Securities Finance Technology Symposium 2021
25 May 2021
SFT’s online symposium took a forward-looking approach despite the unforgettable events of 2020 and 2021
Image: stock.adobe.com
Panellists representing fintechs, lending platforms, post trade, and other securities finance firms navigated the intersections of technology, regulation and, of course, the pandemic within the industry at the Securities Finance Technology Symposium 2021.
Discussion on collateral, repo, regtech and treasury departments and the effect of emerging technologies on these areas, fostered some valuable insight for those watching remotely.
Innovation in repo markets
When it comes to repo, it was widely agreed that the COVID-19 pandemic has been a much-needed catalyst for change.
“Unlike back in those early days when the technology wasn’t there, the tools are available today and it’s unclear why we aren’t further forward,” the panellist representing a fintech provider lamented.
There has been frustration among repo market participants in recent years, with technologists struggling to convince those holding the purse strings to allocate much-needed resources to infrastructure upgrades.
Another speaker acknowledged that decision-makers may have been hesitant to leap into new frameworks that would cause disintermediation or require legacy technology stacks to be mothballed.
“New technology is a disruptor in most cases, and repo is still a relationship business,” the speaker noted, which has led to a suspicion that new tools would cause more problems than they solved. “Change is happening now but not necessarily because people want to do it but because they have to,” they added.
The rise of electronic trading, peer-to-peer platforms and treasury tools to gain greater oversight and control over a firm’s book has reduced friction within the market, the panel suggested.
The panel also agreed that recent regulations, primarily coming out of the EU, are stimulating the adoption of new technologies to meet reporting requirements and avoid penalties for settlement failures.
This greater emphasis on financing has come in tandem with the heightened demand for liquidity, also largely driven by regulation, as well as the emergence of collateral efficiency as a key growth area within both buy and sell-side entities. The ability to post collateral optimally hinges on having effective oversight of an institution’s entire balance sheet, and that has led to repo taking centre stage for the first time.
“We’re at a point now where there is no going back,” one panellist ventured.
Technologies driving adoption
As new routes to market bring a more diverse range of participants to repo markets, especially from the buy-side, the overall market is likely to continue to grow in size and importance, a separate panellist concurred.
New and existing regulations have also been driving the need for enhanced technology in the collateral space, according to one expert.
There has been heavy investment in the past decade in order to comply with regulations such as Dodd-Frank and the European Market Infrastructure Regulation.
Other drivers of technological adoption in the collateral space relate to achieving sustainable efficiencies through simplifying overall systems’ landscapes. “We have seen different initiatives to simplify IT systems within banks through to the collateralisation of over-the-counter derivatives, then the move to securities financing trades and exchange-traded derivatives,” the panellist said.
Reducing IT infrastructure costs by building and maintaining connectivity and interfaces, using cloud technology and onboarding open source systems, all lead to efficiencies, it was explained.
Efficiencies can also be created operationally too. “If you use a unique system you will of course have one system to automate your margin call and you will have synergies between all the teams you have,” the panellist added.
A further, final driver is a technical one, the panellist highlighted. “We have seen recently that global institutions are progressively adopting a component-based thinking.” Having components that are non-intrusive, easy to integrate and that bring value quickly constitute much of recent investments, the panellist concluded.
The data exists for those who can standardise it
There are three things a successful treasury function must have, according to a panellist discussing centralised treasury functions: a real-time view of your balance sheet; an optimisation engine to take inputs, and to create the desired outputs; and an overlay with collateral mobility to enhance the optimisation.
Treasurers lost in a sea of unstandardised data are now being offered a variety of life rafts from vendors offering to replace their creaking legacy systems with centralised, modular solutions.
“The key requirements for a central treasury function to be successful are not rocket science,” argued one vendor panellist.
In practice, for a buy-side firm to receive multiple reports from its various prime brokers, custodians, clearinghouses, and elsewhere, and standardise that in order to turn it into actionable data is much harder than it seems, a second panellist representing a global fintech service provider countered.
