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Vision 2022: Navigating Today’s Capital Markets Transformation (Americas)

Vision 2022: Navigating Today’s Capital Markets Transformation (Americas)

Key Themes to Address Industry Pressures

Technology is the catalyst for change

Experience & Challenges at RBC

New approaches to transformational projects

AI in Future

Top Post Trade Projects

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Video Transcript

Vijay Mayadas

(music) Hello everyone. Welcome to our webinar, Navigating Today's Capital Markets Transformation. My name is Vijay Mayadas, president of capital of Broadridge Financial Solutions, I'm responsible for the firm's pre- trade trading and post- trade solutions.

It's my pleasure to be joined by Mark from RBC, Nick Varelakis from SMBC, Tony Bisegna from State Street and Justin Llewellyn- Jones from Broadridge, to share their thoughts and about technology and operational transformation, as well as Virginie O'Shea, founder of Firebrand Research, who will be our moderator.

Some quick logistics to cover, feel free to type any questions you might have during the webinar. We'll address them at the end, during the Q& A session. And we'll also have two polling questions, which I encourage you to participate in and share your thoughts.

Before we jump into the panel, I thought I'd said some context around the discussion and maybe share some perspectives around some of the key trends we see playing out in capital markets, and some of the themes we're seeing firms focus on to navigate these trends.

So, the first theme is around the democratization of finance, and this is a very current topic with things like stock memes, and no free trading.

And of course, despite all the recent hype democratization has been going on for over 50 years with the creation of discount brokerages, online brokerages, the growth of ETFs and so on.

And we've really seen an acceleration of this trend with the introduction of free trading, no free trading in some countries. And it's clearly a trend with a lot of momentum behind it.

And we believe that it'll drive the creation of many new things in the future. Electronification and automation of course continues to grow, pressuring margins for capital market firms.

And again, that's an ongoing trend that we are seeing accelerate. Of course, highly standardized and fungible products like futures, cash equities, spot FX are already at very high levels of automation and electronification.

And we are seeing electronification accelerate for more bespoke products like corporate bonds. And for these asset classes, electronification was already on the rise, but coming out of the pandemic, as I said, we are really seeing trend accelerate along with a very strong focus on digitalization and automation of trading workflows.

There's ongoing regulatory pressure regulators, of course, driving for more transparency and traceability. For example, we've seen renewed intent to drive more reforms around pre and post- trade transparency across the fixed income markets.

And of course, a real increase in focus on governance and ESG and possibly even more focus on cyber. We're seeing an accelerated focus on simplification.

And here we see renewed appetite for a reduction of complexity and fragmentation of technology stacks, and a greater focus on driving simplification and modernization across the trade life cycle, across asset classes and across geographies.

Again, this has always been an ongoing trend, but we're seeing even more acceleration moving forward as firms look to accelerate their efforts to simplify and modernize, accelerate their digital strategies, and further streamline processing across the trade life cycle to unlock the next level of efficiencies.

We're seeing a lot of focus on increasing utilization of digital and data, and a lot of focus on streamlining data management, simplifying data ontologies, increasing utilization of data through advanced analytics and artificial intelligence.

And of course, increased adoption of digital technologies, AI, the cloud and distributed ledger of technologies. And I read a stat somewhere that said that CIOs expect around 60% of their workflows to be in the cloud by 2026.

And of course we're seeing even more or compelling use cases emerge around some newer technologies like AI and DLT.

Great. So, I'm going to spend a minute or two, just going a little bit deeper into some of the themes we're seeing our clients focus on to address some of these trends and pressures. Many of which our panelists will get into in a bit more detail.

So, let me start at the top of this page and go around clockwise, horizontal simplification across silos, vertical simplification across the trade life cycle, the use of a modular ecosystem, access to unified data and the application of more advanced, innovative technologies.

So, most capital markets firms we speak with have a really strong aspiration to achieve trading and operational transformation and simplification through modular, multi- asset solutions that span a trade life cycle and help them move towards a single global componentized platform with a common data model that's more real time and more event driven.

And the complexity here is that each firm has a different starting point on this journey, a different risk appetite around speed and change and different perspectives on how they structure their journey, how to simultaneously simplify and modernize technology stacks, how to manage the stranded cost issue around legacy systems and how to insert emerging technologies like DLT, like AI into their technology stack.

Different perspectives on how to manage data, which drives so much of the challenges. Data fragmentation, the lack of data lineage, different databases and different ontologies.

Let me briefly touch on each of these themes. And again, I'll start at the top and go around clockwise. So, on horizontal simplification across silos, historically organizations have grown up with siloed operating models and technology stacks.

For example, there may be one technology stack for fixed income and a different technology stack for equities processing. And again, different technology stacks across different regions.

And horizontal simplification might mean, for example, get and closer to a single modernized technology stack for all of say, fixed income on a global basis or all of equities on a global basis.

In the front office, horizontal simplification might mean simplifying a fragmented equity LMS footprint going say from 30 to 40 different LMS platforms down to a handful.

Vertical simplification across the trade life cycle. This theme is really about driving deeper integration across the trade life cycle, driving simplification of data and interfaces across front, middle, and back office platforms developing for example, a common data model and messaging layer to reduce fragmentation and further normalizing data sources to reduce breaks and the need for reconciliations.

