APAC Markets Vary in Post-Trade Automation, Most Need Improvement

While Asia Pacific tends to be looked at as somewhat of a homogenous region, a study of post-trade processes across 13 countries in APAC—published by InsightAsia Banking & Finance Consulting and commissioned by Omgeo—found significantly varied levels of automation, though 93% agreed that post-trade automation needs improvement.
By Jake Safane(2147484770)
While Asia Pacific tends to be looked at as somewhat of a homogenous region, a study of post-trade processes across 13 countries in APAC—published by InsightAsia Banking & Finance Consulting and commissioned by Omgeo—found significantly varied levels of automation, though 93% agreed that post-trade automation needs improvement.

The research was based on interviews with 100 senior operations executives from domestic broker-dealers, investment managers, custodian banks and other financial services firms across the region.

Overall, the level of middle-office automation is rated at 71% for equities and 55% for fixed income, with Australia having the highest automation levels at 88% for equities and 69% for fixed income trades. Other highly automated markets include India, Hong Kong, Singapore, Japan, Korea and mainland China, which the research found to be at 70-80% for equities and 50-70% for fixed income. On the opposite side of the spectrum, markets like Taiwan, the Philippines and Vietnam would need to nearly double their levels of automation to reach a high level. The lower level of automation in the fixed income sphere compared to equities, while in need of improvement, is broadly consistent with other regions.

“There’s a lot of opportunity for automation and therefore improvement to risk management,” says Matthew Chan, regional director of strategy at Omgeo.

The lack of automation in some markets comes at a time when fund flows across the region increasing significantly. “Asia is going through quite an inflection point in terms of economic growth,” says Chan. With higher levels of automation, he says, markets could attract even more investment. However, “the region’s financial markets feature varying levels of maturity in post-trade automation, which can have a direct impact on their ability to manage higher trade volumes and satisfy compliance requirements.”

The study also found that domestic investment managers and brokers are more manual than international ones, particularly for fixed income transactions where manual trade matching is more than twice as common for domestic brokers than international ones. Custodians also lead the way among other service providers in terms of levels of automation. The research also found that 35% of respondents have offshored or outsourced processes in the middle and back office.

As for what’s driving automation, firms said the three key reasons are regulatory compliance, cost reduction and reputational risk: 67% of investment managers and 53% of brokers said compliance was the top driver; 20% of investment managers and 42% of brokers said automation could help reduce operational costs; and one-third of the respondents said reputational risk associated with trade settlement failure is a reason for automation.

“Automation is increasingly mandated by participants in the global financial markets, yet in emerging APAC countries, the decision to invest in trade processing automation is often a complex balancing act between the lower cost of labor, increasing risk and compliance requirements and the need for scalability and flexibility to keep up with front-office activities,” says Phillip King, author of the InsightAsia report.

As for why some markets have such low levels of automation, even though most agree that it needs improvement, “it’s partly a story in terms of where markets are in their maturity,” says Chan. Markets need to find the right technology and adopt best practices in order to move forward, he says. “It takes time.”

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