DTCC is undoubtedly one of the industry’s forerunners for post-trade improvement. Therefore, it is uniquely placed to share views on the evolution of technology across the securities industry, perhaps none more so than Neelesh Prabhu.
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Managing director of architecture and enterprise services in information technology at DTCC, Prabhu has served at the company for four years. He holds a wealth of knowledge, accumulated from his 25-year career at other technology services firms.
“Further cloud adoption will lead to business agility, and the path to business agility means adapting to changing business scenarios,” he affirms. “If the market environment changes, and your systems can’t adapt to those changes, it will impact your business agility. A firm becomes more agile according to how fast it can react positively to change.”
There are three particular features of the cloud that can help to increase business agility, according to Prabhu.
“First, the architectural pattern used within the cloud to design applications, called microservices, should strengthen the industry’s overall business agility,” he says.
“A cloud application would typically be designed using microservices architecture, which breaks an application into small components. These components can adapt to change relatively quickly, compared to a monolithic application.”
“Second, within the cloud, there is a high degree of automation which extends from the way the application is built, to the way in which infrastructure is provisioned, and the way in which it’s monitored. Lastly, the cloud is designed for scale, with the elastic nature of the cloud-enabled status facilitating an increase in business agility.”
“ONE OF THE CHALLENGES WITH DATA IS THE EFFORT THAT IT TAKES TEAMS TO SEE ITS INITIAL VALUE. THEY SEE A CERTAIN PART OF THE OVERALL CAPABILITIES NEEDED, BUT THERE ARE SEVERAL OTHER CAPABILITIES THAT ARE NOT EASILY VISIBLE. IT’S LIKE AN ICEBERG, MOST OF WHICH SITS UNDER THE SURFACE.”
On the Surface
In a world where VAR is king, and your favourite film can be streamed into your home with a click of a button, the back office is not often at the forefront of leading-edge technology adoption due to its critical function. However, with help from the front office, the back office can adapt to change and advance, Prabhu highlights.
“The volatility that the front office experiences on the market side means it must invest in technology to not only solve problems of today, but also to solve the challenges of tomorrow. There’s an opportunity for the back office to embrace the same spirit.”
He adds: “With multiple legacy modernisation efforts, the front office and the back office should approach these as incremental efforts, rather than one big project. This approach will move the overall infrastructure and applications towards a modernised industry.”
Into the Deep
In 2021, the DTCC commissioned research company Celent to conduct extensive research into technology adoption and future plans of a select number of North American financial institutions. Guided by Celent’s proprietary research and expertise, it spoke with 28 technology and operations senior executive leaders to predict the future state of the securities industry’s information technology.
While conducting the research, Celent found that the investment in data services is increasing — but only within firms with the technology and capabilities to exploit it. Celent found that SMEs can suffer from not having the capital available to make the most of the data accessible, but some of the barriers underpinning this come from attitudes and a lack of readiness to change.
Addressing this, Prabhu says, “One of the challenges with data is the effort that it takes teams to see its initial value. They see a certain part of the overall capabilities needed, but there are several other capabilities that are not easily visible. It’s like an iceberg, most of which sits under the surface.
These capabilities are needed to enable the value of data in any financial organisation.”
“SOME OF THESE CAPABILITIES, WHICH ARE NOT AS APPARENT, INCLUDE DATA GOVERNANCE, DATA, CATALOGUING, DATA QUALITY AND DATA TRANSPARENCY — ALL OF WHICH COULD BE CONSIDERED THE HIDDEN PART OF THE ICEBERG.”
“Unless you make an investment in these capabilities, you will not be able to realise the value of the data you have and, therefore, the value will remain locked,” affirms Prabhu. “This requires investment, certainly in the technology sphere. However, firms must hire the right people who can leverage this technology to unlock the value of that data.”
Working with Celent, DTCC also found that artificial intelligence (AI) and machine learning (ML) development is allocated a relatively small portion of an enterprise technology budget (1 to 5 per cent). This is because the industry is “still grappling with the right use cases to apply against AI and ML,” outlines Prabhu.
“AI and data are intertwined. You need a certain level of data maturity to exploit AI technology. AI needs to be fed with data and the degree of data maturity also plays a role. You must align those use cases against the part of the organisations that have achieved an acceptable level of data maturity. Also, talent in the AI and ML spaces is not as readily available.”
What's Ahead?
Celent’s report also found that full migration to modern methods of data exchange is “effectively gridlocked.” Delving deeper as to why this is the case, Prabhu says, “There is a fair degree of interest and availability of new data exchange technologies.”
He adds, “Application programming interfaces (APIs) are coming into play, as well as distributed ledger technology (DLT), which is a new and more modern way of exchanging both logic and data across organisations. There is also the emergence of data exchanges. These are modern ways of sharing data, as compared to traditional methods.
“The reason for gridlock is the overall shift with the industry using these legacy methods and these new capabilities.”
He goes on to say: “Organisations, such as DTCC, have looked at the landscape to effectively service their clients. We have to support both traditional as well as new methods of exchanging data. That can create a gridlock when firms have not clearly declared what the future will look like. We shall see how this plays out in the next few years, as more firms invest in modern systems and modern interaction mechanisms.”
As well as APIs, DLT will continue its maturation and adoption across the industry and will likely help accelerate cloud adoption across capital markets in particular, Prabhu says.
“A lot of this is being driven by what we see in our normal day to day lives — consumerisation is going to bleed into the overall financial services industry. This has already happened on the retail side, but it will bleed more so into the capital markets ecosystem. That desire to adapt quickly will drive further adoption of cloud technologies.”
He concludes, “On the one hand, you’ve got this focus around increased flexibility and adoption. But, on the other hand, you’ve got to balance that with security, resiliency and regulatory expectations. That will be the main concern underpinning cloud adoption over the next few years.”
This article was originally published to the Asset Servicing Times on March 22, 2023.