Modular ecosystems. This is all about developing modular components all connected via APIs and a common data ontology that's been designed to be highly inefficient and flexible, and can enable more rapid product development, increased agility and quicker response to change.

Access to unified data. I mentioned data complexity, fragmented databases, different ways of describing the same data, different ontologies. These are major impediments to any transformation journey.

And we see a lot of focus on how best to structure and manage data to improve interoperability across platforms, simplify integration, and address new demands like data lineage.

And of course, emerging advanced technologies. We see, as I mentioned, a real optic and focus on how to best apply these emerging technologies across the technology stack.

AI and DLT, obviously being two examples. Whereas we're seeing a lot of acceleration in terms of use case deployment. And we see a lot of potential in these technologies. And naturally we see firms being very selective in terms of where they're investing.

In AI in particular, we are seeing a lot of appetite to invest in additional AI use cases in trading, in portfolio management, in order execution, in operational automation, and now even more so in cyber threat detection and many others.

And in DLT, we're seeing a lot of appetite to use smart contract technology to unlock the benefits of things like synchronous multi- part workflows that can really bring a next level of efficiencies across the trade life cycle from agreeing to the terms of a trade up front to optimizing the way collateral is handled at the settlement layer and therefore cost, operational risk, and increase in liquidity.

So, that's really a very quick whistle stop tour if you will, of some of the trends that we see happening in the industry and some of the investments firms are making in response to these trends. So, hopefully that provides some context for our panel discussion.

Let me hand over now to Virginie over to you.

Virginie O'Shea

Thanks very much Vijay and thanks for setting the scene for our panel discussion. As Vijay said, I'm Virginie O'Shea, founder of capital markets research and advisory firm Firebrand Research, and I'm going to be moderating our wonderful panel.

That's going to pick up on some of these key themes. Before I get my panelists to introduce themselves, we want this session to be as interactive as possible, and we have a quick audience poll fuel, if we can launch that audience poll.

And our first question for you guys to answer is what are your most pressing capital markets challenges? If you want to choose all that apply here. The first one is obviously to do with regulation.

We've had a slew of it at post 2008, and we've got another bunch of regulations coming into play, given that the SEC has 97 items to do just this year.

So, we're going to be very busy. The second one, Vijay, was talking about data, managing data. Third one, dealing with legacy and dealing with new technology alongside legacy.

The next one, acquiring multi- asset trading expertise. We're talking about multi- asset simplicity, that life cycle across the top and handling new workflows cost or is a popular option.

And if not, something else we haven't thought of. While we're waiting for you guys to vote, I'd like to get our panelists to quickly introduce themselves. So over to you, Tony, I think first.

Tony Bisegna

Thank you. My name's Tony Bisegna head of global markets at State Street Bank. In my role here, I manage all of our principal and agency trading businesses.

Also our securities lending and financing businesses, and also manage our research platform for all our clients globally.

Virginie O'Shea

Fantastic. And over to you, Mark.

Mark Mullaly

Good morning. And thanks for having me. My name is Mark. I'm with RBC Capital Markets here in New York. I'm a relative new comer to RBC having joined last fall, working with a team that's called DSCI, Digital Solutions and Client Insights.

It's a relatively new team that's actually focused on a lot of the themes that Vijay just spoke to. So, my total focus or majority of my focus here is on pre- trade OMS and the state certification.

Prior to joining RBC, I come from a trading background, having spent most of my career with JP Morgan, and equity, derivative structured trading, as well as building out the book there. Thank you.

Virginie O'Shea

Fantastic. Nick?

Nick Varelakis

Hi there. Nick Varelakis. I currently run the America's division transformation program at SMBC. My background, I worked at JP Morgan within the fixed income operations space for a number of years in the US.

And in England, I was global head of operations at and then a second tenure at JP Morgan, where I ran transformation within the treasury and fund services space.

Virginie O'Shea

Good stuff. Very useful expertise on this side. And last but not least Justin.

Justin Llewellyn-Jones

Thanks Virginie. So, my name is Justin Llewellyn- Jones Jones. I've been at Broadridge for about two and a half years now. Here at Broadridge I own a number of businesses within our capital markets segment in North America.

And I also own our overall product strategy for the global business across the entire front office, middle office, and back office portfolio. In terms of that strategy, probably the most significant manifestation is an initiative we collectively call global simplification, which encompasses the consolidation and modernization of solutions across asset classes, currencies, geographies, et cetera, into a standalone portfolio of components.

Prior to Broadridge, I was at Fidessa for about 15 years in a variety of roles, but most recently the global head of the derivatives business and COO of the US.


Virginie O'Shea

Good stuff. We've got very good experience to talk about these topics that Vijay raised at the start of his presentation. Let's have a look at the results of our audience poll first see what we've got coming up on the top here.

So, let's see. So, it looks like legacy unsurprisingly is top of the stack here. We're talking about simplification, sun setting legacy platforms, always painful, project risk is always high.

We've got data as the second by the looks of things and regulation and streamlining processes coming in very closely behind there. Does that result there correlate with your own experience, Mark?

