Money Investors: Post-Trade Services in Financial Markets
Post-trade services include those that are performed once a trade has already taken place and these include: clearing, settlement (affirmation, confirmation, allocation and matching processes), custody and asset servicing, and other services that might be required such as providing a collateral. The Central Counterparties (CCPs), Central Securities Depositories (CSDs) and Clearing Houses provide these services. Similarly, these services are also offered by intermediating banks and brokers as well. In most cases, post trade services are integral to the discharge of obligations after the trade. The providers of these services are responsible for the processing of corporate actions by issues with the benefit of the investor in mind.
Prior to the financial crisis of 2007/2008, the post trade-related reforms in Europe had mostly concentrated on standardization, harmonization and efficiency gains. They were aiming to remove the Giovannini Barriers which were impeding low-cost and low-risk European trading. The financial crisis resulted in many lessons learned and a shift towards safety became the prime concern.
The relations and the inter-dependencies involved in the trading process, settlement, central counterparty clearing, investment fund operations, and custody/asset servicing acquired prime importance. The regulatory bodies, as well as the private sector, have taken many initiatives in this regard while a lot of work still needs to be done regarding the target of achieving low-risk and low-cost post-trade processes.
Achieving Business Growth
As growth is becoming very hard to find, businesses can work in collaboration to find solutions to the problem. Euroclear group works in close collaboration with fintech providers, banks, and regulators in developing solutions aimed at reducing or eliminating inefficiencies while at the same time lowering both the risks and the cost.
Blockchain technology offers a strong potential as a solution. The financial markets are actively engaged in understanding this technology and its potential in this regard. Efforts are already underway to adopt this technology and develop a roadmap towards this aim. A change to automation in the fund industry through such innovative technologies can prove to be instrumental in removing the extremely costly parts of the post-trade processes such as checking and reconciliation. Investors preferring to invest directly in equities or bonds with the aim of reducing their costs would be willing to hold the funds in their portfolios as it would be cheaper.
The capital markets landscape is changing rapidly. The market for post-trade services is maturing and offer a great opportunity to business organizations to get stable returns which would be sustainable. Those business organizations that would make the first move in this direction are likely to benefit the most. The firms can try to develop the necessary capabilities and can gain a competitive advantage by focusing and developing a strategic coherence. The firms would need to align their products and services as well as their capabilities and try to disinvest in non-aligned capabilities.
Strategic alliances and acquisitions combined with the right type of employment of capable people, developing legal entity strategies, and define the technology platforms that would be deployed. Thus, this market is now very vibrant and dynamic. Stable and sustainable returns can be obtained through innovation and an approach aimed at low-risk and low-cost post-trade processes.