Referring to the 2020 COVID-19 volatility that caused a major spike in margin calls, a panellist noted: “This need for the data to be at your fingertips is absolutely essential and there’s no good trying to do it in the middle of a crisis, it needs to be laid out visible, working with you every day.”
Despite the cohesive vision of what an optimal treasury function looks like, there was less consensus among the wider market on how to get there.
The panel agreed that medium and large buy and sell-side institutions should not create a bonfire of legacy technology stacks tomorrow, and dive straight into adopting agile, centralised systems, but instead opt for modular service offerings which allow entities to replace their systems piecemeal as and when resources allow.
Vendors are ready to provide tools to sift, sort and prioritise what’s needed from the sea of data. All treasurers need to do is take the plunge, the panel concurred.
The future of regtech
When it comes to predicting the future, everyone has their own forecasts for what the ‘next big thing’ will be. Some emerging technologies seem perpetually on the cusp of becoming mainstream, while others seem to come out of nowhere and upend industries seemingly overnight. Securities finance is no different.
Despite all the hype, securities finance is still sleeping on the true power of blockchain, according to a panellist who discussed the distributed ledger technology and its use in securities finance.
“I know a few of the central counterparties are looking at blockchain as a mechanism for communicating and transacting as well so I think that’s a big technology change,” the panellist said. Leveraging investments, monetising data, reducing costs, doing things more efficiently, and allowing operations to be more automated, “I think it’s the natural next stage,” the expert concluded.
Another market expert said: “The next big thing for securities markets will be shortening settlement cycles, and obviously we’ve seen recent issues in the US with retail investors.”
When it comes to retail investing, the panellist questioned whether the mainstream market should be stepping in to help new, smaller entrants reduce risk, such as through developing sponsored models to help connect counterparties, they added.
Another panellist thought the future will usher in technologies that improve efficiency due to the high capital costs of running a business. Efficiencies could be found through removing intraday liquidity charges through a blockchain for finality of settlement, they added. “I think what you are starting to see, and you’re seeing it with one or two providers, is a lot more focus on that and how do we move securities or tokens around the system in a much more efficient way.”
Discussion on collateral, repo, regtech and treasury departments and the effect of emerging technologies on these areas, fostered some valuable insight for those watching remotely.
Innovation in repo markets
When it comes to repo, it was widely agreed that the COVID-19 pandemic has been a much-needed catalyst for change.
“Unlike back in those early days when the technology wasn’t there, the tools are available today and it’s unclear why we aren’t further forward,” the panellist representing a fintech provider lamented.
There has been frustration among repo market participants in recent years, with technologists struggling to convince those holding the purse strings to allocate much-needed resources to infrastructure upgrades.
Another speaker acknowledged that decision-makers may have been hesitant to leap into new frameworks that would cause disintermediation or require legacy technology stacks to be mothballed.
“New technology is a disruptor in most cases, and repo is still a relationship business,” the speaker noted, which has led to a suspicion that new tools would cause more problems than they solved. “Change is happening now but not necessarily because people want to do it but because they have to,” they added.
The rise of electronic trading, peer-to-peer platforms and treasury tools to gain greater oversight and control over a firm’s book has reduced friction within the market, the panel suggested.
The panel also agreed that recent regulations, primarily coming out of the EU, are stimulating the adoption of new technologies to meet reporting requirements and avoid penalties for settlement failures.
This greater emphasis on financing has come in tandem with the heightened demand for liquidity, also largely driven by regulation, as well as the emergence of collateral efficiency as a key growth area within both buy and sell-side entities. The ability to post collateral optimally hinges on having effective oversight of an institution’s entire balance sheet, and that has led to repo taking centre stage for the first time.
“We’re at a point now where there is no going back,” one panellist ventured.
Technologies driving adoption
As new routes to market bring a more diverse range of participants to repo markets, especially from the buy-side, the overall market is likely to continue to grow in size and importance, a separate panellist concurred.
