The Future Of Securities Processing: A Roundtable Write-Up
Simon Osborne, GlobalTrading, writes on our latest roundtable examining ongoing evolution in post-trade processing
On 18 June 2015, industry participants gathered in Hong Kong to give their views on the state of securities processing in Asia. Having diagnosed a number of the issues that characterise the industry locally, they also looked forwards to conjecture about possible future changes.
Comparatively, there has been much heavier investment in Asian front offices than in the middle and back offices. Revenues in Asia are decreasing but regulatory and operational costs are simultaneously increasing.
The problems of Asian securities processing
The infrastructure in Asian markets, individual exchanges and central banks, drags the industry backwards. That is happening at the same time as there are demands to process ever greater volumes of trades.
At present, it seems impossible that in Asia a joint clearing platform between countries will evolve. Participants have to work with the current mentality between competing and accepting that there will always be a core equities platform (or more than one) in each Asian country.
A straightforward overlay of European or US systems in Asia seems inconceivable. There are too many discrete markets and national interests in the continent.
Problems come from disjointed services that are found not to be collectively efficient. That state of affairs has meant that multiple back offices have become, as vividly described by one panellist, as a ‘big bowl of spaghetti’. How to eliminate such log jams via good management and new technology is the question to be solved, but not one that lends itself to a straightforward answer.
The costs of development
With the Shanghai-Hong Kong Stock Connect market participants witnessed how expensive it was to build new systems. Stock Connect’s problem was not only about its cost but the short time frame required for implementation which led to pressure on IT and operations departments.
The expenditure budgets to implement the Stock Connect systems had not appeared in firms’ development plans, as the commencement of the project began in mid-year.
At least with the Stock Connect, the programme did offer, and ultimately delivered, the promise of significant future revenue, which after a shaky start did start to flow through as China markets flourished. There was therefore a profit incentive to invest in the processes and systems that provided the backbone of a firm’s service offering.
What though if there was no obvious pay-off? If it was a mandatory regulatory change, such as FATCA, with no profitable implications, would the industry’s response have been as vigorous and enthusiastic?
It is hard to explain to accountants and head office CFOs in the financial industry that delivery of projects has to be completed intra-financial year. They, in response, pose the question why, for example, does a simple, straightforward fee change need so much work and expenditure. It is up to the back office to justify internally why there are additional hidden complexities.
The panel observed that Hong Kong is, in terms of vendors, geared towards funds rather than to the sell-side. Furthermore, if one buys off-the-shelf systems, developers sometimes have had no Asian experience. Decisions about systems development are being made elsewhere, with Asia being treated merely as an afterthought.
The end of the ‘one-stop-shop’
The days of all-singing, all-dancing investment banks are numbered according to the panel. Processing is either a core business, or if that is too expensive, then one can think about outsourcing it to external providers.