Connecting Old and New Assets Will Be the Differentiator for Incumbent Providers

Investors have been scaling up their holdings of digital assets over the last few years, as they attempt to capture new sources of returns amid equity market volatility and deflated fixed income yields. While interest in digital assets has been growing, these instruments will likely co-exist with traditional securities for some time yet. 

Accordingly, investors are looking to work with service providers who can support them with both their digital asset exposures and conventional securities portfolios.  This will benefit the incumbents which are building out their digital asset servicing capabilities, while also investing heavily into their existing core businesses. SIX is a prime example here, having launched SIX Digital Exchange (SDX), which will co-exist alongside its main exchange.

At the same time, recent events at the collapsed FTX, a crypto-exchange, have served as a useful reminder to investors trading digital assets about the importance of leveraging FMIs (financial market infrastructures) who are subject to best in class regulation and governance.

A number of experts at TNF noted that traditional FMIs  and global custodians – who are developing digital asset custody solutions – will be the net beneficiaries of this latest crisis to impact the crypto market.

Facilitating Direct Market Access

Market access is a critical USP in today’s market. Through direct connectivity with CSDs in local markets, custodians can impart on their clients a number of strategic benefits. For instance, providers with direct market access can avoid many of the pitfalls that come with intermediation. Not only does it help custodians reduce their risk, but it can improve their client service quality.

This is because direct connectivity enables custodians to share with clients more timely information, as it relates to activities such as  corporate actions. 

Having established direct connectivity linkages in Spain, France, ,Germany to name a few, SIX is now analysing to do the same for some of its other markets, such as Singapore.

Resilience as a Measure of Success

The importance of operational resilience has never been greater. First the pandemic and now the war in Ukraine, FMIs have been tested to the extreme over the last three years, and have emerged from these crises in good shape.

With new threats emerging such as cyber-risk and climate change, clients and regulators want full assurances from providers – including FMIs -  that they have the resources and capabilities to manage these challenges.