Mark Mullaly

Absolutely. I'm not too surprised that the top three come in that order, depending on who you talk to, but I think it sinks very well with the experience. A lot of the firms have in my experience historically a lot of the businesses have grown up organically and therefore that comes with the silos.

If there's a dollar on the ground, pick it up because it might only be worth 50 cents next week. So, the extent that that's something is absolutely in line with what we're seeing here.

Virginie O'Shea

Sure. And yes, as I said, it's notoriously difficult to get rid of some of those legacy technologies and mergers and acquisitions have happened relatively frequently across the sell side and the buy side, to be honest.

How about you Nick, from your operations perspective?

Nick Varelakis

Yeah. I'm going to add to what Mark said. I think we talk about legacy, but we talk about people too. It's people, process, and technology, and you've got a lot of people that are concerned with RPA, AI, removing processes, often eliminating jobs as well.

I always keep bringing you back to the people. Everyone's afraid of the legacy infrastructure, but if you use the right people and you find a home for them, when they're done, they're more amenable to assist in building out that new technology and getting the work for right.

Virginie O'Shea

Sure. It's about human augmentation as well as it's not rather than replacement. That's the focus there.

Nick Varelakis

We often lose track of the people component of that when we're automating things, but we get people who have that history to build up the right functionality, the right error trap and the right controls. Without it, it never works.

Virginie O'Shea

Sure. Absolutely. And Vijay touched on to begin with discussing the trading desk and how we're seeing a lot of multi- asset strategies, and the changes that are going on in the front office have impacted both the use of technology and what we're doing overall.

The trading desk looks a lot different than it did 10 or five years ago. Tony, I'm going to bring you in here to talk about the role of the trader from your unique perspective.

What parts has technology played in shaping the evolution of how we work in the front office?

Tony Bisegna

Well, technology's the catalyst for change right now in trading. It's giving traders better tools. It's allowing traders to be able to handle more risk, higher volumes to trade faster, and it's also providing better access to liquidity.

And the traders have better tools now to manage liquidity through varieties of, different, whether it be in equities or whether it be in currencies. So, it's really changing what a trader does everyday, and it's making them more efficient, and it's allowing them, if you're a principal trader to better manage data.

The big data is a huge driver. Now it's an arms race to determine where the markets are going. And I think traders are getting better tools to manage that data, to make better decisions with better analytics.

And also the flip side of the corner, if you're an agency trader, it's helping you to be able to better manage and reduce transaction costs for the portfolios that you're managing.

Virginie O'Shea

Sure. And we are also getting different personality types and different backgrounds in the front office from that perspective, too.

Tony Bisegna


Mark Mullaly

If I could jump just a second, I think quite interesting in my old role is running the central risk book. As you mentioned, the traditional role of trader, or sales trader, technologists and quant, has blurring dramatically, especially in seats like that.

The people that were actually sitting on a desk, both had PhDs. One in operations research, one in computer science. And so, it's very disruptive in the sense that the traditional role doesn't really apply.

You have people who actually can code exceptionally well, who know optimization modeling and techniques, and can think about overall architect. They're actually on the trading desk. And so, it challenges overall not just the traditional roles, but how the business actually maximizes the value of that type of individual in their seat, and then the processes that a firm puts in place for regulatory and compliance perspective as well.

Tony Bisegna

I think it's changing the skill sets that a trader needs to have moving forward. So, it's changing how they train, how they approach the markets, and it's much more analytic.

And again, programming skills are premium and those are the tools that are allowing traders to succeed.

Virginie O'Shea

Sure. So, we are seeing different technology, we're seeing different people, different personality types, and obviously we've got this background of a digital transformation agenda that Vijay opened with by having to change from maybe older technologies that are reaching end of life and trying to look forward to seeing how we can future proof our businesses.

Mark, I'm going to bring you back in here. In terms of your role, you're looking at a digital initiative RBC. So, can you talk us through some of the experiences of working on such a program and some of the challenges you've faced so far?

Mark Mullaly

Yeah, absolutely. It's been a really energetic six months, as I mentioned earlier, in my first opening comments. I've only been at RBC since last September. And I've been very fortunate in the sense that prior to my arrivals about last summer, but I know it'd been worked on ahead of that was the team that I worked on currently, the DSCI initiative was still under the leadership of Bobby Gruber who's been a 25 year veteran and run equities here at the firm.

So, benefited massively from the top of the house, having massive commitment to this overall transformation effort and I think a couple of the key themes that you benefit from that have been broadcast very loud and clear across the firm here are thinking about consistency with clients, consistent client execution and overall end- to- end experience, and how we provide that.

Because the clients on their side are rationalizing, and we need to meet that rationalization and simplification effort on our side. Of course, technical debt to the extent that we need to get some of those silos broken down, and reduce the technical debt has been absolutely paramount in what we're trying to achieve here.

And that's moving in the correct direction. I also think it's important to align the technology that we're trying to build with the business priorities. And so, my experience a lot of times is the business is a bit vague about where they want to take themselves going forward.

Strategically it manifests itself into less than efficient technology built. So, we're working very diligently about trying to get those strategic priorities set, and overall just the mantras of breaking down silos, thinking about how we can adopt a build once reuse technology approach across the estate.

