How do you leverage emerging technologies to enhance the way securities are managed and improve the post-trade workflow process? You hack it!
That’s what happened in mid-October at Barclays’ DerivHack event. It’s a two-day industry event to explore opportunities in post-trade processing through industry mutualization, technology enablers and standards adoption. Teams of developers from banks, IT services firms, fintech firms competed in a simulated post-trade event for securities processing and collateral processing for securities. Processing covered affirmations, allocations, confirmations, settlement, position management and securities transfer as collateral.
“We wanted to ensure that the use cases, terminology and securities simulation matched what actually happens,” said Laura Rugarber-Doyle, Impact Assessment, Barclays Strategy. “DTCC played a key part in validating this because we wanted to align the business processes with current industry practices and opportunities for future state.”
The objectives of the hack event, run by Barclays, ISDA and other infrastructure partners, were to:
- Standardize product and processes for securities post-trade to provide a consistent, centralized data representation across market participants – brokers, clients, settlement agents.
- Optimize settlement process to leverage centralized trade, position data across a business network.
- Demonstrate application of a centralized securities ledger for timely collateral transfer to process margin calls on OTC derivatives.
- Extend ISDA’s Common Domain Model definition (insert trade mark) (currently covering OTC derivatives) to securities processing.
- Innovate through technology to promote internal and industry adoption of centralized data and services.
John Heliotis, DTCC Product Manager, ITP Product Management, served as one of the judges at the event and said it was beneficial for him to see how firms are positioning the use of new technologies in the securities settlement process. “It gave us a chance to validate their assumptions around the no-touch workflow,” he said. “I asked the teams ‘How are you thinking about this? It’s great to catch a problem on settlement date but that is too late…you have to catch it at trade date.”
Heliotis said the event proved that DLT can be used for no-touch processing, but that implementation will be a challenge. “You still need a critical mass in the industry to move over to a new system to reap the full benefits,” he said. If you talk to a broker/dealer about changing their back-office processing system that is a big undertaking for them from a time and budget standpoint.”
The event also served as a sounding board of sorts for the industry, as post-trade processing has failed to keep pace despite heavy investments in digital technology. Brokers, investment managers and custodians continue to struggle with demands from an unwieldy mix of multiple asset classes, platforms, systems and providers. In addition, much of the post-trade process is still handled manually resulting in higher risk, frequent errors and increasing costs.
In September, DTCC released a white paper “Re-Imagining Post-Trade: No-Touch Processing Within Reach,” which outlines a vision for institutional trade processing that realizes the goal of straight-through processing by eliminating inefficient manual touch points.
“Events such as DerviHack give us the opportunity to learn how firms are thinking about emerging technologies and their roles in bringing efficiencies to market,” said Kapil Bansal, DTCC Managing Director, Head of Business Architecture & Enterprise Automation. “DTCC is making investments in simplifying the post trade processes and providing clients a scalable and resilient platform and we look forward to continuing to collaborate with the industry to continue advancing this initiative.”