Tactical versus strategic solutions: Where lie the benefits?
13 June 2017
Calypso Technology pits the viable options for a quick fix against implementing a strategic long-term solution for growth, and investigates the possibility of combining these options for the optimal securities finance solution
Image: Shutterstock
The new regulatory environment in combination with squeezed margins and increased competition has prompted many firms to review their infrastructure for securities finance and collateral management.
Facing tight budgets and with regulatory deadlines approaching quickly, some institutions have favoured quick-fix solutions over longer term strategic investments, whilst others have thought long and hard about how to monetise and re-engineer their business to create advantages from the new regulatory landscape. Businesses have transformed to gain competitive advantages by offering new securities clearing services, optimising the use of collateral or simplifying their infrastructure for improved transparency across business and product lines.
Buy-side firms are increasingly looking at new technology investment or resorting to utility service providers to comply with regulation and demonstrate to their investors that they can manage their risks and meet demands for more sophisticated reporting requirements. There is also a demand from sell-side firms that may have underestimated the need to invest in infrastructure, some due to business growth and others who have relied on manual workarounds in the days when business margins could absorb operational inefficiencies.
Short-term gain
Firms looking to make changes to their infrastructure are typically under pressure to prioritise short-term gains when building a business case to obtain budget. These are easier to define, quantify and measure.
There are unfortunately too many examples of new ‘quick win’ solutions that look viable at the outset but turn into costly bottlenecks, constraining the business growth in a matter of months rather than years. Problems may arise when the business wants to start trading new products, access real-time cross-product data to support complex reporting requirements or to move towards cloud deployment.
However, any new software or infrastructure project needs to achieve a quick time-to-market with tangible business benefits, firstly to be approved and ultimately to be deemed a success. How can an organisation ensure that the short-term gain remains a sound decision even if the business changes direction or new regulation is introduced?
Long-term profitability
Alan Sheehan, director of product management at Calypso Technology, explains: “We are seeing an unprecedented change in the market on multiple levels: new regulation, squeezed margins, review of target operating models, the growth of utility services combined with technology pushing boundaries with an increase in the use of cloud deployment and blockchain shaping the future. Amid widespread structural changes, firms need to ensure a short-term gain while also taking in the bigger picture.”
When investing in new technology a firm must assess how a potential vendor solution can deliver quick, short-term benefits as well as being a trusted long-term partner. The vendor needs to have the capability to evolve with the business as well as the changing regulatory and technology landscape. This only comes with experience and with a proven track record that demonstrates innovation.
Sheehan explains: “Calypso benefits from a large, global client base representing the sell-side and the buy side but also includes exchanges, clearinghouses and central banks. Some of our clients use our platform for proprietary trading while others manage their clients’ assets and we also have clients offering securities clearing services running on the Calypso platform.”
“Working in close collaboration with our broad client base has been vital to get the full picture of the evolving market requirements and to make the right strategic decisions of the product roadmap.”
An agile approach to deliver results quickly
Achieving success early in a project to remedy immediate problems constitutes a sound platform for further re-engineering of the firm’s infrastructure and business processes. It’s not only a question of a quick return on investment, it’s equally important to get the buy-in from-end users.
A phased implementation and the early lack of clarity on over-the-counter derivatives regulatory requirements, both allowed and sometimes required a tactical response to comply in time. However, now that there is more clarity of the landscape there is the opportunity to look at more strategic options.
Flexible, ‘on the fly’ real-time reporting requirements may be a prerequisite for the business to remove bottlenecks, serve its clients or comply with regulation. Likewise, the project scope may be ring-fenced to a single module of a larger solution.
By using an agile, phased implementation approach, benefits can be achieved quickly. Further rewards can be secured as more functionality is ported to a single platform.
Combining a tactical win with a longer term strategic goal requires a technology vendor with a mindset of a business partner, carefully tuning in to what short-term problems can be solved while leveraging technology to finding creative solutions that can be adapted as the business evolves.
Simplify and transform
Combining a solution for repo and securities lending seems obvious. By also adding collateral management and optimisation to the same platform with cross-asset coverage from trade initiation to risk, post-trade processing and reporting, the business can see true transformation.
A simplified infrastructure with fewer systems means reduced costs of maintenance, staff training, upgrades, hardware and interfaces. Perhaps most importantly, the business will be able to have a centralised view of all inventories available across products and business lines, an optimised use of collateral to reduce cost and improve profitability.
Sheehan explains: “From the outset, the Calypso Securities Finance solution was built as part of an integrated cross-asset, front-to-back system, leveraging the strong backbone of the Calypso back-office solution. Complemented by the Calypso collateral management solutions, it offers a solid platform for growth.”
