The extent of transformation being experienced across the Post-Trade industry was visible to all at The Network Forum’s (TNF) Annual Meeting in Athens, which SIX sponsored. Here, experts from the Swiss Stock Exchange discuss some of the points raised.
Central Securities Depository Regulation (CSDR)
Regulation of post-trade activities continues to evolve. In September 2020, the EU’s CSDR will take effect, introducing settlement discipline measures across the European post-trade ecosystem. Through the imposition of fines and mandatory buy-ins, EU regulators are looking to promote efficiencies in the trade settlement process. Further to wider TNF concerns about the level of CSDR preparation at impacted firms and its costs, Sandro Heim, Head Client Executive Management at the Swiss Stock Exchange, mentioned that mandatory buy-ins may adversely impact liquidity.
European Market Infrastructure Regulation (EMIR 2.2)
Meanwhile, Roger Storm, Head Regulation, Risk and Committees at the Swiss Stock Exchange, highlighted that EMIR 2.2 (the recent update to the European Market Infrastructure Regulation) will be challenging for many third country CCPs. He said third country CCPs, deemed of particular systemic importance to the EU, will be subject to line-by-line equivalence assessments and oversight by EU regulators, which the infrastructures would also have to pay for. “Furthermore, one of the problems we have surrounds the proposed ESMA-charging model, which is not proportionate. CCPs – irrespective of size will all be charged the same fees. ”
Further, he said third country CCPs such as SIX x-clear could thus find themselves being regulated by a shadow supervisory authority under the tutelage of the European Securities and Markets Authority (ESMA) in addition to their domestic regulators. This will increase the costs and heighten the barriers to entry for third country CCPs wishing to serve markets and players inside the EU. In the context of Brexit too, ESMA’s current position risks deepening market fragmentation.
Custody, no longer a commoditised model
A number of experts at TNF accept that revenues from the traditional custody model – principally asset safekeeping, clearing and settlement – will continue to fall off the back of client pressure. However, Brendon Bambury, Head Post-Trade Sales for the UK and Nordics at the Swiss Stock Exchange , said the existing commoditised approach towards custody needed a radical shake-up. “Increasingly, custodians and organizations such as SIX are looking for new ways to deliver value to clients. This can only happen if post-trade providers are willing to invest in their businesses and develop innovative technologies and bespoke products for users. By embracing change and disruption, the industry will succeed,” he said.
Digitalisation of securities and asset tokenisation featured prominently at TNF. While many institutions have recoiled at the concept of investing into crypto-currencies and initial coin offerings (ICOs), Martin Halblaub, Head of the SIX Digital Exchange (SDX), said digital securities – such as initial digital offerings (IDOs) - were a different proposition altogether and were generating enormous interest. “Asset digitalisation can be applied universally across the entire liquidity spectrum. By transforming an illiquid asset - like a major building, landmark or a piece of art - into a digital tradeable security, providers such as SDX believe new investment opportunities can be unlocked, which will have a positive impact on broader market liquidity,” he said.