And essentially simplify an automate wherever we can. It's really been a holistic business centric. Because I mentioned my background being on the trading side, I'm coming from a business side of the equation, thinking about this from a holistic standpoint, which I think dovetails nicely with what Nick earlier mentioned about people.

Do we have front office business strategies? What does our checklist look like in that, organizationally? I think you've run into a challenge, which is something we're in the middle of addressing as the poll indicate, thinking about how we can optimally align our technology team, which traditionally had been...

You have ahead of FX technology, ahead of rates technology, ahead of equity technology. And now you might want to be slicing it as ahead of pre- trade technology across that horizontal. Now, how do we set that up and how do we want to adjudicate that with folks in their current skill sets?

And I think Nick's comments there are very appropriate. Overall, we also like to think about, are we covering the various important features of the technology delivery?

And in that I break it out into not only just engineering, which obviously you need to build the products, but do we have the right client coverage? And then what I mean clients, I mean front office, sales, and trading.

What does our intelligence network look like in terms of understanding the needs from the desk? What does that team... And there's a lot of minutia that needs to be bubbled up so that we can actually translate it into productive delivery.

And then who are the product owners? Who are the visionaries that are actually going to tell us what features actually are embedded into the product, and most importantly also is, what features won't, and what the sequencing of that looks like?

And then have we transparently make sure that that's broadcast and disseminated across the overall team so that we can get all the hose and water and rolling in the right direction? And last is the culture.

It's obviously something you're continually working on. It's, are we incentivizing our people? When we say innovation, are we incentivizing for that innovation, for that collaboration we desire?

Do we do that on a daily basis through the meetings we attend, or the meetings that we take out of the equation because they're superfluous to what we're trying to achieve. Let me pause there.

Virginie O'Shea

Sure. Makes perfect sense. I think silos, we forget silos are not just technology. They can be operational in terms of people, as well, in terms of getting them to work together for the common good of the clients, which is the ultimate goal.

And as you mentioned. I want to bring you into the discussion as well, Justin. With regards to the clients of Broadridge and activity side of things, what are you seeing?

The similar stories that you are hearing as well from this perspective?

Justin Llewellyn-Jones

I'm going to echo a lot of what Mark and the other panel list just said. So, typically transformation's focused around risk or cost reduction. There's always a desire to increase business agility and growth, and the backdrop of that is ensuring the stability and performance of the solution and just day to day compliance with industry and regulatory changes as well.

So, those are the facets that people are trying to deal with. So, I'm not going to repeat what they said. What I was going to focus on, Virginie, was where are people or how are people approaching this?

Now traditionally, there's been something of a big bang approach to transformation or projects where you see hundreds of millions of dollars, if not more being spent on a specific project or a specific transformation.

And I think over the last few years, we've seen a slightly different approach being taken, rather than taking large projects that take multiple years, instead our clients are taking a much more incremental or evolutionary approach to it and breaking it down.

As Mark was just saying, understanding the business impact or the business ROI ever change and where the business is being focused and then designing an initiative that can actually be executed in fairly rapid order to allow the business to achieve some value quickly within months, rather than years.

I think there's also a tremendous amount of focus on automation or digitization. I think as people are going through modernization or simplification programs, they're not trying to get a version 2.

0 of what they've got today. They're actually looking at really transforming things. How do I automate, how do I change the point of view of the end user? What is the role of the sales trader or the execution trader in that paradigm?

And then the other thing I thought I would say is just specific, not function feature, but specific areas of focus around things like data. I think Mark just touched on it as well, data and client engagement.

So, as we're beginning to simplify the stack and data becomes more available and more harmonized. We're reinvigorating that thought process around, but how do we surface insight that can be derived from that data, not just front office data, but front, middle, and back office data?

How do we bring them together and harmonize them in a way that actually gives the sales trader insights that they can then reach out to their clients and provide value?

And the final thing I would say is interoperability. There's always a lot of focus on what I will call horizontal consolidation. Let me pull together components or functions and features on the horizontal, across an asset class or across an entity or a geography.

But I think more and more, what we're seeing is people focused on the vertical. Now, how do I ensure that the interoperability between my front office applications and my middle office applications and my back office applications are as streamlined and automated as possible?

And that requires thought processes beyond function and feature. Now you're into technology enablers and ensuring that you have the right API frameworks in place and the right data models in place that really are the catalysts for that modernization.

Virginie O'Shea

Go ahead.

Tony Bisegna

I'll just add on transformation. It was mentioned, but I'd like to emphasize it, that it's really not about cost. Really about creating capacity, better products and ultimately better outcomes, both for the internal users, traders and clients.

And very often transformation just gets wrapped into a big cost cutting initiative. And that's really not what transformation's about.

Justin Llewellyn-Jones

Yeah. I completely agree, Tony. I think we've all been over the years in the situation where you have technology only driven projects. And typically they don't think about what Mark was just saying, which is what is the business ROI of this particular project?

And I 100% agree. A transformational project has to be driving value beyond just cost reduction.

Mark Mullaly

Now. And I totally echo that. One of the points that has resonated here with senior management is to move beyond the feeling that we're here just to do quality of life improvements for sales traders, or traders, or sales people.

I don't think that's a well disseminated thinking at this... Really the idea is, how do we create workflow efficiency that drives increased capacity, wallet share gains, and so forth.

