Challenges in the post-trade ecosystem

At a recent webinar on post-trade systems hosted by BT Radianz, there was a panel discussion on key challenges facing firms in the financial markets, specifically focusing on data, regulation and technology. In this article, we will explore some of these problems and potential solutions based on the projects and ongoing discussions Sinara are having with our clients across the industry.

Existing post-trade platforms

The post-trade platform of many financial institutions tends to be a mixture of systems that have grown up over the years, often a combination of packages from third-party vendors, internally built systems, spreadsheets, and manual processes and ‘know-how’. Many of the core systems are often several decades old. While these do keep business running on a day to day basis, there is a risk that firms will be faced with significant challenges when wanting to take advantage of new market opportunities, deal with changes in regulation, or address increasing costs.

Extracting value from data

With much of the data locked away in these systems increasingly becoming valuable assets in their own right, firms need to have a platform that can allow them to rapidly extract data, analyse it and deliver value to their clients. Firms that have a legacy architecture with post-trade data locked in silos can find it difficult to get the required data out when needed, and generally quite difficult to get data back in to run a model or test, for instance.

Post-trade transformation

While trying to achieve this goal of leveraging their data, many firms are starting to use the opportunity to more broadly examine the technology they use in post-trade. Some choose to update their existing systems in-house or outsource the maintenance, while others aim to replace completely. However, given the age and complexity of these systems, and their business-critical nature, it is not surprising that firms approach such change with caution.

Workflow automation & efficiency

Aside from the challenges of having to deal with legacy technologies, firms are having to address the impact of post-trade workflows that are not as automated as they could be, and rely on email, spreadsheets, manual data imports, and in some cases even paper or faxes. This is especially the case when communicating with clients, counterparties and other stakeholders. In times of high volatility, these kinds of manual processes can result in some real risks. In other times, they may limit the potential for growth or delivering innovative new services to clients, risking a loss to more agile competitors.

Regulation

Another one of the biggest post-trade challenges over recent years for most trading firms has been how to adapt to increasingly complex regulatory reporting. Operations teams have to deal with the sheer volume of data needed by regulators, verify its quality and accuracy, get it into the right format, and submit on time. Often, the data itself needs to be extracted from disparate systems. Firms have already spent significant amounts to achieve all this, and so will want to ensure that any new technology spend can directly improve the bottom line, as well as satisfy the regulators.

Building a new solution

But what is the best approach to these challenges? A specialist software partner, such as Sinara, can work closely with firms to understand their existing post-trade workflow and produce a set of proposals. Quite often, it will be possible to break down the trade flow, examine the individual tasks, and gradually deploy smaller software components that can be integrated using modern protocols. This results in less risk both in terms of development budget, training, migration and operations.

An alternative is to build or buy in a completely new end-to-end post-trade platform that will deliver all the functionality needed for the core processes as well as allow the firm to monetise any data as needed. Sometimes, such a ‘big bang’ replacement may be the only feasible approach, but even here it may be possible to achieve results earlier by building and deploying the solution in phases.

Regardless of how it is arrived at, an ideal post-trade architecture should enable data to be easily extracted at any point in the process, in a format suitable to be fed into other business systems, such as a web-based client portal. This kind of flexibility also allows a firm to plug in new components along the pipeline more easily, or indeed to replace a particular component in the future. A well-designed system will also clearly define the data model and workflow, maintain audit trails, ensure proper access controls, and deliver fast throughput for those ever-increasing data volumes.

Summary

In return for up-front development investment, greater automation and replacement of legacy systems can deliver long-term cost savings, remove sources of risk and enable new business opportunities. With firms across the trade lifecycle looking to invest in a new generation of post-trade platforms, Sinara look forward to bringing our experience, development skills and frameworks to these innovative projects.