New world model
16 Mar 2022
Gary Wright, James Maxfield and Alastair Rutherford of ISITC Europe CIC talk to Jenna Lomax about the association’s upcoming post-trade survey — and what it aims to outline — as the industry continues to feel the advantages and pressures of global settlement compression times
Image: artrachen/stock.adobe.com
Why was the ISITC Europe CIC Post-Trade Forum set up and what purpose does it serve for the industry?
Gary Wright: The International Securities Association for Institutional Trade Communication (ISITC) Europe Community Interest Company (CIC) Post-Trade Forum was established to bring together leading players and senior managers to share information across the transaction chain. The aim is to bring understanding throughout the capital market of changes that impact all firms. Our objective is to create a forum where the various challenges that impact capital markets can be better addressed. We can share what works and what does not to aid senior managers and allow firms to make better decisions by being informed from an industry standpoint.
ISITC Europe incorporated as a CIC to position itself in the market under a regulated organisation, rather than a loose collection of willing individuals. This also gave us the opportunity to put in place a corporate structure, including an invited advisory board representing all sectors of capital markets within the transaction chain.
We believe this unique coupling of senior practitioners on both the buy- and sell-side — including infrastructure providers — creates a valuable forum for the capital markets. We also wanted to move away from being regulatory-focused as there are already several trade associations that do this very well.
ISITC Europe is soon to be releasing a survey talking about the move to T+1 in detail. Can you tell us more about what we can expect from the findings?
James Maxfield: What we are trying to get out of the survey is to understand some of the different opinions surrounding T+1 and ultimately enable ISITC Europe to form an opinion around settlement cycle compression. What we have been hearing and reading is that views are quite mixed around readiness for the move.
There is also quite a difference of opinion around the value of T+0 and some of the benefits associated with faster and quicker settlement, but it may also displace a lot of other processes that are currently in place. Some people view the move toward T+0 as perhaps unnecessary, while others are very keen for the move to it.
Some of the research, and some of the articles that we have seen and read over the last 12 to 18 months, shows that different areas of the industry have differing opinions, depending on where they are, and who they are. When we think about the US market — which is very global, as investors from all over the globe in different time zones interact with it — the processing, off the back of some of the trading activity, can often be extremely complex and jumbled. Whereas India, which moved to T+1 on 25 February, has a much smaller market with a typically local set of participants. There will always be challenges with settlement time challenges, but India’s will not be as widespread, due to its localised nature.
As we go through the feedback from the survey, I am sure we can create some credible practical opinions that can actually start to help the industry shape its thoughts around settlement compression in a way that makes sense to all market practitioners.
Alastair Rutherford: The survey is not specific to T+1, it does start to talk about moving to T+0 and describes how people are feeling in terms of their readiness for the next stage after T+1. Broadly speaking, when changing from T+3 to T+2, and from T+2 to T+1 respectively, the processes involved were much the same for the industry. However, changing from T+1 to T+0 is a much bigger quantum leap, when considering the wider business process changes that will need to take place.
The move from T+3 toward T+0 will squeeze together all the previously utilised business processes. Ultimately, what we call “post-trade” cannot be post-trade anymore — it has to effectively be pre-trade.
We see overlaps between some of the challenges that people are seeing as they move towards T+1 and T+0 to the challenges that a future state model, based around distributed ledger technology and atomic settlement, will create.
Which regulations will cause the most challenges in the post-trade space over the coming 12 months? And what steps is the ISITC Post-Trade Forum taking to help market participants to manage these implementation changes?
Rutherford: People have really got the message that a lot of the challenges they have had with regulatory reporting over prior decades is all about the quality of their internal data.
In previous years, regulatory reporting was a point-in-time exercise for our industry — an industry who changed their operations or business system just to climb over the next hurdle. The consensus was to stick plasters over data issues, as opposed to fixing the underlying problems.
However, that mindset has changed now; there seems to be a shared understanding that to fix the issues, the internal data has to increase in its quality. To go down that route, standardisation is needed. In collaborating — through effectively translating your internal data to a common standard in a collaborative environment — you will start to push that standardisation back into your own organisation. Collaboration and data quality are very much intertwined.
Maxfield: The reality now is that regulation and regulatory change is very much part and parcel of the way that market structures work and operate. Our view is that it will be the same every year from now on rather than a point-in-time event. The post-trade landscape, as part of that, really needs to be moving away from reactive and tactical responses to regulation, and instead needs to think more broadly around managing platforms, systems and processes.
We have authored a whitepaper for ISITC that identifies five key themes relevant to post-trade going forward. Data centricity is a key theme included in the whitepaper — focusing on data cleanliness and the integrity of data which will make ongoing compliance and changes to compliance much easier.
The industry has been making in-house changes in response to the ‘regulatory refits’ which we are seeing across the globe now, as regulators look to tidy up the reporting infrastructure. This is a big data challenge for many organisations because they are not able to have access to the right data and they have to build quite a complex environment around the data they maintain to try and reconcile it.