“With its flexible workflow, firms can benefit from pre-configured, ready-to-use workflows as well as having complete flexibility to mirror its existing processes and policies without the need for vendor involvement. This gives the client autonomy to introduce better automation, transparency and control step by step.”
Sheehan continues: “The Calypso solution combines a tactical win with a strategic solution. The Calypso system can be deployed to cover all aspects of securities lending, repo and collateral management as a phased project scope.”
“In fact, many of our clients have started by implementing a single module of the system to later expand the usage. With a strong derivatives, fixed income and securities background, the Calypso solution breaks down silos and offers a transparent end-to-end, cross-product coverage.”
The challenge of data
Data is a huge concern in the industry, particularly how to manage it, and ensure it’s trusted and provided in real time. Firms are looking for a reliable ‘single source of truth’ in real-time for all securities and cash inventories. Decision makers are increasingly demanding data transparency with ability to dynamically drill down from positions to trade details and easily follow the trade lifecycle.
An integrated, cross-asset platform for securities lending and collateral management centralises security pools which facilitates an optimal use of cash and securities inventory for trading and exposure management. From trade input to post-trading processing, the flow will be seamless offering complete and instant transparency.
Future-proof technology
Unfortunately, there is no assurance that the technology your firm is relying on today will be the best viable option for tomorrow. In fact, it is more likely that faster, more functionally rich and better user experiences will be available.
Technology vendors are at different stages of delivery and readiness. You want to partner with a vendor that has a proven track record as well as a vision and roadmap to seek innovation and continuous improvement. This requires trust and the vendor needs to be mindful of what the client is trying to achieve—both in the short term as well as being able to advice on strategic decisions.
Choice of deployment—as a cloud service, on premise or a hybrid—should be considered. A vendor actively engaged in Blockchain technology, that is likely to transform and automate the marketplace, demonstrates innovation. A large client base provides a continuous flow of input to deliver new functionality, improved user interfaces as well as simplified implementation methodologies and procedures to support clients.
Finding the right partner
Selecting a technology system and supplier can be daunting. Not only does the functionality need to be fully covered, the system also needs to fit within the existing environment and most importantly evolve with the business and the market.
Simply lifting the bonnet won’t do the job. Decision makers need to understand what parts drive it, how far can it go and how is it being serviced. Whatever the next challenge is—to trade a new product, manage regulatory change or shrinking margins—make sure that your business, infrastructure and your technology partner are ready to step up.
Facing tight budgets and with regulatory deadlines approaching quickly, some institutions have favoured quick-fix solutions over longer term strategic investments, whilst others have thought long and hard about how to monetise and re-engineer their business to create advantages from the new regulatory landscape. Businesses have transformed to gain competitive advantages by offering new securities clearing services, optimising the use of collateral or simplifying their infrastructure for improved transparency across business and product lines.
Buy-side firms are increasingly looking at new technology investment or resorting to utility service providers to comply with regulation and demonstrate to their investors that they can manage their risks and meet demands for more sophisticated reporting requirements. There is also a demand from sell-side firms that may have underestimated the need to invest in infrastructure, some due to business growth and others who have relied on manual workarounds in the days when business margins could absorb operational inefficiencies.
Short-term gain
Firms looking to make changes to their infrastructure are typically under pressure to prioritise short-term gains when building a business case to obtain budget. These are easier to define, quantify and measure.
There are unfortunately too many examples of new ‘quick win’ solutions that look viable at the outset but turn into costly bottlenecks, constraining the business growth in a matter of months rather than years. Problems may arise when the business wants to start trading new products, access real-time cross-product data to support complex reporting requirements or to move towards cloud deployment.
However, any new software or infrastructure project needs to achieve a quick time-to-market with tangible business benefits, firstly to be approved and ultimately to be deemed a success. How can an organisation ensure that the short-term gain remains a sound decision even if the business changes direction or new regulation is introduced?
Long-term profitability
Alan Sheehan, director of product management at Calypso Technology, explains: “We are seeing an unprecedented change in the market on multiple levels: new regulation, squeezed margins, review of target operating models, the growth of utility services combined with technology pushing boundaries with an increase in the use of cloud deployment and blockchain shaping the future. Amid widespread structural changes, firms need to ensure a short-term gain while also taking in the bigger picture.”
When investing in new technology a firm must assess how a potential vendor solution can deliver quick, short-term benefits as well as being a trusted long-term partner. The vendor needs to have the capability to evolve with the business as well as the changing regulatory and technology landscape. This only comes with experience and with a proven track record that demonstrates innovation.
