- Regulation and market initiatives will “fundamentally alter” Europe’s post-trade industry
- Post-trade space set to become far more competitive, with Europe leading the way via interoperability and T2S
- CCPs will continue to evolve horizontally, supporting new asset classes and moving into new markets
- Environment will drive major tech investment, including increased adoption of third party off-the-shelf products
BOSTON and NEW YORK, Oct. 21, 2015 (GLOBE NEWSWIRE) — Celent has announced the launch of a new report into the global post-trade industry, commissioned by Nasdaq (Nasdaq:NDAQ). Based on an examination of 12 key markets1 and detailed discussions with 17 major industry participants, it analyzes trends and challenges affecting central counterparties (CCPs) and central securities depositories (CSDs), and predicts future developments2.
The report finds that the changing regulatory environment is the dominant force affecting post-trade industry players, thanks to a post-crash focus on managing systemic risk. Market infrastructure initiatives – such as the worldwide focus on shortening settlement cycles – are also making a big difference. Initiatives from European authorities, such as interoperability, T2S and CSDR, will “fundamentally alter” Europe’s post-trade landscape, forging a more competitive one. Other markets, however, are expected to introduce greater competition by allowing international players to compete with domestic incumbents.
“At times there is a lack of clarity and co-ordination among regulators in different jurisdictions,” said Arin Ray, Analyst at Celent and co-author of the report. “This results in a lack of synchronization and standardization of some of the key regulations, making the task of responding to these changes more difficult.”
The research also finds that CCPs are adapting through horizontal integration, evolving to support new asset classes and move into new markets (see table in end notes), as well as new services around collateral management and optimization. CSDs are also developing new services, particularly in Europe where an inability to do so may threaten survival in a post-T2S environment. These changes are driving major investment in technology, and the research predicts increased adoption of third-party off-the-shelf products.
Dr. Anshuman Jaswal, analyst at Celent and co-author of the report, added, “The relevance of third party systems is rising as they allow CCPs and CSDs to meet their IT requirements more quickly and cheaply – particularly for tier 2 and 3 players who lack the wherewithal to build in-house capabilities.”
“Regulation is reshaping the demands for post-trade,” said Lars Ottersgård, Executive Vice President, Market Technology, Nasdaq. “In some cases, post-trade entities play a different and perhaps more important role in the global financial ecosystem – and with this comes great responsibility. In this new world, everyone needs to be far more efficient with their use of capital, and CCPs and CSDs will be critical in helping the wider system achieve this. This is why increased competition is welcome and, indeed, vital, as it is driving the required innovation and investment in technology.”
Notes to editors
1The US, UK, Germany, Czech Republic, Japan, Australia, Hong Kong, China, India, Brazil, Mexico, and Chile
2Post-Trade Players Are Taking Several Measures to Counter Challenges
|CCPs developing support for new products||While emerging players focus on developing support for traditional asset classes that they previously lacked, leading players are focusing on OTC central clearing, commodity derivatives, RMB related instruments.|
|CCPs and CSDs looking to offer new services||Demand for superior capital efficiency is forcing CCPs to bolster offerings around collateral management and optimization, cross margining among products and across asset classes.|
|European CSDs are developing new offerings around asset servicing and collateral management as they prepare for the post T2S world. Emerging market CSDs are moving into e-services such as e-governance, national number identification database, KYC services, legal entity identifiers, etc.|
|Global players looking for market expansion||Saturated domestic markets and relatively superior growth prospects of the emerging economies are forcing leading players to expand into new regions and markets.|
|Improving operational efficiency through modernization||Regulatory and market changes are providing a strong incentive for upgrading technology and processes for most CCPs and CSDs as they look to stay abreast with rapid evolution of trading technology and look to cater to wider international clients|
|Enhancements in risk management and investor protection||Move away from end of day monitoring towards intraday and real-time risk management , portfolio margining, and account segregation to ensure investor protection are becoming important features for several market participants|
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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally experienced analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies (NYSE:MMC).
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