Post-trade processing, T2S, asset servicing and regulations impacting shareholder communication and messaging are all likely to be much discussed at the Sibos 2013 trade show in Dubai, UAE, running from 16-19 September, says Mike West of Broadridge as he picks his ‘hot topics’ ahead of the event.
I anticipate that regulatory and market change will again feature highly on many delegates’ agendas at Sibos 2013, as will the impact of these changes on market infrastructures - indeed there is a whole stream dedicated to market infrastructures this year. Many financial institutions (FIs) will seek to advance their strategies for post-trade processing at the show and under the changing regulatory and market environment emanating from the post-crash Pittsburgh G20 meeting back in 2009, while proxy voting transparency and governance will also be subjects of interest for organisations within the legal chain of intermediaries.
The drive for legal entity identifier (LEI) standardisation and new transparency and ‘on exchange’ moves enshrined in the European Market Infrastructure Regulation (EMIR) and the US Dodd-Frank Act are also pertinent factors in this changing environment.
Regulatory & Market Change
Intraday liquidity management: Reconciliation and cash management continue to be of growing importance to banks and this will be reflected on the Sibos 2013 agenda. While the need to reconcile payments and match post-trade transactions is not new, the new Basel III capital adequacy regime will place a greater emphasis on managing these on an intraday basis.
This should ensure that a bank, and its regulator, understands its working liquidity requirements and its ability to withstand future market shocks. While this challenge has to some extent been overshadowed by the industry changes of Dodd-Frank and EMIR, an adoption date for the use of monitoring tools from 1 January 2015, as outlined in the Basel Committee on Banking Supervision’s (BCBS) ‘Monitoring Tools for Intraday Liquidity Management’ report, is beginning to concentrate treasury and market operations’ efforts in this area.
Trade repository reporting: New regulatory changes are also demanding more interaction with a greater number of industry participants, which needs to be managed. The Dodd-Frank and EMIR regulations have created new market structures requiring trades to be reported to a central trade repository – the theory being to reduce the complexity of unpicking trades in the event of another failure such as Lehman Brothers.
Since regulators will treat the trade repository database as the record of truth, banks are discovering that they need to ensure that their trade records are in-line with the repositories. This is also reflected in the move towards central clearing for over-the-counter (OTC) trades and so forth, bringing into play an additional participant in the central clearing process, and therefore an additional party with which trade records will need to be aligned and reconciled.
Increased focus on shareholder communications: Changes to the business environment for banks and central security depositories (CSDs) are coming fast with the launch of the target 2 securities (T2S) single securities processing platform in Europe in mid-2015 and the looming requirements around the Securities Law Legislation (SLL) in the EU.
Under T2S, banks and CSDs are increasingly being pushed into each other’s traditional business areas, shifting them from service provider/client relationships into nascent competitors and/or collaborators. Some of the largest custody banks are already preparing to effectively become full CSDs in their own right, while CSDs are adopting specialist asset servicing strategies and moving to a business model emphasizing collaboration with other CSDs and outside service providers.
While there may be a degree of uncertainty for banks and CSDs in terms of the final form and timing of the SLL implementation, not preparing for the known SLL changes is rapidly becoming untenable. While SLL changes will impact a relatively small component of new business models, it will be a key area of differentiation among CSDs and banks in the new environment.
As noted earlier, one strategy for preparing for the new environment is specialisation in key areas of asset servicing, such as collateral management and investor communications. Moves in the area of collateral management are well under way, and participation in that space is already taking shape. While uncertainties about SLL have delayed responses in the area of investor communications, in the last year movement in this space has begun as well. Investor communications is a fluid environment and lends scope for differentiation. As SLL implementation comes closer and details become clearer, being prepared to adapt quickly will be a key area of development for banks and CSDs.
New Models for Post-trade Processing
Investment banks are evaluating the effectiveness of their post-trade operating models, driven by the burden of regulatory change, client requirements and the need for profitable growth. Front offices are demanding change to support clients and grow the business, but post-trade budgets are being diverted to regulation and maintaining core operations.
Increasingly firms realise that it’s not cost-effective to repeat functions that their peers are doing on the same basis, which is causing them to seek solutions where a third party can mutualise these services. Shared solutions can provide economy-of-scale savings, lower cost of ownership and superior service levels.
Proxy Voting Transparency and Governance
End-to-end vote confirmation is an area of growing interest to organizations included in the proxy voting chain of intermediaries, many of which will be present at Sibos 2013 in Dubai. Vote confirmation presents an opportunity for greater integrity throughout the overall proxy process, can help raise the level of transparency and remove any ambiguity concerning vote statuses. This could, in turn, lead to improved investor confidence as a result of increased governance standards.
The issue of governance is definitely something that is front and centre of mind at the moment under the impact of this raft of regulations and the post-crash market environment. I expect a lot of discussions around these issues and the other ‘hot topics’ I have described above at Broadridge’s B77 stand on the exhibition floor at Sibos 2013 and I look forward to participating in the debate.