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Magazine Issues » September 2020

Conference: Sibos 2020 preview


What advantages can buy-side firms draw from AI technology?
The use of data in investing is vital to the buy-side and the landscape of alternative data has become almost bewildering in its variety. Investors are constantly seeking an information advantage, yet the quantity and varying quality of data being used to achieve this can be a challenge. AI can help buy-side investors make the best use of the data available, enabling this information advantage to be identified and seized.

While fundamental asset managers that do not pay attention to alternative data are waiting for quarterly earnings releases, those using alternative data, powered by AI, typically find a point of maximum information advantage roughly 60 or 62 days into a quarter. This means the data has told its story well ahead of the quarterly earnings release.

The challenge in gaining real information advantage is to ingest and model the data to provide valuable insights to portfolio managers, which might support or question their investment hypotheses. The future of AI lies in its ability to take raw data and present the right information that will tell an informed story. Without this bridge, connecting data with insight, the true potential of AI cannot be realised.


How will digital solutions transform post-trade processing in financial services?
Embracing technology and innovation is nothing new for market infrastructures, which have a history of developing and implementing digital solutions to bring greater efficiency, cost savings and risk mitigation to the markets. Often global events – financial crises, natural disasters or the 9/11 terrorist attacks – helped drive that evolution by refocusing the industry’s priorities on the need for greater automation and standardisation.

Such is the case with the coronavirus pandemic, which has accelerated digitalisation efforts as firms recognise that the future will look very different from the past and that digital solutions will be a key driver to enhanced client experiences.

In May, we launched two digitalisation initiatives. Project Ion envisions an accelerated settlement service option to make T-0 a reality for the US equity markets. Project Whitney examines how digital solutions – such as asset tokenisation and digital infrastructure – can transform private markets. As the potential for fintech has grown, our industry colleagues at the Swiss Stock Exchange and Australian Securities Exchange continue to advance new digital options as well.


Has Covid-driven disruption increased demand for cloud-based services?
Over the past decade, the emergence of new technologies, combined with regulatory and infrastructure change in securities services, led to the development of more efficient and harmonised operating models in an industry where legacy infrastructure and non-standardised processes were once the norm.

The Covid-19 pandemic has accelerated this transformation. Our survey of 250 capital markets executives in June found 62% of firms say disruption from Covid-19 has increased their appetite for cloud systems. Half said risk management and post-trade processing are more likely to be migrated to the cloud. These are functions many firms were reluctant to move off-site in the past.

The current crisis shows just how wide-ranging and imaginative firms need to be in their disaster planning. Ten years ago, the idea of a global pandemic leading to simultaneous remote work on every continent would have been hard to imagine. But now it’s here.

Companies were not entirely unprepared. After previous crises – SARS and the Great Recession of 2007-08 – firms invested millions in trading infrastructure, building capacity to process high volumes with minimal delays, measured in just milliseconds between receipt of market price data and order execution. The more firms investing, the better they fared in this current crisis.

With cloud adoption on the rise, as an industry we can take advantage of the full potential of APIs (application programming interfaces), artificial intelligence, machine learning and robotic process automation, along with big data to help post-trade processes and operations in times ahead.


How has network management been affected by the Covid-19 lockdown?
How have network management and vendor management teams – those responsible for selecting and monitoring sub-custodians, cash correspondents and third-party service vendors – fared during lockdown under Covid-19?

Difficulties have arisen when resilience planning in the network and vendor management space, was less advanced than it should have been. This has created problems for remote working and resulted in business continuity arrangements that were far from seamless. Subsequent evaluation will concentrate on the maturity of planning going into the crisis and how well the ‘infrastructure’, in the third-party vendor management sector, performed under stress conditions. Questions of infrastructure performance will centre on data integrity, data cleanliness, data availability and network security when working remotely.

It has been striking how many large institutions have an appreciation of the risks associated with third-party governance, but do not yet have robust tools in place to deal with them. There was a scramble to put screens and laptops in homes, and then to ensure safe access protocols were in place for staff to access core data. Regulators will focus on an institution’s capacity to identify and mitigate these risks. Critically, much of that audit will revolve around technology and how fit for purpose its in-house systems really are.


Which asset servicing priorities will shape the future of financial services?
The investment landscape is currently under pressure when it comes to asset servicing. Capital rules require firms to do more with their assets, creating additional demand to borrow and lend positions while also reducing operational costs. Regulatory pressure is intensifying through regulations such as the second Shareholder Rights Directive and the Securities Financing Transactions Regulation, while investor behaviour is changing with end-investors demanding greater transparency.

For firms on the front line, the challenges they face against this backdrop can seem insurmountable, and the operational challenges posed by the pandemic have added complexity. It’s often difficult to scale operations whilst dealing with fragmented legacy systems, limiting their ability to flex, grow and offer new services. There are also high risks associated with operational errors.

While these challenges are ever-present, solutions to address these complexities are available. Ultimately this comes down to a modern, scalable infrastructure that provides data accuracy and visibility throughout the process while meeting regulatory requirements. This will empower those involved in asset servicing on a day-to-day basis, enhancing client experience and turning every corporate action into a new opportunity.

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