New and existing regulations have also been driving the need for enhanced technology in the collateral space, according to one expert.
There has been heavy investment in the past decade in order to comply with regulations such as Dodd-Frank and the European Market Infrastructure Regulation.
Other drivers of technological adoption in the collateral space relate to achieving sustainable efficiencies through simplifying overall systems’ landscapes. “We have seen different initiatives to simplify IT systems within banks through to the collateralisation of over-the-counter derivatives, then the move to securities financing trades and exchange-traded derivatives,” the panellist said.
Reducing IT infrastructure costs by building and maintaining connectivity and interfaces, using cloud technology and onboarding open source systems, all lead to efficiencies, it was explained.
Efficiencies can also be created operationally too. “If you use a unique system you will of course have one system to automate your margin call and you will have synergies between all the teams you have,” the panellist added.
A further, final driver is a technical one, the panellist highlighted. “We have seen recently that global institutions are progressively adopting a component-based thinking.” Having components that are non-intrusive, easy to integrate and that bring value quickly constitute much of recent investments, the panellist concluded.
The data exists for those who can standardise it
There are three things a successful treasury function must have, according to a panellist discussing centralised treasury functions: a real-time view of your balance sheet; an optimisation engine to take inputs, and to create the desired outputs; and an overlay with collateral mobility to enhance the optimisation.
Treasurers lost in a sea of unstandardised data are now being offered a variety of life rafts from vendors offering to replace their creaking legacy systems with centralised, modular solutions.
“The key requirements for a central treasury function to be successful are not rocket science,” argued one vendor panellist.
In practice, for a buy-side firm to receive multiple reports from its various prime brokers, custodians, clearinghouses, and elsewhere, and standardise that in order to turn it into actionable data is much harder than it seems, a second panellist representing a global fintech service provider countered.
Referring to the 2020 COVID-19 volatility that caused a major spike in margin calls, a panellist noted: “This need for the data to be at your fingertips is absolutely essential and there’s no good trying to do it in the middle of a crisis, it needs to be laid out visible, working with you every day.”
Despite the cohesive vision of what an optimal treasury function looks like, there was less consensus among the wider market on how to get there.
The panel agreed that medium and large buy and sell-side institutions should not create a bonfire of legacy technology stacks tomorrow, and dive straight into adopting agile, centralised systems, but instead opt for modular service offerings which allow entities to replace their systems piecemeal as and when resources allow.
Vendors are ready to provide tools to sift, sort and prioritise what’s needed from the sea of data. All treasurers need to do is take the plunge, the panel concurred.
The future of regtech
When it comes to predicting the future, everyone has their own forecasts for what the ‘next big thing’ will be. Some emerging technologies seem perpetually on the cusp of becoming mainstream, while others seem to come out of nowhere and upend industries seemingly overnight. Securities finance is no different.
Despite all the hype, securities finance is still sleeping on the true power of blockchain, according to a panellist who discussed the distributed ledger technology and its use in securities finance.
“I know a few of the central counterparties are looking at blockchain as a mechanism for communicating and transacting as well so I think that’s a big technology change,” the panellist said. Leveraging investments, monetising data, reducing costs, doing things more efficiently, and allowing operations to be more automated, “I think it’s the natural next stage,” the expert concluded.
Another market expert said: “The next big thing for securities markets will be shortening settlement cycles, and obviously we’ve seen recent issues in the US with retail investors.”
When it comes to retail investing, the panellist questioned whether the mainstream market should be stepping in to help new, smaller entrants reduce risk, such as through developing sponsored models to help connect counterparties, they added.
Another panellist thought the future will usher in technologies that improve efficiency due to the high capital costs of running a business. Efficiencies could be found through removing intraday liquidity charges through a blockchain for finality of settlement, they added. “I think what you are starting to see, and you’re seeing it with one or two providers, is a lot more focus on that and how do we move securities or tokens around the system in a much more efficient way.”
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