Why STP efforts in post-trade need to go multi-lateral
Sponsored Content: Standard Chartered
Only by aligning all players along the custody value chain in a multi-lateral effort, will we be able to make STP a reality
Image: Standard Chartered
The term straight-through processing (STP) – electronically processing a deal from execution to settlement without manual intervention – became an industry focus for securities trading back in the 1980s. One could argue that it is either a sign of true perseverance or delusion that the financial services industry is still pursuing it thirty years later. In our opinion, it’s the former.
The fact that we are still tackling inefficiencies has more to do with complex, fragmented processes, lack of synchronised steps, lack of transparency across the securities services value chain, too many platforms and the creation of ‘digital islands’ than it has with delusion or chasing the Holy Grail. So how does the way forward look like?
A multi-lateral effort to reduce risks and costs associated with trade processing
Standard Chartered feels strongly that only by aligning all players along the custody value chain in a multi-lateral effort, will we be able to make STP a reality. That’s why in September 2020, leading up to Sibos, the bank brought together practitioners from asset owners, asset managers, broker/dealers, market infrastructure providers, custodians and banks from across the globe in a series of virtual industry think-tanks. The goal of the discussion was clear: commitment to concrete multi-lateral actions that would address the intermediation lag in the custody chain once and for all.
Here an overview of the common pain points identified, as well as actions outlined.
1. Agreement on common sets of data, leading to a single book of records and distributed ledger technology
The ability to leverage and analyse data in real-time and make the most of the insights gained to better manage operations continues to be a major issue for all participants. Since there are so many parties involved in processing a trade, all maintaining their individual books of record and performing their individual trade reconciliations, what is most blatantly missing is ‘one version of the truth’ which would make reconciliation efforts much more efficient.
“Fragmented data conversations, too many intermediaries, all moving data around in unstandardised ways, continues to be a huge issue and increases risks and costs in trade processing”, commented Ryan Cuthbertson, managing director of product management, securities services at Standard Chartered. “We need to tap into new technologies that, unlike traditional databases, can provide a single source of agreed truth which is available in real time and with a focus on being value accretive to all market participants.”
The think tank group agreed that leveraging distributed ledger technology would reduce duplication across layers and allow the industry to move one giant step closer to the creation of a single book of records. The pressing question that still needs to be answered is whether the industry – and regulators in different jurisdictions – will be comfortable with the idea of creating a consensus validated and maintained book of records.
Think tank participants agreed that this topic represented the perfect opportunity to kick off a multi-lateral exploration levering new technologies, focused on improving the efficiency of trade flows.
Technologies such as artificial intelligence (AI) and machine learning are enabling many organisations to leverage vast amounts of data already, allowing operations professionals to identify potential trade errors earlier in the process and address them. The challenge remains uniform adoption and interoperability of systems.
Just as with digital payment infrastructure, the rapid proliferation of different fintech solutions has been both a blessing and a curse. Adopters face the dilemma of either building something new and risking integration problems with existing application programming interfaces (APIs) and blockchain nodes or assimilating and improving existing technologies.
“To achieve this, we need to join forces and unify the ‘digital islands’ that that are currently fragmenting our industry, and focus on interoperability,” added Margaret Harwood-Jones, managing director of securities services at Standard Chartered.
2. Increasing resilience by eliminating manual processes and connecting ‘digital islands’
The think tank participants unanimously agreed that there are still too many manual steps in post-trade operations ? and these are both time consuming and carry risk. Due diligence, know-your-customer (KYC) and client onboarding/servicing frequently require repetitive processes, reconciliation occurs at multiple stages of the custody lifecycle, and the administrative tasks related to reporting are not unified across the industry.
This became especially apparent amid the pandemic. In many jurisdictions, wet signatures are still the norm and when offices closed and work-from-home measures were imposed, there was no immediate fallback mechanism.
The group agreed that to improve resilience in trade processing, the unified adoption of digital technologies and the standardisation of data sets across the industry will go a long way.
Multi-lateral collaboration as the way forward, with an eye on ‘quick wins’
In the near-term, digitising customer onboarding and KYC, and eliminating manual paperwork and wet signatures, was deemed by think tank participants as a very achievable first step.
In addition, a shared ledger system enabling multiple players in the chain to view the same information at the same time instead of waiting for responses, or the arrival of envelopes and faxes, was agreed on as the next opportunity for process improvement.
The think tank discussion was spread over two half days, moderated by Julia Streets, a leading industry expert and commentator on post-trade issues, payments innovation and capital markets.
“This might label me as an ‘industry nerd’, but in my many years of working in the industry, I have never tired of discussing ways of improving trade flows and increasing efficiency”, commented Julia Streets. “The agreement by all think tank participants to align and create a collective commitment to concrete actions is an important step in the right direction.”
