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The Case for a Multi-Asset Post-Trade Approach

This article was first published on bobsguide on 1st February, 2022.

Multi-asset class trading has evolved and transformed to be front-of-mind for capital markets firms. However, processing these trades in asset-based technology and operations silos is no longer an effective strategy for firms that want to optimise efficiency, mitigate risk, and capitalise on market opportunities. In Broadridge’s recent white paper, The case for a multi-asset post-trade approach, we collaborated with Firebrand Research, a capital markets research specialist, to help demonstrate why the industry needs to be more joined up across asset classes in order to improve performance.

In this article, we’ll delve into some of the key themes and lessons emerging from the white paper that show why and how firms are moving to an increasingly strategic and efficient post-trade environment through digital transformation.

Why multi-asset post-trade now?

The diversification of institutional investments into a broader range of asset types over the last couple of decades has been significant and transformative. Buy-side firms have increased their investment focuses from the more traditional end of the investment spectrum to all kinds of alternatives, including real assets such as commodities, real estate, and even crypto assets in some cases, in the search for yield. Based on a Firebrand research survey, conducted in the first half of 2021, most sell-side firms have siloed, asset-based technology and operations infrastructures to process the range of asset classes their clients and trading activities require. Interviewees indicate that, in the main, they do not yet have a single system to cover all of their post-trade asset classes equally; only 14% of respondent firms have a single system for processing all of their instruments, whereas the rest have silos by asset class and by geography.

Several interviewees also noted that their legacy systems are currently unable to scale to meet the requirements of the market, and significant pressure is on the operations team to move away from manual processes and silos to a more integrated system with a single, streamlined workflow and centralised set of records across all asset types. The buy-side demand for support across a broader range of asset classes, combined with changing market dynamics, has combined to place significant pressure on sell-side firms’ post-trade operations and IT teams.

Firms are increasingly seeking to transform their post-trade operations in response to risk and cost-pressures, in order to streamline their operations and technology and improve client service levels. The 2021 Broadridge Next Gen Technology Adoption Survey indicates that 67% of firms are currently focused on digital implementation, including digitalising workflows, improving the client experience and building out data intelligence analytics. So, what is the opportunity for firms undergoing digital transformation for multi-asset processing?

With the challenges inherent in sustained multi-asset growth, the need to re-evaluate the post-trade approach is clear. Within this new environment of evolving market dynamics, the continuation of the silo model has the potential to cause significant difficulties for firms. Below, we’ll discuss some of the internal and external pressures that sell-side firms are facing from a multi-asset support standpoint:

  • Doing more with fewer operations staff: Years of cost-cutting and post-trade rationalisation exercises have taken their toll on firms’ operations. There are finite staff to deal with any volatility or high volumes across the full spectrum of assets that a client may wish to trade, including everything from the most vanilla instruments to the most esoteric.
  • The need to focus operations on more value-additive tasks: Process efficiency is of paramount importance with the industry’s focus on reducing operational risk and improving resilience. Exception-based processing is foundational for this effort alongside reducing the number of manual tasks that can be easily automated and centralised across the full spectrum of asset classes.
  • Coping with higher volumes of electronic order flow: The post-2008 crisis reform agenda pushed many over-the-counter instruments onto trading venues and clearing houses, which increased the volume of data that post-trade teams must deal with on a day-to-day basis. This means that even OTC assets require some degree of industrialisation, and higher scalability of service needs to be achieved in a manner consistent across asset classes. Extracting data from the numerous systems, aggregating, and reporting that information entails valuable team hours within the operations area as well as compliance.
  • Pressure to support the growth of data services: Competition between sell-side firms has evolved to include a whole range of new services related to the provision of reliable data, from delegated transaction reporting support to environmental, social and governance (ESG) analytics. The provision of this data and these services is often tied to a comprehensive view of a buy-side client’s activities across the markets, front-to-back—and by better understanding client activities across asset classes, sell-side firms can be more proactive in their service provision.
  • Responding to competitive pressure for better post-trade services: Given the downward pressure on commoditised front-office services and best execution, firms must improve their support across the full trade lifecycle.

What are the benefits of a joined-up approach?

The diversification of institutional investments into a broader range of asset types over the last couple of decades has been transformative. Sell-side firms that adopt a unified, multi-asset solution on an agile, mutualised service basis, can gain transformative advantages and afford themselves enhanced business opportunities, more streamlined operations, and lower operating costs – and ultimately a stronger client proposition.

A business case for investment in a multi-asset class approach to post-trade can therefore be built using the following aspects:

  • Cost reduction: This could be tied to decommissioning existing silo-based systems and transforming to a strategic multi-asset solution, and/or in consolidating or redirecting operational and support resources by eliminating duplicative and manual processes.
  • Compliance-related objectives: There are many different regulations that could be aided by a consolidated view of clients, data and a more harmonised approach to asset class processing.
  • Operational risk reduction: Risk reduction might be a difficult metric to judge if firms don’t have a good handle on their operational risk dynamics and core business management metrics, but it is an important benefit of investment in a more consolidated approach to post-trade, with a single view on workflow and exceptions.
  • Business expansion and support: Deploying a streamlined and unified technology platform that can support multiple asset types and that has a modern, more flexible architecture allows firms to scale up their capabilities to meet the requirements of new markets and new asset classes.  Delivery through a well-managed, high-capacity SaaS deployment can further enhance scalability, increase resilience and mitigate exposure to volume spikes.
  • Consolidation of relationships: Third party provider oversight has increased in industry importance over recent years, so there is a solid business case for a strategic vendor relationship covering all asset types that plays into operational risk reduction, cost reduction, and increased governance and accountability.
  • The ability to focus on transformation rather than plumbing: The efficiencies gained by consolidating and industrialising post-trade processes means firms can redirect staff and investment resources toward developing new capabilities and digitally transforming other areas of the business.

Focusing on the future

In this article, we have outlined key elements that firms should keep in mind when underdoing a strategic multi-asset post-trade transformation programme. Firstly, firms need to be dividing projects into manageable phases and identifying initial problem areas that would benefit most from transformation. This process is much easier if a firm outlines achievable targets, both in the short-term, and long-term. Secondly, seek out the right partner that has the capabilities to invest in next generation technology with proven business expertise, to help future-proof your business. And finally, ensure that every step of the firm’s transformational progress is documented. Download the full white paper today to learn more about how firms are getting ahead and undergoing a transformation of their post-trade operations.

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