Firms who innovate together win-ovate together
20 July 2016
Post-trade is still riddled with manual processes, inefficiencies and risk, but firms need to work together to become more streamlined and technology-savvy, according to John O’Hara, CEO of Taskize
Image: Shutterstock
A number of processes in the custody industry remain highly manual, and imbued with cost overheads and chronic inefficiencies, and this needs to be rectified in the immediate term. Nowhere is this more evident than in the post-trade space, where manual interventions around corporate actions, trade settlement, clearing and reconciliations continue to dominate. This breeds more inefficiencies and risks, which can potentially harm end clients.
Achieving standardisation and moving towards a straight-through processing (STP) environment in these manual processes must be achieved throughout the custody chain. There are multiple counterparties involved in the post-trade space including global custodians, sub-custodians, central securities depositories and central counterparty clearinghouses, none of which have standardised processes.
It is critical that these organisations collaborate and implement STP, so as to create efficiencies and realise automation, and potential cost-savings. This will be a costly process and will require a considerable amount of work to be done, but the long-term benefits of collaborating now—rather than waiting—will be enormous. Streamlining costs—be it through outsourcing, offshoring or the induction of STP into post-trade areas—should be a focus for financial institutions.
Technological disruption through innovations such as blockchain will not become the business standard overnight, but over several years. Creating efficiencies today can enable a more orderly implementation of blockchain across the post-trade space. Standardisation can take a long time, so it is crucial the industry works now towards achieving a degree of uniformity in post-trade.
Any solution must be implemented incrementally and thoughtfully, with minimal disruption to legacy systems and processes. It is crucial that any standardisation be done with due consideration to existing technology and implemented in a way that does not require continual system rebuilds as technology evolves.
Blockchain has the potential to disrupt a number of segments across the custody chain including asset servicing, corporate actions, reconciliations, clearing and settlement. A number of issues around firms’ existing technologies, not to mention blockchain and its usage, must be resolved if its potential is to become reality.
Blockchain must also make advancements of its own, including further standardisation. Efforts are being made to enact a joined-up approach towards blockchain through the R3 Consortium, while the industry and regulators are in discussions about how distributed ledger technology can be leveraged, as well as its possible systemic risks.
The potential of blockchain could be significant and there is a strong possibility it may disintermediate large components of the post-trade space and bring numerous advantages to these antiquated processes. However, this success will only happen if firms work together towards standardising the current post-trade environment and improving existing technology.
Achieving standardisation and moving towards a straight-through processing (STP) environment in these manual processes must be achieved throughout the custody chain. There are multiple counterparties involved in the post-trade space including global custodians, sub-custodians, central securities depositories and central counterparty clearinghouses, none of which have standardised processes.
It is critical that these organisations collaborate and implement STP, so as to create efficiencies and realise automation, and potential cost-savings. This will be a costly process and will require a considerable amount of work to be done, but the long-term benefits of collaborating now—rather than waiting—will be enormous. Streamlining costs—be it through outsourcing, offshoring or the induction of STP into post-trade areas—should be a focus for financial institutions.
Technological disruption through innovations such as blockchain will not become the business standard overnight, but over several years. Creating efficiencies today can enable a more orderly implementation of blockchain across the post-trade space. Standardisation can take a long time, so it is crucial the industry works now towards achieving a degree of uniformity in post-trade.
Any solution must be implemented incrementally and thoughtfully, with minimal disruption to legacy systems and processes. It is crucial that any standardisation be done with due consideration to existing technology and implemented in a way that does not require continual system rebuilds as technology evolves.
Blockchain has the potential to disrupt a number of segments across the custody chain including asset servicing, corporate actions, reconciliations, clearing and settlement. A number of issues around firms’ existing technologies, not to mention blockchain and its usage, must be resolved if its potential is to become reality.
Blockchain must also make advancements of its own, including further standardisation. Efforts are being made to enact a joined-up approach towards blockchain through the R3 Consortium, while the industry and regulators are in discussions about how distributed ledger technology can be leveraged, as well as its possible systemic risks.
The potential of blockchain could be significant and there is a strong possibility it may disintermediate large components of the post-trade space and bring numerous advantages to these antiquated processes. However, this success will only happen if firms work together towards standardising the current post-trade environment and improving existing technology.
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