Following on from data comes the importance of collaboration, meaning organisations coming together and collaboratively matching or solving their post-trade exceptions on a common platform — moving away from sending spreadsheets and emails between each other, with different datasets and different versions of data. There has been an increasing shift to working more on a common data set, which is an important change to make post-trade processes more efficient.
As we start thinking about regulatory requirements around reporting and compliance, and being able to match and have data transparency, it becomes a lot easier if everybody is working off a common data set, as opposed to different ones. This collaboration is aided by the theme of market standardisation, as the move towards a common data set is aided by adoption of standards (message types and data sets) that remove friction between processes that support exception management.
Technology is another key theme — the fintech solutions available to the industry can help with data handling and accessibility, while also assisting with navigating moves toward settlement compression. These days, many are much better than the in-house innovation that banks have historically had access to. Their data solutions have been developed to solve many common industry problems, certainly around regulatory compliance.
Finally, the introduction of digital assets and how they will impact capital markets in the post-trade world is almost a theme in its own right now, but also one we see as playing an increasingly influential role in the post-trade world of tomorrow.
What do you perceive to be the key drivers of technology transformation in post-trade within the next year to 18 months?
Rutherford: Beyond the next 18 months, I think we could see some distinct change. There are two ways of looking at it: the drivers of technology transformation, and the technology drivers of transformation.
The key drivers of technology transformation are a consequence of the business process being changed, as opposed to the other way round, where your technology drivers of transformation are a catalyst for that.
You will see a lot of people talk about digitalisation, but every single person you ask will have a different definition of what that actually means. In our view, it has become a more trendy word to describe automation. There is nothing wrong with automation, if it is done properly.
We have had a lot of debate about whether blockchain was a catalyst for real change, in of itself around industry transformation, or if it just so happened to coincide with people starting to look at the need for industry transformation, and whether the two elements were coincidentally caught up together. Regardless, it has been a good thing for people to fundamentally rethink how the post-trade aspects of things work, and we definitely see real progress happening using distributed ledger technology toolsets, rather than a blockchain.
What other projects and initiatives will ISITC Europe be working on this year?
Wright: We are looking to move forward to establishing our education fund for underprivileged students wishing to have a career in capital markets. This is a major ambition of ISITC Europe CIC, and we want to progress it further. We will be producing more online content featuring interviews with leading players in the history of the capital market, plus the usual topics of today and tomorrow. We will push forward further with the student’s society.
More invites to leading players to join our advisory board will be made to broaden and deepen coverage. We are delighted that a SWIFT representative is our latest recruit.
Gary Wright: The International Securities Association for Institutional Trade Communication (ISITC) Europe Community Interest Company (CIC) Post-Trade Forum was established to bring together leading players and senior managers to share information across the transaction chain. The aim is to bring understanding throughout the capital market of changes that impact all firms. Our objective is to create a forum where the various challenges that impact capital markets can be better addressed. We can share what works and what does not to aid senior managers and allow firms to make better decisions by being informed from an industry standpoint.
ISITC Europe incorporated as a CIC to position itself in the market under a regulated organisation, rather than a loose collection of willing individuals. This also gave us the opportunity to put in place a corporate structure, including an invited advisory board representing all sectors of capital markets within the transaction chain.
We believe this unique coupling of senior practitioners on both the buy- and sell-side — including infrastructure providers — creates a valuable forum for the capital markets. We also wanted to move away from being regulatory-focused as there are already several trade associations that do this very well.
ISITC Europe is soon to be releasing a survey talking about the move to T+1 in detail. Can you tell us more about what we can expect from the findings?
James Maxfield: What we are trying to get out of the survey is to understand some of the different opinions surrounding T+1 and ultimately enable ISITC Europe to form an opinion around settlement cycle compression. What we have been hearing and reading is that views are quite mixed around readiness for the move.
There is also quite a difference of opinion around the value of T+0 and some of the benefits associated with faster and quicker settlement, but it may also displace a lot of other processes that are currently in place. Some people view the move toward T+0 as perhaps unnecessary, while others are very keen for the move to it.
Some of the research, and some of the articles that we have seen and read over the last 12 to 18 months, shows that different areas of the industry have differing opinions, depending on where they are, and who they are. When we think about the US market — which is very global, as investors from all over the globe in different time zones interact with it — the processing, off the back of some of the trading activity, can often be extremely complex and jumbled. Whereas India, which moved to T+1 on 25 February, has a much smaller market with a typically local set of participants. There will always be challenges with settlement time challenges, but India’s will not be as widespread, due to its localised nature.
As we go through the feedback from the survey, I am sure we can create some credible practical opinions that can actually start to help the industry shape its thoughts around settlement compression in a way that makes sense to all market practitioners.
