The way forward for post-trading

Last week, I joined Global Custodian’s industry panel for a wide-ranging discussion on the future of post-trading. It was great to participate in the event alongside Fiona Gallagher from Deutsche Bank, Swen Werner from State Street, Broadridge’s Philip Taliaferro, and Andrea Tranquillini from ID2S.

What became clear is that the post-trading industry certainly has a lot on its plate: ensuring regulatory compliance, improving efficiency and managing cost for our clients, while at the same time pursuing the innovative potential of new technologies. It is easy to lose focus when faced with such competing priorities.

With CSDR and SRD II next on the agenda, regulatory compliance is putting great pressure on market participants. No doubt, regulation plays a vital role in ensuring the transparency, integrity and stability of financial markets. However, we need to ensure that regulatory compliance does not lead to an obsolete and less secure industry, as it absorbs resources that could otherwise be invested to ensure the resilience of market infrastructure.

In terms of efficiency, we see that the post-trading industry is still quite fragmented. The drive to segregate risk has forced parts of the industry to retrench into domestic markets, while disparate national and European legislation have so far kept harmonisation initiatives like T2S from reaching their full cross-border potential.

At the same time, new technologies command market participants’ attention. The rise of open API technology sees new players entering the financial services world, and we see compelling use cases emerge, e.g. for distributed ledger technology. The challenge here is to distinguish true opportunities from mere hype, build solutions that truly benefit the market and integrate them into a highly regulated environment.

So, how do we get focused among these competing priorities?

Market, regulators and legislators need to work together to implement intelligent, market-driven solutions. These should align incentives for industry operators to increase efficiency, and push for convergence and harmonisation in market practices. Continuing dialogue, such as promoted by the European Central Securities Depositories Association, is the right way forward.

By the same token, new entrants and incumbents can jointly leverage the potential of new technologies. In a highly regulated field, incumbents can provide the invaluable backing of established, regulated infrastructures for fintechs’ innovative capabilities. Clearstream is already involved, having signed up to act as custodian for the HQLAx target operating model, a blockchain solution for the securities lending market led by Deutsche B?rse Group and fintech HQLAx.

This is the broad cooperation that will produce sustainable solutions for the post-trading industry, enabling us to support the real economy.