New laws of the land: hunting for value in post-trade service

Thomas Zeeb, head of securities and exchanges for SIX, outlines how post-trade providers will use technology in the hunt for value.

In December 2017, SIX hosted its Post-Trade Forum event in London, gathering global industry players to discuss how post-trade services can better meet business objectives and deliver greater investor value. In the face of tighter economic and regulatory headwinds, industry professionals are increasingly wondering how they can continue evolving in what are ultimately the toughest market conditions to-date. Recent research we conducted supports the concern: 67% of industry executives believe that if post-trade service providers are to continue creating value beyond being “simply operational”, they must create new services and revenue opportunities by 2027. I would argue that we need to add value even sooner – 2020 – for example.

Whilst the industry is not new to innovating its way out of problems, the difference now is the speed with which today’s new technologies become tomorrow’s commodity. The result is a continuous hunt to find value, made harder by a lack of understanding around how important post-trade services are to the securities value chain. Here are some thoughts on the subject:

Robots, [A]I and transforming banking services

For years, correspondent and transaction banking models have served the industry well. But with the pressures of ever more demanding clients and greater regulatory oversight, such models are buckling. Innovation in the form of intelligent technology is going to help to solve a large part of these challenges. Survey respondents agree, with 63% highlighting Robotic Process Automation (RPA) and Artificial Intelligence (AI) as technologies with strong potential to address these problem areas. These acronyms are the rage in virtually every space in financial services as firms seek to dial up operational performance and deliver more for their customers. The difference in post-trade is the sheer size of the sector, and as such, its players must ensure innovation is directed to the correct area.

FinTechs – friends or foes?

As institutional businesses explore innovative business practices, FinTech players looking to make their mark are already rewriting the rulebook. Our research surprisingly reveals an opportunity to collaborate with FinTechs, with 37% (over a third!) suggesting their organisations are highly likely to turn to “the new kids on the block” for at least one post-trade service by 2027. This is apparently because they react to client needs faster and approach problems from new perspectives, unconstrained by legacy systems and culture.

Striking a balance

Respondents were also asked whether post-trade service providers could be as innovative as FinTechs. Interestingly, 43% believed collaboration was essential to remaining at the innovative forefront of the industry. But 53% of respondents admitted a need to hire from a newer pool of talent. Irrespective of this, a quarter said a mixture of both tech and financial knowledge will be critical to securing future value, striking a balance between industry knowledge and fresh thinking to create new opportunities. 

Doing it right

2018 is going to be a crucial year for the post-trade industry, with many external factors ranging from new industry regulations, such as MiFID II and GDPR and indecision in Brussels and Westminster, to deal with. Thankfully innovations such as RPA and AI are becoming better understood and accepted, which is the first step to tackling the growth conundrum. However, it is important for the industry to remember that technology alone is not enough to achieve sustained progress. A fundamental shift in skills and an attitude towards collaboration is needed to do this.