And then separately, also, and I've used this example about if my old book has 10,000 trades in it as a trader and it's all well managed and risk is all transparent and overnight simulation runs and so forth, straight through booking, et cetera, the 10, 000 and first trade, I don't even feel.

So, now you're into a place where you're on the forward foot dealing with clients in volatile markets when your competitors may still be trying to understand what their overall risk is. So, it's important.

I totally agree with all those points.

Virginie O'Shea

Go ahead.

Nick Varelakis

So, I call transformation modernization, not consolidation. And I think that's a super important component. And as the front office transforms itself and gets a lot more digital electronic, I always liken it to we're building a really shiny Lamborghini on the outside, but it's got use 1985 engine on the inside.

And we're not the Flintstones here. So, I think it's imperative. You look at how you can build it organically from the top down, that's where the interoperability becomes super paramount in this process.

Technology can work as fast as possible, but you got to make sure you've got it through your entire life stack. Otherwise, it falls over at some point.

Virginie O'Shea

Sure. Absolutely. And as we are going to move to a T plus one environment, eventually in the US, it's going to be, and Canada, for that matter, that's going to become increasingly important in terms of interoperability and efficiency from front to back going forward.

And I'd like to make sure that the audience knows that they can ask questions, please do ask questions of our panelists, type them into the Q& A, I'll fill them once we've got to that portion at the end.

And I also want to launch our next audience poll because we've been talking a lot about technology and Vijay was talking about AI to begin with. And I do want to begin to ask you guys where you think AI will play a role in the future and near future.

By near future, we mean the next 10 to 15 years. Do you expect it to replace humans in any areas of capital markets? Yes in trading, yes in operations, yes in multiple areas, maybe you're not sure.

No, but it'll continue to augment humans. So, it won't replace them or never. You're perish on AI being successful anywhere, which I doubt anyone's going to say that.

But as we've got our audience voting, Tony, what do you think on the topic of AI? Where do you think it's making inroads?

Tony Bisegna

Well, it's making inroads everywhere in trading, but I think the real question is, if you look at the questions and the proposed answers, do you expect it to replace humans? I think it will change what humans are doing.

So, we mentioned earlier that the skillset of a trader now is more about being able to program and be able to build quantitative models, trading models. That's going to continue.

If you're talking 10 to 15 years, at some point, it will largely automate trading so that the trading role will be more of a quant role as opposed to a trader.

But in the near term if you're talking 10 years out, will that eliminate the need for a human trader on the desk? I tend to think not, but it will eventually, it's a matter of what the timeframe is on it.

And I think then traders become quant and they're building and tuning algorithms at a managing risk accessing liquidity. And I think eventually at some point we will see AI get to the point where it can already do it now, but it'll be able to act faster than a human, it'll be able to decipher data better because data is a key thing in trading.

To generate, you have to be able to interpret the news coming out and all the news and what I call a big mosaic and being able to gain insights from that.

Your competition can't do as fast, and that's going to give you the edge to move before the market moves. And I think that's where AI really plays in and will help to generate alpha going forward in the markets.

Virginie O'Shea

Sure. And the data we are dealing with, it's just increasing in complexity every year and different types of data, internet things will bring in even more variety and complexity of data.

Tony Bisegna

And faster and faster, being able to interpret it faster and faster is going to be important.

Virginie O'Shea

Sure. I'd like you to bring you in as well, Nick, from the operation side, because obviously trading is one area. There's been a lot of discussion about replacement of humans in this middle and back office and the ops side of things.

Where do you see the changes there?

Nick Varelakis

So, I agree with Anthony in that, around the timeframes. I think very similarly on the operation side. I think the rules change, rather than manual reconciliations, if you do better error trapping, the control function still exists.

The metrics to monitor that activity and ensure that the robotics is working the way it's intended to and capturing when it falls over very quickly. I see operations role shifting to more engineers.

Data processors, digitization type platforms, the roles will change and they'll have to shift over time. The days of manual work are essentially over now, but it's getting increasingly difficult over time.

Because like Anthony said, the front office is going to be working faster. So, we have to keep up with that. Back to that Lamborghini example, right? The car's not going to move if the engine isn't functioning properly.

So, we've got to keep up with the business and we've got to ensure that we've got the right system control. Just not people.

Virginie O'Shea

Sure. Getting rid of those tasks that aren't value adding or dealing with the exception based processing instead of having to deal with everything, and dealing with things manually. Certainly very important.

I want to see the results, see what our audience has said. So, if we can show the results, let's have a look, see where they think AI is going to replace humans or not.

Okay. So, our audience are very bullish on AI replacing humans as well. There's about over a third of them think that we'll see multiple areas across both the business and operations.

So, although the majority are saying it'll augment humans. Is that what you expected to see Justin?

Justin Llewellyn-Jones

Yes. I think actually both of those answers are in some way correct. So, if I replay what Tony and Nick were just saying, I think AI plays a role in what I'll call a speed of determination.

So, it's more advanced automations that we see allow the computer to recognize patterns and events, ingest data faster than a human and then make a determination or present data in a way that can then be used in the decision making treat.

That's the concept around a lot of the automations, whether it's AI driven or more simplistically in things like algorithms and smart parameters and so on and so forth.