Sheehan explains: “Calypso benefits from a large, global client base representing the sell-side and the buy side but also includes exchanges, clearinghouses and central banks. Some of our clients use our platform for proprietary trading while others manage their clients’ assets and we also have clients offering securities clearing services running on the Calypso platform.”
“Working in close collaboration with our broad client base has been vital to get the full picture of the evolving market requirements and to make the right strategic decisions of the product roadmap.”
An agile approach to deliver results quickly
Achieving success early in a project to remedy immediate problems constitutes a sound platform for further re-engineering of the firm’s infrastructure and business processes. It’s not only a question of a quick return on investment, it’s equally important to get the buy-in from-end users.
A phased implementation and the early lack of clarity on over-the-counter derivatives regulatory requirements, both allowed and sometimes required a tactical response to comply in time. However, now that there is more clarity of the landscape there is the opportunity to look at more strategic options.
Flexible, ‘on the fly’ real-time reporting requirements may be a prerequisite for the business to remove bottlenecks, serve its clients or comply with regulation. Likewise, the project scope may be ring-fenced to a single module of a larger solution.
By using an agile, phased implementation approach, benefits can be achieved quickly. Further rewards can be secured as more functionality is ported to a single platform.
Combining a tactical win with a longer term strategic goal requires a technology vendor with a mindset of a business partner, carefully tuning in to what short-term problems can be solved while leveraging technology to finding creative solutions that can be adapted as the business evolves.
Simplify and transform
Combining a solution for repo and securities lending seems obvious. By also adding collateral management and optimisation to the same platform with cross-asset coverage from trade initiation to risk, post-trade processing and reporting, the business can see true transformation.
A simplified infrastructure with fewer systems means reduced costs of maintenance, staff training, upgrades, hardware and interfaces. Perhaps most importantly, the business will be able to have a centralised view of all inventories available across products and business lines, an optimised use of collateral to reduce cost and improve profitability.
Sheehan explains: “From the outset, the Calypso Securities Finance solution was built as part of an integrated cross-asset, front-to-back system, leveraging the strong backbone of the Calypso back-office solution. Complemented by the Calypso collateral management solutions, it offers a solid platform for growth.”
“With its flexible workflow, firms can benefit from pre-configured, ready-to-use workflows as well as having complete flexibility to mirror its existing processes and policies without the need for vendor involvement. This gives the client autonomy to introduce better automation, transparency and control step by step.”
Sheehan continues: “The Calypso solution combines a tactical win with a strategic solution. The Calypso system can be deployed to cover all aspects of securities lending, repo and collateral management as a phased project scope.”
“In fact, many of our clients have started by implementing a single module of the system to later expand the usage. With a strong derivatives, fixed income and securities background, the Calypso solution breaks down silos and offers a transparent end-to-end, cross-product coverage.”
The challenge of data
Data is a huge concern in the industry, particularly how to manage it, and ensure it’s trusted and provided in real time. Firms are looking for a reliable ‘single source of truth’ in real-time for all securities and cash inventories. Decision makers are increasingly demanding data transparency with ability to dynamically drill down from positions to trade details and easily follow the trade lifecycle.
An integrated, cross-asset platform for securities lending and collateral management centralises security pools which facilitates an optimal use of cash and securities inventory for trading and exposure management. From trade input to post-trading processing, the flow will be seamless offering complete and instant transparency.
Future-proof technology
Unfortunately, there is no assurance that the technology your firm is relying on today will be the best viable option for tomorrow. In fact, it is more likely that faster, more functionally rich and better user experiences will be available.
Technology vendors are at different stages of delivery and readiness. You want to partner with a vendor that has a proven track record as well as a vision and roadmap to seek innovation and continuous improvement. This requires trust and the vendor needs to be mindful of what the client is trying to achieve—both in the short term as well as being able to advice on strategic decisions.
Choice of deployment—as a cloud service, on premise or a hybrid—should be considered. A vendor actively engaged in Blockchain technology, that is likely to transform and automate the marketplace, demonstrates innovation. A large client base provides a continuous flow of input to deliver new functionality, improved user interfaces as well as simplified implementation methodologies and procedures to support clients.
Finding the right partner
Selecting a technology system and supplier can be daunting. Not only does the functionality need to be fully covered, the system also needs to fit within the existing environment and most importantly evolve with the business and the market.
Simply lifting the bonnet won’t do the job. Decision makers need to understand what parts drive it, how far can it go and how is it being serviced. Whatever the next challenge is—to trade a new product, manage regulatory change or shrinking margins—make sure that your business, infrastructure and your technology partner are ready to step up.
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100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
