions towards areas of opportunities. It is important to make business solutions that are grounded in data and that is a never-ending journey. It is an ongoing area of focus for us.”
Also weighing in on this, Stephen Pemberton, global head of product, Banks & Broker Dealers, Securities Services at HSBC, said: “With the downward pressure on fees, the industry has to focus on costs. Looking at cost challenges, we are working with clients on costs solutions. The removal of legacy and inefficient practices not only removes inefficiencies but also removes costs.”
The panel then looked at a survey that asked the audience if their organisation was at or close to the point in which it cannot reduce its own costs any further without the collaboration of clients.
Over half, 62 percent, of those that responded said they were not at that point, while 23 percent said they were. A further 15 percent said they did not know.
Discussing the survey results, the moderator asked the panel whether the biggest obstacle is clients or counterparties. Stephan Leithner, member of the executive board of Deutsche Boerse Group and chairman of Clearstream, said data shows the importance and contribution that financial market infrastructure can make.
Leithner stated: “Our role is providing a safe and reliable framework but providing and ensuring scale. It is a very valid description of sentiment. It will require custodians to be able to agree and join market infrastructure initiatives. Our key ability and role is to provide common standards and get the buy in from many market participants.”
The panel also noted that in the past, most custodians were trying to build their way into asset management but now they are moving away from a closed architecture to an open architecture where clients can use whatever systems they want.
Chakar observed that there is a trend in building an open system, however, she pointed out that it is “easier said than done”, and a lot of money is being spent behind the scenes to “remove the ‘gunk’ behind the system” so you can go from front to back very smoothly.
“In order for it to have the impact you want then it needs to move smoothly and you need to build a good network. It did take a while to fully appreciate the fact we can't solve the world's problems on our own,” Chakar stated.
COVID-19
Some final thoughts during the panel discussion turned to the impact that the COVID-19 pandemic has had on the industry and whether or not it has accelerated progress.
Elson stated: “We are at a turning point in our industry and we cannot afford to step back. There is no reason we can't deploy many of the technologies to digitise things day in and day out.”
Similarly, Pemberton noted that the pandemic has seen the industry accelerate in a remarkable way. “It is really incumbent to embed the lessons that we have learned into our future operations. We need to review and rethink some of our operation programmes before the pandemic and make sure we incorporate all of the good lessons. But shame on us if we go back to the old ways of learning because it has been really enlightening,” he said.
Fiscella commented: “Never waste a crisis. There have been plenty of lessons learned and still being learned. Remote working is proving to be much more viable as a long term business continuity plan strategy and that won't go away post COVID-19.”
“We are all learning to use tools that allow us to collaborate more. However, I do believe that collaboration and innovation are most effective in person but there will be a balance that can be struck,” Fiscella added.
Finally, Leithner concluded: “I think the crisis helped on immediate action which is great in terms of helping on proof of resilience but in a world where people are unable to connect in person and battle things out in intense discussions, then I think that remains a challenge. Being face to face will always remain really important.”
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