I think there are certain decisions with any trading operation or life cycle where a client can get comfortable with the idea that this is a low risk decision or a low impact decision.

And therefore I'm going to allow the computer to make the decision on my behalf. And of course that does require them to put a governance or a control framework around it that they can prove to their inner rows or their regulators that they're comfortable with the computer making that decision.

But there's plenty of other things right now where it's more difficult to put those governance and control frameworks together, or the actual decision making process.

You can augment that human being and give them the ability to make that decision. And that has value in terms of being able to then go back to the client and explain the data elements that have been surfaced and explain to the client what you as a human being want to do with those data elements.

But I am expecting over the next few years it may take five years, 10 years, 15 years, more and more automation is going to get introduced into the trade life cycle, whether it's in the trading world or in the operations world.

And I think you said it yourself, the shift to an exceptions based process where really the human being is being fo focused on the more complex set of activities or things that are outside of the realm of the normal is going to occur.

Tony Bisegna

I think a lot of it's very similar to... An analogy would be self- driving cars. We're starting to see that now play out a little bit, but you have a human that can sit and grab the wheel.

Right now it'll keep you in the lane and all that. But eventually they'll program cars to be self- driving. Now, I would argue the complexity of programming a car to drive itself versus trading in the market, trading as far bigger problem or harder problem to solve for.

There's many more variables there, but it will evolve to that. And at first it'll handle a lot of the trading, more generic activity and the human will intervene where need be, but that's going to be part of the evolution, I think, on the trading side, as it moves forward.

Justin Llewellyn-Jones

I agree, Tony. If you think about the level of automation that has been introduced... Not in every single asset classes, but the more liquid or more electronified asset classes over the last two decades.

And then you think of the progress that is being made in areas like corporate bonds and so forth. The ultimate automation is... I'm not going to say inevitable, but it's going to continue to occur.

More and more workflows will continue to be automated. I think the other part of what you said around determination is another facet of this.

The fact that AI is capable of consuming a tremendous amount of data, looking for patterns and looking for events and understanding sequencing means that you get in to almost a predictive realm where the same patterns and events and activities are occurring, and the human being may not be quite capable of keeping up to speed as trading continues to speed up.

Virginie mentioned the move to T1. Eventually we're going to move to T0. The speed of continues and just using AI to augment human activity, to surface those patterns, predict potential exceptions.

I think it's really inevitable.

Tony Bisegna

It's a speed of data too. There's so much data now, and it is overwhelming to traders, the human. There's so many different venues now to get information. And it's just growing and increasing and it's getting harder and harder for human to digest it very quickly.

Virginie O'Shea

Interestingly, regulators are also investing in their data capabilities and their analytics, because they're being overwhelmed with the information they have to process through, which is another angle to this is, they also have to digitally transform.

And when it comes to AI, they are very, very wary of black boxes. They want you guys to be able to tell them exactly what's going on under the hood. So, that's another angle to think about from that perspective.

Justin Llewellyn-Jones

Yeah. And that's like governance and control framework. There is a very well established concept in terms of decision making within any organization.

And I think you're right, Virginie, the regulators are keen to understand what those frameworks are to ensure that you don't have a computer making decision, all on its own without the correct surveillance and oversight.

Virginie O'Shea

Exactly. And accountability. Somebody needs to be blamed if it goes wrong. Nick, I want to bring you back into this discussion because we're talking a lot about data, and transformation around that, and all things to do with AI or any kind of technology is all about the high quality data that can be fed into it.

Perhaps you can talk about your experience at SMBC and in digitizing data and how you've worked with your business, I guess end users to that end.

Nick Varelakis

Yeah. I agree. And I echo everything that Anthony and Justin were talking through and I think that the most important part for me, especially in my last year here has been getting that data correct and consolidated.

So, developing data warehouses. But I think to the point that the guys are making, it's also imperative to make sure you're controlling that data the right way. Data is super powerful unless you don't understand it properly.

And I think there's sometimes a big reliance on all the system is just going to process the information. You've got to look at it and you've got to build the right control metrics on top of it to monitor and approve it through the stack.

And it's been a big component of what we've been doing here, developing data warehouses for a number of our businesses. This is the first step in automation. And in my mind, the augment of the humans.

It's got to be getting it right. And again, I always take it back to the people. It's making sure that you're using the 25 years of history that the staff has to get that data correct and consolidated in the right place and well understood.

Otherwise, I think to Justin's point, the auditors and the regulators tear you apart. They don't care how fast you can process. They care that it's accurate first. It's a super big component that we're seeing throughout the street at this stage.

Virginie O'Shea

Sure. Absolutely. Now, I'm seeing lots of audience questions coming in, so I'm just going to have a look, see what we've got then I can fire at you guys. One question here, what's the best resource that you use to stay up to date on transformations within the broker dealer space?

I guess with your peers, what kind of resources are you using? I guess I'm assuming industry associations and things like that. Tony, Mark, maybe one of you two?

Tony Bisegna

I think it's industry associations. I think it's competition. Obviously, in the front office we're competing with all large banks out there and we see their products changing.