Alastair Rutherford: The survey is not specific to T+1, it does start to talk about moving to T+0 and describes how people are feeling in terms of their readiness for the next stage after T+1. Broadly speaking, when changing from T+3 to T+2, and from T+2 to T+1 respectively, the processes involved were much the same for the industry. However, changing from T+1 to T+0 is a much bigger quantum leap, when considering the wider business process changes that will need to take place.
The move from T+3 toward T+0 will squeeze together all the previously utilised business processes. Ultimately, what we call “post-trade” cannot be post-trade anymore — it has to effectively be pre-trade.
We see overlaps between some of the challenges that people are seeing as they move towards T+1 and T+0 to the challenges that a future state model, based around distributed ledger technology and atomic settlement, will create.
Which regulations will cause the most challenges in the post-trade space over the coming 12 months? And what steps is the ISITC Post-Trade Forum taking to help market participants to manage these implementation changes?
Rutherford: People have really got the message that a lot of the challenges they have had with regulatory reporting over prior decades is all about the quality of their internal data.
In previous years, regulatory reporting was a point-in-time exercise for our industry — an industry who changed their operations or business system just to climb over the next hurdle. The consensus was to stick plasters over data issues, as opposed to fixing the underlying problems.
However, that mindset has changed now; there seems to be a shared understanding that to fix the issues, the internal data has to increase in its quality. To go down that route, standardisation is needed. In collaborating — through effectively translating your internal data to a common standard in a collaborative environment — you will start to push that standardisation back into your own organisation. Collaboration and data quality are very much intertwined.
Maxfield: The reality now is that regulation and regulatory change is very much part and parcel of the way that market structures work and operate. Our view is that it will be the same every year from now on rather than a point-in-time event. The post-trade landscape, as part of that, really needs to be moving away from reactive and tactical responses to regulation, and instead needs to think more broadly around managing platforms, systems and processes.
We have authored a whitepaper for ISITC that identifies five key themes relevant to post-trade going forward. Data centricity is a key theme included in the whitepaper — focusing on data cleanliness and the integrity of data which will make ongoing compliance and changes to compliance much easier.
The industry has been making in-house changes in response to the ‘regulatory refits’ which we are seeing across the globe now, as regulators look to tidy up the reporting infrastructure. This is a big data challenge for many organisations because they are not able to have access to the right data and they have to build quite a complex environment around the data they maintain to try and reconcile it.
Following on from data comes the importance of collaboration, meaning organisations coming together and collaboratively matching or solving their post-trade exceptions on a common platform — moving away from sending spreadsheets and emails between each other, with different datasets and different versions of data. There has been an increasing shift to working more on a common data set, which is an important change to make post-trade processes more efficient.
As we start thinking about regulatory requirements around reporting and compliance, and being able to match and have data transparency, it becomes a lot easier if everybody is working off a common data set, as opposed to different ones. This collaboration is aided by the theme of market standardisation, as the move towards a common data set is aided by adoption of standards (message types and data sets) that remove friction between processes that support exception management.
Technology is another key theme — the fintech solutions available to the industry can help with data handling and accessibility, while also assisting with navigating moves toward settlement compression. These days, many are much better than the in-house innovation that banks have historically had access to. Their data solutions have been developed to solve many common industry problems, certainly around regulatory compliance.
Finally, the introduction of digital assets and how they will impact capital markets in the post-trade world is almost a theme in its own right now, but also one we see as playing an increasingly influential role in the post-trade world of tomorrow.
What do you perceive to be the key drivers of technology transformation in post-trade within the next year to 18 months?
Rutherford: Beyond the next 18 months, I think we could see some distinct change. There are two ways of looking at it: the drivers of technology transformation, and the technology drivers of transformation.
The key drivers of technology transformation are a consequence of the business process being changed, as opposed to the other way round, where your technology drivers of transformation are a catalyst for that.
You will see a lot of people talk about digitalisation, but every single person you ask will have a different definition of what that actually means. In our view, it has become a more trendy word to describe automation. There is nothing wrong with automation, if it is done properly.
We have had a lot of debate about whether blockchain was a catalyst for real change, in of itself around industry transformation, or if it just so happened to coincide with people starting to look at the need for industry transformation, and whether the two elements were coincidentally caught up together. Regardless, it has been a good thing for people to fundamentally rethink how the post-trade aspects of things work, and we definitely see real progress happening using distributed ledger technology toolsets, rather than a blockchain.
What other projects and initiatives will ISITC Europe be working on this year?
Wright: We are looking to move forward to establishing our education fund for underprivileged students wishing to have a career in capital markets. This is a major ambition of ISITC Europe CIC, and we want to progress it further. We will be producing more online content featuring interviews with leading players in the history of the capital market, plus the usual topics of today and tomorrow. We will push forward further with the student’s society.
More invites to leading players to join our advisory board will be made to broaden and deepen coverage. We are delighted that a SWIFT representative is our latest recruit.
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