Standard Chartered is committed to continue playing an active role in bringing the industry together and driving concrete business outcomes to the persisting challenges around automating and streamlining post-trade operations.
The fact that we are still tackling inefficiencies has more to do with complex, fragmented processes, lack of synchronised steps, lack of transparency across the securities services value chain, too many platforms and the creation of ‘digital islands’ than it has with delusion or chasing the Holy Grail. So how does the way forward look like?
A multi-lateral effort to reduce risks and costs associated with trade processing
Standard Chartered feels strongly that only by aligning all players along the custody value chain in a multi-lateral effort, will we be able to make STP a reality. That’s why in September 2020, leading up to Sibos, the bank brought together practitioners from asset owners, asset managers, broker/dealers, market infrastructure providers, custodians and banks from across the globe in a series of virtual industry think-tanks. The goal of the discussion was clear: commitment to concrete multi-lateral actions that would address the intermediation lag in the custody chain once and for all.
Here an overview of the common pain points identified, as well as actions outlined.
1. Agreement on common sets of data, leading to a single book of records and distributed ledger technology
The ability to leverage and analyse data in real-time and make the most of the insights gained to better manage operations continues to be a major issue for all participants. Since there are so many parties involved in processing a trade, all maintaining their individual books of record and performing their individual trade reconciliations, what is most blatantly missing is ‘one version of the truth’ which would make reconciliation efforts much more efficient.
“Fragmented data conversations, too many intermediaries, all moving data around in unstandardised ways, continues to be a huge issue and increases risks and costs in trade processing”, commented Ryan Cuthbertson, managing director of product management, securities services at Standard Chartered. “We need to tap into new technologies that, unlike traditional databases, can provide a single source of agreed truth which is available in real time and with a focus on being value accretive to all market participants.”
The think tank group agreed that leveraging distributed ledger technology would reduce duplication across layers and allow the industry to move one giant step closer to the creation of a single book of records. The pressing question that still needs to be answered is whether the industry – and regulators in different jurisdictions – will be comfortable with the idea of creating a consensus validated and maintained book of records.
Think tank participants agreed that this topic represented the perfect opportunity to kick off a multi-lateral exploration levering new technologies, focused on improving the efficiency of trade flows.
Technologies such as artificial intelligence (AI) and machine learning are enabling many organisations to leverage vast amounts of data already, allowing operations professionals to identify potential trade errors earlier in the process and address them. The challenge remains uniform adoption and interoperability of systems.
Just as with digital payment infrastructure, the rapid proliferation of different fintech solutions has been both a blessing and a curse. Adopters face the dilemma of either building something new and risking integration problems with existing application programming interfaces (APIs) and blockchain nodes or assimilating and improving existing technologies.
“To achieve this, we need to join forces and unify the ‘digital islands’ that that are currently fragmenting our industry, and focus on interoperability,” added Margaret Harwood-Jones, managing director of securities services at Standard Chartered.
2. Increasing resilience by eliminating manual processes and connecting ‘digital islands’
The think tank participants unanimously agreed that there are still too many manual steps in post-trade operations ? and these are both time consuming and carry risk. Due diligence, know-your-customer (KYC) and client onboarding/servicing frequently require repetitive processes, reconciliation occurs at multiple stages of the custody lifecycle, and the administrative tasks related to reporting are not unified across the industry.
This became especially apparent amid the pandemic. In many jurisdictions, wet signatures are still the norm and when offices closed and work-from-home measures were imposed, there was no immediate fallback mechanism.
The group agreed that to improve resilience in trade processing, the unified adoption of digital technologies and the standardisation of data sets across the industry will go a long way.
Multi-lateral collaboration as the way forward, with an eye on ‘quick wins’
In the near-term, digitising customer onboarding and KYC, and eliminating manual paperwork and wet signatures, was deemed by think tank participants as a very achievable first step.
In addition, a shared ledger system enabling multiple players in the chain to view the same information at the same time instead of waiting for responses, or the arrival of envelopes and faxes, was agreed on as the next opportunity for process improvement.
The think tank discussion was spread over two half days, moderated by Julia Streets, a leading industry expert and commentator on post-trade issues, payments innovation and capital markets.
“This might label me as an ‘industry nerd’, but in my many years of working in the industry, I have never tired of discussing ways of improving trade flows and increasing efficiency”, commented Julia Streets. “The agreement by all think tank participants to align and create a collective commitment to concrete actions is an important step in the right direction.”
Standard Chartered is committed to continue playing an active role in bringing the industry together and driving concrete business outcomes to the persisting challenges around automating and streamlining post-trade operations.
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