So, we see the ability of them to do things that maybe we can't react as quickly to, and it drives us to transform the way we're doing things. So, I think it's competition. I think it's industry working groups.

That's from my perspective.

Mark Mullaly

Yeah, I would second that I think there's nothing more value than a good personal network of folks that you'd either work with or competitors that you deal with to get into the details.

So, a lot of what you can read online is great, but again, it might have just a bit of a marketing spin to it that if you rub off the gloss, you might get down to more of the details if you're actually talking with your individual network.

I do know some people that really rely a lot on LinkedIn. They look at forums there and the output of some of their key followers. I think you can find some good information there, but for my that, kind of that personal network is really what drives it.

Virginie O'Shea

Sure. Makes perfect sense. Yeah.

Justin Llewellyn-Jones

Yeah. I think I would add is... I suppose I'm echoing Tony and Mark to some extent. A lot of the activities within the trade lifecycle are non- differentiating.

If you think about something as simplistic as compliance reporting, we've all got to do it. There is no prize for doing it better than anybody else. You have to meet the mark, and you can look through the trade lifecycle to look at functions and features that fall into that non- differentiating bucket.

And I think the broader industry does a very good job of just coming together to discuss some of those where it's a non- differentiating activity, where it's a utility based activity, let's get together and actually discuss it and work at how to progress it.

Now, I think the other thing that I would echo is that peer groups are fantastic. Actually getting together as a peer group and talking about some of the new newer technologies or the newer approaches, being able to bounce ideas around, that is to me, probably the best way of finding forums within which to discuss things that we can move forward.

Virginie O'Shea

Sure. That makes sense. I'm looking at some more questions here. I'd seen one question here, perhaps this is appropriate for Nick. What are the top post trade optimization and transformation initiatives taking place in your organization and how much of that is using vendor platforms?

That's a tricky question, but percentage- wise, I think.

Nick Varelakis

I'll definitely take that one. So, I think the top post trade programs from SNBC is reconciliations. So consolidating the front office and making sure that it gets into the back office very tightly, very quickly with error trapping throughout the hops.

So, hops for me are the trader actually gets the trade. It matches, it gets into the operations queue, making sure that we've got real time trapping through that. A flight deck, so to speak where we can see every transaction as it's flown through.

I always follow the principle of, I want to know there's a problem before my client calls me, tells me there's a problem. When it comes to the percentage of vendor platforms, it's probably 75% in house versus 25% vendor.

You're one of our big vendors, Broadridge is. But a lot of that, it depends on the type of issue that we're dealing with and who we think can solve it for us faster. You've got a lot of competing pressures internally.

You've got the business, you've got regulatory regimes and you've got operations. And I think someone echoed earlier the big programs and transformation versus the small ones. My program is always comprised of three different components.

I've got my tactical, my strategic and this self invented word. Everyone loves the big three to five transformation programs that cost $ 50 million.

I focus more of my time, attention on the, how do you deliver some quick hits and make sure that the business is processing things the way that they want it, you can build proper momentum within the space.

And I think when we get to some of those quicker hits, it's using third party vendors, especially around RPA, AI, who can just come in and do things very quickly.

Other programs that we're working through here is digital loan data. That's a massive program for us now. The biggest one that I'm running with in my own program, it's taking the loan space and really starting to consolidate it into a platform, making sure that the business is asked to do things one time, not multiple times, and then ensuring that that's harming the data off to all of the downstream parties, risk, compliance, credit, rather than emails.

It's systematically driven, SLA is driven through the platform. But I think this is consistent with any operational program that you have. Eliminate your emails, consolidated it into one place, data, data, data, data.

And making sure that the data is correct in that one place.

Virginie O'Shea

Sure. Makes perfect sense. Tony and Mark, do you have any areas that you'd like to highlight from what you guys are doing internally?

Tony Bisegna

No. I think basically the same themes that he said, I'll just echo that we're dealing with things in a very similar fashion, the percentage internal versus vendor platforms, I think on the trading side, you'll see more vendor platforms just by the very nature of the business, being a lot of the ECNs are vendor provided.

That said we have internal aggregation tools. We have internal risk management tools that we've built out around it. But certainly as do most front office providers use a lot of outside vendors for the trading tools.

Mark Mullaly

Yeah. I may add just one extra thing, which touches a little bit on what Justin mentioned earlier in terms of the horizontalization versus the verticality. And I think it's an interesting point is when you sit back and look at your inventory of stuff you need to do, clearly if you've got issues inside of, you have to need to clean that up before you get to an irrational state.

People talk a lot about leapfrogging and taking it to a different level, but if you haven't really handled the basics, you need to get that solid in your individual asset class, for example. And so, one of the things we've thought about a lot is, as an external...

Well, I should say an internal team that has been stood up a year ago is what are we actually providing? In some cases it's full teams to attack these various initiatives, but in some cases it's just a process for change.

And your product is almost the process for change. And so, you really want to tie out to get people on board as to whether that approach and that framework makes sense. So in our case, we did a proof of concept in one or two different asset classes, gathered the teams together and went through the overall solutions process around.

And I think that was a wise decision because now at least those that look in from the outside say, I see how that works. And I see how you can actually start to think about rationalizing across these different asset classes, but you need to do it in the right sequence.

And that engagement with the business is really key to what that sequence will look like.

