Roy Saadon, Co-Founder and General Manager EMEA, Traiana
A key question will be: was the financial community able to tether all the disparate changes into a cohesive effort that contained cost and allowed them to meet the regulatory time lines?
Let’s return to the present and analyze where we are, as well as the separate yet tightly correlated regulations. EMIR has a new T+1 window. The harmonisation efforts across Europe have introduced a tighter T+2 settlement window (from the current T+3), which in Asia is being put into a regulatory framework. CSDR is relying on the same successful T+2 window. And let’s not forget MIFID II and the yet-to-published clearing aspect of EMIR.
The list of motivations and benefits is well discussed – risk management and transparency in case of a repeat Lehman Brothers scenario, distribution of risk by clearing, as well as cheaper processing using the CSDR framework. Some have clear cost savings, and some have come as a result of a regulation momentum which, while it may one day decrease, unfortunately cannot currently be challenged.
The question that the Operations and IT departments have to address is: can we move from bespoke asset-specific and regulation-specific solutions to a cleaner, more efficient process?
The answer relies on breaking down the key processes: matching and exception management. The heart and soul of all of these regulations is to achieve data that is clean, non-disputed, and ready for clearing/settlement. This has a direct correlation to how quickly you can find and resolve breaks – which brings us back full circle to how efficiently you can match trades.
Matching in a T+1 (or even T+0) environment is not a trivial exercise. The shortened timeframe forces a change of negative affirmation processes that are unique in each asset class, and the disappearance of two days to resolve breaks. A complete STP and transparent model is required for a single party to match and raise exceptions same day versus all counterparts across all assets.
Banks will attempt to consolidate all trade flow to a central, client facing platform, which will be measured by its ability to highlight and manage breaks in real time, and have high STP rates.
Solutions that sit in a web browser with functionality via a cloud will enable banks to keep their infrastructures up to date going forward, without the need for rip-and-replace tactics.
If EMIR drives back-office matching (because that is where I generate my UTI), while that same trade is also matched at the middle office due to client portals, then we will reinvent the wheel for each asset, and the markets will have failed in harnessing the momentum for change. Banks have never had a bigger focus and budget allocated for operation reinvention. Let’s make sure we grab this window to leave a lasting change by looking at the big picture and focusing on the key components – world class matching and exception management.