Expect M&A between post-trade financial market infrastructures
James Arnett, partner, Capco
An increase in M&A activity within the post-trade financial market infrastructure (FMI) community seems inevitable, particularly in Europe, as FMIs look to consolidate to achieve scale, enhance service capabilities, expand asset class and market coverage, or position themselves in other areas of the transaction value chain. They will also look to protect themselves against the threat of new competitors, as emerging technologies give rise to disintermediation opportunities for post-trade intermediaries and their end-clients.
This M&A activity may also see a change in the FMI ownership landscape during 2020. Central securities depositories (CSDs) in particular have attracted investment interest from sovereign wealth funds and private equity groups, and 2020 could see this interest leading to firm acquisitions by these types of investor.
In addition, enhanced middle-office services, such as automated risk reporting and AI-enabled collateral management, have already begun to leverage APIs and compatibility layers already deployed in the retail banking space, making near-time monitoring across the asset servicing lifecycle of institutional investments via your smartphone a reality.
A changing M&A landscape, while asset managers set to transition to open source
John Sergides, CEO, MUFG Investor Services
We see a year ahead of a changing dynamic on the M&A front in financial services. The number of potential targets has shrunk, while the price has significantly risen. For the acquiring firms who have obvious synergies this may still be an acceptable pain but for new participants this may no longer be the case. We will start to see listings of firms such as fund administrators as an exit route, and greater investment in niche technology firms to enhance value, rather than pure asset gathering acquisitions.
The asset management industry and surrounding services is still behind the curve with regards to using the elastic nature of cloud storage and processing as an infrastructure foundation. We expect this to be a big theme in 2020 with not only large scale shifts but also moving more to open source technology to codify infrastructure and finally be able to use and and monetise the vast data that has been collected.
The buy-side will turn its attention to innovation
Anders Kirkeby, head of open innovation, SimCorp
Fee compression, regulation and data challenges may continue to be the status quo in 2020 but it will also be a year where we will see early movers on the buy-side realise that these long-standing trends impacting asset management will demand concerted effort and collaboration. We’ve already seen some effort to achieve standardisation and automation of investment processes. In 2020, I believe we will see the buy-side open up further in the way of co-creation and collective action, to innovate and respond to shared workflows. It’s certainly a movement we are excited to be a part of and facilitate.
Three words: Engagement, solutions and integration
Michaela Ludbrook, global head of securities services, Deutsche Bank
The post-trade industry focus for 2020 will centre around the following key words:
engagement, solutions and integration. A promising future is one where we are integrated with our clients and partners. This fosters closer collaboration where we create solutions together with our clients, engaging them in true innovative thinking and developments. Integration will offer implementation of transparency and speed of service with the appropriate controls and segregation.
And to add to this excitement, developing/emerging markets are at different stages of evolution. When a market is on the verge of something great, it’s about being the first to spearhead clients’ entry into those markets. Value-added services will continue to feature strongly as a differentiator. To increase real-time transparency, manual input will continue to be eliminated. Service models will change into industry brainstorming and development, turning our roles into more value add in the future. Successful custodians are those who will be at the forefront of engaging with clients, solutions and integration.
Mutualisation of post-trade services
Yousaf Hafeez, head of business development for financial solutions, BT
The concept of mutualising costs in non-differentiating post-trade functions has been a point of discussion amongst market participants for at least a few years. While the benefits of this approach have always been evident, the uptake of mutualised services has been relatively slow due to an insufficient strategic alignment between industry participants, as well as other issues such as the lack of standardised processes in the post-trade space. Nevertheless, existing regulations such as MiFID II as well as upcoming regulatory mandates such as SFTR are driving post-trade mutualisation higher up the agenda. While the practical implications pertaining to service integration and interoperability will need to be addressed, next year we will likely see a greater appetite for this approach.