How are you promoting new post-trade business workflows that improve efficiency and reduce costs? And can you tell me more about these workflows?
This is an amalgamation of two things that are the most important here. There’s an ongoing need to provide education and evangelisation of the capability of the workflows that we define as a standard that the industry can understand and follow. We also want to ensure at the detail level that these standards meet people’s expectations and that we can answer their questions accordingly. This includes particular nuances of the workflow across multiple asset classes.
One of the primary responsibilities we have is to make sure we are looking outwards to the industry, educating the people that we meet. That’s part of the role that I have.
As in any industry, and especially those involved in marketing, it’s about generating momentum and seeking the adoption of the product that you’re trying to promote. We have to keep doing that to make sure these things are understood—while we’re defining the standards in their own right.
What trends are you currently seeing in post-trade right now?
We’ve seen the adoption of post-trade workflow using FIX within the securities world of equities and fixed income as asset classes. The road to success and the continued adoption we see has spurred on further aspects of post-trade operations that could equally benefit from a FIX standardisation.
Moving away from regular cash securities, we’re looking at cleared products like exchange-traded derivatives, which is a great example where the industry is benefitting hugely from the FIX-defined workflows and is rapidly gaining adoption.
The next asset class focus for the FIX post-trade group is FX, and the work is going on now to define the standards required by the industry practitioners to adopt a workable working practice. We are now also putting a working group together to start a similar deep-dive into the requirements for repo, which is essential for borrowing money and leverage for assets.
These are increasingly important areas, especially in the context of regulation. These regulations aim to make sure people have the correct and appropriate levels of collateral, ensuring the stability of the financial system as a whole. That’s a real challenge for asset managers where operation processes need to be improved.
Our work is very important in this context because it allows new systems and processes to be implemented based on an industry standard that is adopted by many participants. We are also seeing more movement into the back-office, in particular, the settlement process because you have other parties involved in this workflow. With custodians and clearers, there’s an increased push to include the back office participants as a whole.
If a large organisation makes a significant investment in the technology that uses FIX as its standard for workflow and messages, it’s natural for firms to want to use it more and leverage their investment in technology. And so they’ll look further through the business operation chain to seek new areas where that’s utilised, whether its technology, IT skills, reports, resources, support, service or maintenance. Successful firms will want to use it more both within the buy-side and sell-side.
What are the biggest demands/concerns you are hearing from your committees, subcommittees and working groups right now? How have you met these concerns and addressed these issues?
The post-trade group has a big membership, and this provides us with multiple threads of activity. So providing focus and momentum around each thread, and maintaining that through the inevitable detail required to produce a workable solution takes time. So the hardest part is the time it takes to get it right.
Part of the continuing focus for our members is the ongoing need to provide your client with the best possible service. Areas within a post-trade environment where you can achieve a better client service through automation, or at least the ‘electronification’ of a process, are something seen very positively. Getting the standards defined is the stepping stone to members starting their internal projects, so we are on the critical path.
At the start of 2018, FIX Trading Community created guidelines to help firms meet cybersecurity requirements. How much of a threat does cyber-crime have on post-trade services?
Post-trade is no different to any other area in the industry, this is also true for an organisation like Fidessa and of course, we see cyber-attacks as a real threat. We also recognise that the transmission of data between counterparties is fundamental. You have to be aware of why you traded, how you traded and where you traded and how much you paid for it, thousands of times a day.
All those different post-trade participants have got to communicate. It’s not about putting data in a safe, locking it up and throwing the key away, you have to maintain security on a communication level as well.
All of our members will have their own security policy that covers the implementation of workflows that will use FIX, and we maintain a close dialogue across different groups in the FIX community to provide the best opportunity to provide secure systems, services and communication.
How competitive is the technology space around post-trade?
It’s increasingly competitive. The spotlight has been shining brightly on the operational side for many years now. A decade and more ago, many firms just focused on revenue in the front office. The way to earn more money was to gather more clients and more revenue.
Now with extra pressure from regulators, coupled with shrinking margins, the operation departments have had to focus on their efficiency and accuracy.
People have had to take a fresh look at the operational side of the business and how much it costs to run those particular operational processes, and where workflows can be improved with new technology. They’ve also had to look for areas where significant savings can be met. It all feeds back into the profitability of the business and the capability of that business to remain competitive.
This brings to the fore the question, “why is post-trade of more interest now?”. It’s because people now seek efficiency, automation error reduction and aim to improve client service at a post-trade level in a way people never really considered 10 years ago.
Where do you see the future of securities finance heading with so much talk around AI, robotics and blockchain?
We are in a technology evolution in machine learning, robotics and AI across the full spectrum of services that a broker or asset manager provides, and this applies to the post-trade space all the way through to clearing and settlement. Increasingly, there are exciting technologies now available that you just didn’t have even five years ago including technologies, computing power and memory data. But now, it’s starting to take a really interesting shape.
Blockchain is something that I’m less convinced about. I’m not convinced it has a problem to solve. It creates problems that people in the industry have been trying to get away from.
Data has got to be accessible and you’ve got to be able to use it, and a blockchain application will have to integrate into the existing ecosystem of a bank or broker. This poses significant challenges to firms that don’t want to fund big IT integration projects in order to implement a new system or service.
The chatbot is where people are looking at improving client service and operational efficiency, where you’ve got machines opposite each other, talking to each other. That could genuinely solve problems and issues in the workflow. I think we’ll see that ongoing trend and it will have a very positive impact on the way people manage their post-trade operation and more so when the data is electronically processed.
What’s next for FIX? How is 2019 looking?
Repo, FX and other asset classes including the settlement process are our main focus points, looking forward.
In 2019, I think we’ll make good progress in other asset classes and we’ll continue down this track and will see the evolution in that space over the next 12 to 18 months—moving forward with advanced projects within the machine learning space. AST
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