Even before the Covid-19 pandemic completely revolutionised the post-trade industry’s operating model, market participants were already pursuing a strategy of digitalisation, conscious that a failure to do so could open them up to the risk of disintermediation. Thomas Zeeb, head of Securities & Exchanges at SIX, spoke on a Financial News webinar – “The Bumpy Post-Trading Path to a Digital Future” – exploring the ways in which the industry is transforming itself.

Strengthening product delivery
Post-trade providers are operating in an incredibly tough market environment, as margins face increasing pressure from diminishing client profitability and high regulatory costs. This is forcing the industry to evolve and become more agile so that it can launch new products in a cost-effective format, which support the rapidly changing requirements of end customers, said Zeeb. He added compliance checks were integral to product development, stressing these must not be compromised or watered down to expedite delivery times. Zeeb continued that firms need to think more holistically and on an organisational-wide basis when implementing technological change. “There is a limited case for using new technology simply to automate small slices of the business,” he said.

Applying new technologies thoughtfully
Digitalisation needs to have purpose and applicability. One of the mistakes the industry made in the past was that it attempted to shoehorn exciting new technologies into processes for which they were ill-suited. Zeeb said that although the Swiss Stock Exchange’s new Digital Exchange (SDX) was using distributed ledger technology (DLT) to support the processing of tokenised securities, he said the technology was not a suitable platform to facilitate the actual trading of tokenised assets, adding that existing systems are better placed to do so. He also conceded that it was wildly premature for DLT to be incorporated into conventional securities markets. This is because DLT does not have the capacity to handle large trading volumes while the regulatory environment still needs to be clarified.

Crystallising efficiencies
One of the challenges facing the post-trade industry is that a lot of the activities it performs are carried out in a patchwork approach, leading to duplication, fragmentation, inefficiencies and unnecessary costs for market users. As these processes do not contribute to providers’ bottom lines, there are growing calls for these activities to be pooled or mutualised at some sort of industry utility.  While panellists accepted that there was an urgent need to collaborate on these issues in order to minimise duplication, they recognised that reaching consensus or agreeing on standards can be a painful undertaking as different organisations will have their own competing priorities and opinions.  

What the future holds
Right now, post-trade providers are looking to augment their existing business models. Zeeb said a number of new fin-tech competitors have emerged promising to radically reform the way things are done, but added many of these firms have not lived up to expectations. However, market infrastructures are themselves accelerating their innovation programmes.  “From a purely market infrastructure perspective, we are using new technologies to substantially decrease the cost of processing in post-trade. We are working hard to make the post-trade world as efficient as possible from a capital usage and processing point of view. Technology will play a useful role in this,” he said.

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