What are the current trends in the post-trade industry?
Many companies are facing various changes in their business. The COVID-19 pandemic triggered an economic slowdown which has directly affected company profits, as well as causing an increase in online communications and new deployment of digital technology. As a result, we are seeing a dramatic increase in cyber risks and higher requirements to system capacity, availability and resilience. At the same time, compliance with stricter regulatory obligations will require significant resources and give rise to demand for transparency of financial institutions.
One of the main global trends is disintermediation, meaning that the existing service model is transitioning from a wholesale model to a flat retail model. This trend is being promoted by regulators and is also being stimulated by new digital technologies that enhance direct connections between end investors, including retail ones, and settlement organisations in the securities market, such as central securities depositories (CSDs).
Another trend includes the transformation of business models for companies that operate in post-trade sectors, in particular CSDs which are moving from mono-line services, such as safekeeping and settlements, to multi-services based on their core competencies. This involves building open platforms that may be integrated with clients’ and counterparts’ systems as well as with other platforms.
Again, one of the drivers of such transformation is new digital technologies and changes in consumer behaviour, especially Y and Z generations. Their ‘click-done’ consumption model requires the appropriate technological solutions in the post-trade industry. That is why we actively participate in searching for and developing solutions in the busines to busines to consumer segment. We have already acquired a wide base of knowledge and skills, for example, in blockchain, robotisation, and application programming interfaces (APIs).
Against the backdrop of the COVID-19 situation, digital services have become more popular. All over the world, companies are switching to online activities and reducing the number of personal meetings. In these circumstances, remote voting is a safe way to join a meeting as compared with personal attendance or ballot delivery by mail. NSD offers an e-voting service which has already shown itself to be a convenient and reliable way on the Russian market for an issuer to convene a meeting of shareholders and let shareholders vote on agenda items from anywhere in the world. Participants can also view the meeting’s agenda and materials, follow the meeting online, and connect the issuer. E-voting lets shareholders continue to have an influence on their company’s operations, and issuers will be able to observe shareholders’ interests. We have seen a significant increase in the number of shareholders using the e-voting service, with the number of users more than doubling since 2019.
What are the biggest opportunities for the post-trade industry?
CSDs have quite a unique market position, as they are rather neutral with regard to market players’ conflicts of interests, and regulators trust them. Due to this, we think that CSDs can be market-wide platform solution providers. Offering multiple services through a CSD’s universal platform contributes to cost reduction across the market thanks to the use of common formats and standard communication channels, as well as the possibility for platform users to re-use the platform functionality and, thus, save on back-office costs. While it would be possible to optimise costs of CSD clients owing thanks to the outsourcing of services offered by its platforms, CSD clients could compete with each other in quality of their services — this is the area where a CSD, a traditionally operational entity with a standardised set of services that cannot be customised, generally lose out to its clients.
Are you seeing a lot of new partnerships form? And how is this benefitting the industry?
Partnerships in different variations create new opportunities for different parties, including market players, associations, countries and, of course, customers. Firstly, I would mention our cooperation with foreign institutional clients which increases the investment attractiveness of the Russian market and makes investments in Russian assets accessible and safe. As soon as the Russian legislation on the securities market allowed foreign custodians to have direct accounts with the Russian CSD and set out the universal terms for international financial infrastructure participants to gain access to the Russian market, we witnessed a significant interest towards the new opportunities. Last year, Raiffeisen Bank International (Vienna) established the direct link with NSD and became the first foreign custodian bank to offer its clients direct access to the Russian securities market. As a result, the bank’s clients got an opportunity to have fast and risk-free access to a wide range of Russian financial instruments.
NSD has been a part of the international securities settlement network since early 2000. Our cooperation with foreign securities market infrastructures provides new attractive investment opportunities for Russian investors. Nowadays foreign securities represent a substantial part of NSD’s assets under custody, and investors’ appetite for new international instruments keep growing; therefore, the development of our network remains one of our priorities.
Cooperation within the framework of international industry associations helps to develop connections, share knowledge and convert this into business opportunities. Speaking of international partnerships, I would mention our work within the Association of Eurasian Central Securities Depositories and the World Forum of CSDs.
Another very important point here is the technological partnership, which creates new opportunities for our customers. This year NSD became a Service Bureau of the Financial Messaging System of the Bank of Russia, which offers the advantage of reducing client costs as well as the opportunity to enhance the existing financial market messaging infrastructure. Russia’s small- and mid-sized banks, as well as banks of the Eurasian Economic Community, and Russian corporations will be interested in using the services that a service bureau provides. NSD suggests that companies use SPFS via its independent IT platform, enabling participants to interact quickly and safely.
Finally, I would like to add that we see a growing demand for safekeeping and settlement services for tokenised securities and pay special attention to this market. NSD maintains partnerships with securities industry associations and fintech companies as a means of gaining expertise necessary to establish a digital platform that performs functions of issuing, safekeeping, settling, and servicing tokenised assets based on the distributed ledger technology. I am convinced that our efforts will bring tangible results for the whole market in the near future.
What challenges are you experiencing/hearing from clients?
The market needs a new, successful customer experience involving convenience, maximum effectiveness, and small costs. As the mainstay of the market infrastructure, we see the growing demand for services that help reduce costs, while ensuring cybersecurity and being technologically advanced. We see the demand from the market for the expansion of serviced assets, for example, structured bonds, and the demand for reliable market information. But the most important thing for our clients is the combination of the stability of our core business and technological innovation. Now, as never before, our independent platform plays a crucial role in allowing companies to outsource some of their services to us as a reliable partner.
Understanding the need to promptly respond to clients’ requests and needs, we also continue playing the role of an experience-sharing platform and providing advice to market participants. This would shape the landscape of the future, and we are proponents of its sustainable development.
With greater use of technology and data comes greater concerns for privacy and security. Cybersecurity is now a top priority and we at NSD spend a substantial part of the IT budget on this, as well as banks and the financial industry in general.
How is NSD operating in the ‘new normal’? What changes have you seen and how are firms adapting?
The current situation is, no doubt, a challenge to businesses across the globe. The wellbeing of our clients and employees is a top priority for us. In March 2020, when the COVID-19 pandemic increased, NSD invoked its business continuity plan, and more than 90 percent of our employees were sent to work from home. The requirements for information security, data protection, and uninterrupted client support have become more stringent than ever. The ability to seamlessly transit to remote work in extreme conditions is an indicator of the company’s digitalisation.
This experience made us think about changing our usual approach to organising office space and working remotely. Thanks to this, we anticipate that our company will become more flexible, and more mobile. Meanwhile, the work-from-home regime has not been an obstacle to our growth.
How do you think the post-trade industry will change over the next 12 months?
I am afraid some players will have to leave the market, while many others will struggle due to the slowing economy. Infrastructure will have to evolve to be able to build and provide technologically advanced, albeit affordable, open solutions for the entire market while remaining cyber resilient and operationally reliable. Market players will seek to offer multiple products to meet demand from specific consumer categories, and the infrastructure will be adjusting accordingly.
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