Editors’ Choice Awards: Best Innovation in Market Infrastructure

Global Custodian takes a deep dive into the nominees for its Editors’ Choice awards at this year’s Leaders in Custody event, next up: the candidates up for Best Innovation in Market Infrastructure.

By Joe Parsons

Clearstream – InvestorCSD

Clearstream’s InvestorCSD has been one of its leading projects since the rollout of TARGET2 Securities (T2S), the pan-European settlement platform, came fully into effect in 2017.

The central securities depository (CSD) set out to implement a new model bringing together all cross-border settlement and asset servicing tasks in the Eurozone under a single platform, therefore enabling access to all T2S markets through one single CSD.

The InvestorCSD model also allows clients to open a centralised account with Clearstream rather than holding an account in each local market.

The expectations for this project were high, and in 2018, the model went live for the Belgian, Dutch, French and Italian markets. Over the year, it expanded this to the Austrian and Luxembourg markets, bringing around 80% of the custody and settlement volume of T2S markets onto Clearstream’s InvestorCSD services.

Its next aim is to provide a full European custody service under the model and expand into the Greek market. Clearstream most recently underwent an organisational restructure combining its sales, relationship and client services activities to achieve this goal, creating a new head of InvestorCSD and European custody product role.

DTCC – SFTR Global Trade Repository 

The incoming reporting requirements under the Securities Financing Transactions Regulation (SFTR) has been touted as one of the biggest operational challenges for the securities lending community.

In response to this challenge, DTCC’s Global Trade Repository (GTR) connected with a number of securities finance data and technology vendors in 2018 to ease the process and help securities lending firms to meet their regulatory obligations.

In June, DTCC collaborated with EquiLend, Trax, IHS Markit and Pirum to offer straight-through processing and offer links to mutual clients’ existing technology for an SFTR solution. It then took this collaboration one step further, partnering with five vendors including FIS, SimCorp and Broadridge, to offer an open architecture for reporting.

DTCC also added data transformation services to its SFTR offering, providing a one-stop shop for reporting.

Its recent efforts have paid off, and over the past few months, DTCC has brought on Societe Generale and SEB as users of its SFTR GTR.

HKEx – Blockchain adoption for Stock Connect

The Hong Kong Exchange and Clearing (HKEx) became the second major market infrastructure to announce it will be using blockchain technology for certain post-trade processes.

In October, the group said it will partner with blockchain specialist Digital Asset to help complete post-trade allocations and processing for trades into China via Stock Connect. HKEx stated this will help traders overcome the China’s tight four-hour settlement window for equities trading.

The prototype will allow market participants to specify their settlement workflows in advance, helping to bridge time zones when using multi counterparties, while enabling real-time synchronisation of post-trade status between asset managers, brokers, custodians, and HKEx’s clearing house.

HKEx is now planning to engage with a wider base of market participants to gather potential production requirements ahead of the second phase of the prototype.

The project marks the first time the technology is being used as an application on top of an existing infrastructure.

SIX – SIX Digital Exchange

One of the ground-breaking market infrastructure launches of 2018 was undeniably the SIX digital asset ecosystem, at a time when a new financial phenomenon was trying to find its place in the capital markets.

SIX Digital Exchange (SDX) was announced in July, as the first fully integrated trading, settlement and custody framework for digital assets from a market infrastructure provider.

Given that the core function of an exchange is to bring capital to business, SDX will be looking to provide that functionality for digital assets. The demand for such a service is evidenced by the existing pipeline of Initial Coin Offerings (ICOs) and Tokenised Asset Offerings (TAOs) observed in multiple markets.
SIX plans a phased approach for what is an ambitious and comprehensive initiative. The first step, expected to roll out in the first half of 2019, is to build a regulated exchange platform for digital assets and then to offer a service to tokenise existing bankable assets. 

A third phase of the project will offer the tokenisation of non-bankable assets, providing new investment possibilities, including, for example, real estate and art.