Virginie O'Shea

Sure. Makes sense. We've had our first question on crypto. We're talking about digital transformation. We have to talk about crypto at some point it looks like.

I'm assuming this is saying that more banks moving towards working with cryptocurrencies, digital assets. I would broaden it out to you. Because I think it's not just crypto, is it the wider pool then?

How are you handling them from a transformation perspective? Anyone want to take that? Raise your hand.

Tony Bisegna

Sure. I'll jump in there. I think there's your traditional crypto, the Bitcoins, the Ethereums, and then this tokenization of assets. And tokenization, I think is a big theme that's going to continue.

It will speed up trading. It will allow trading to become more efficient and you tokenize illiquid assets. So, there's that aspect. And then when it comes to the traditional, what we call crypto like Bitcoin, a lot of banks are looking at it and I see this in different industry groups with this, but it's a challenge right now.

It's a challenge from a regulatory perspective, Bitcoin, Ethereum, mature use commodities. There's limitations on what banks can hold in regards to commodities. So, it's a matter of getting regulatory approval.

And I think the regulator's are a little confused and scratching their head exactly what it is. Now, banks could trade derivatives in cryptocurrency. So, it could be NDFs, it could be futures, but the capital cost associated with are very, very expensive.

So, I think a lot of the industries are looking at it, I think a lot of the trading does want to get involved in it, but there's a lot of open questions right now in the regulatory front.

Virginie O'Shea

Absolutely. I'd say there's questions between the regulators, as well as to which one has jurisdiction, which is not helpful for the market at large, but they need to get their ducks in a row first.

Anyone else comment on crypto?

Justin Llewellyn-Jones

I would say that there's two vectors of this. There's the concept of actually trading the asset or digital asset. And then there's the concept of deploying things like digital ledger technologies to support the trade life cycle.

And I think I'll echo Tony, there's a tremendous amount of interest in being able to trade the asset. A tremendous, tremendous amount of interest. And then of course, the trading of that requires the custody of it, requires the books and records of it, and so on, on and so on.

So, across the whole trade life cycle. Now that doesn't necessarily require you to then change your underlying technologies to blockchain or whatever to support it. I think in many instances you can actually trade the asset without the wholesale change of your underlying technology stack.

But the second part is that it is real interest in understanding, well, how does DLT fit into the trade lifecycle? Is it possible that using it concepts like smart contracts as Tony just said, can improve the liquidity of generally illiquid assets today.

And we are seeing areas where blockchain can be applied into the trade life cycle. So, I think we're going to continue to see heightened interest in trading and obviously the books and records part of that.

But I think over time, we're going to see more and more applications of DLT within the trade life cycle as well.

Tony Bisegna

Yeah, absolutely. For traditional assets, I think you'll see more and more of that. It'll become more than normal.

Virginie O'Shea

Sure. Let's see what other questions we've got in this set. We've got quite a few. Where do you see the challenge on transforming different asset classes, front offices?

I'm assuming that's where the greatest challenges you're facing in terms of transformation. Mark, maybe I'll start with you.

Mark Mullaly

Yeah. That's an interesting one. I think if you look at... Coming from an equities background, I'll start there. There's been so much work on the electronification digitalization of equities that you're almost now into fine tuning.

So obviously you're never done, but that asset is so deep and liquid and transparent that you can see a lot of what you need.

In our case, for example, we've got how can we get a global book more appropriately stood up so that everyone in every region can actually see what's happening in other regions and execute for clients that really want to think on a global perspective?

I think one of the things that's critical across a lot of these books is what I'll call the centralization of the flows. So, clients are clearly looking for differentiated liquidity, wherever you are actually offering it to them because they see it in so many different places.

What they want to see is how can you give me a set of flows that maybe I can't find somewhere else? So, that's an effort that's gong on again in the equity space, around a lot of building out the central liquidity books, such that we can actually have a more differentiated pool of liquidity.

I think that will continue in other asset classes as well. Similarly, the portfoliolization, so to speak, of whether you're into rates or any other asset class.

You start and you say, I want to go from one single asset. Then I want to digitize it, make it automated. Now I want to trade in portfolio space. That is a never ending thing. And I think we'll be seeing more and more of that in the rates and the fixed space that will just mirror what's happened in equities over the last two decades.

Virginie O'Shea

Fantastic. I'm afraid we're actually running out of time. I just looked at the clock because we're having such an interesting conversation. I'd like to say thank you to all my panelists. Very engaging, interesting conversation on all of the different buzzwords we've got across the whole area.

Now, I'm going to hand back to Vijay.

Vijay Mayadas

Thanks so much for Virginie. Look, I'll just echo. Thank you so much for attending today's webinar and a special thanks to Mark Tony, Nick, and Justin, for sharing your perspective and obviously Virginie for you moderating.

Thank you. It was just fantastic hearing everyone's insights on the opportunities and challenges, transforming and navigating capital markets. And also how you think about priorities in the front office, in the middle office and the back office across different asset classes, across the trade life cycle, and your perspectives on emerging technologies as well, is super interesting.

So, thank you so much. I know we're out of time. We hope you enjoyed this session and found it informative and enjoy the rest of your day. We'll be in touch. Take care.

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