Interoperability is the key to aftermarket digital transformation


In the transaction lifecycle, post-trade processes have been relatively slow to upgrade, but the domain is catching up on execution and pre-trade.

Kathy Ong, BNP Paribas Securities Services

The digital transformation of the post-market “is clearly not just about setting up a new platform based on new technologies. It really requires a radical change in our approach, ”said Kathy Ong, Regional Product Manager, Custody and Clearing Services at BNP Paribas Securities Services, during the GlobalTrading roundtable webinar on Digital transformation of post-trade in Asia, held on September 9.

This is relevant in initiatives such as HKEX Synapse, the replacement of ASX CHESS, and in the future T + 1 and even securities trading in the custody world. All of this will require a fundamental change in the way we operate, ”added Ong.

Act around 2023

There has been an acceleration in the aftermarket digital transformation, which may accelerate as a deadline for the implementation of several new industry-wide frameworks approaches. As Lyndon Chao, Managing Director of ASIFMA Equities and Post Trade, pointed out, “2023 seems to be a critical line in the sand, with the replacement of ASX Chess, HKEX Synapse and the US T + 1 initiatives all converging towards l adoption of the industry at this time. . “

“We’ve seen with Covid that sometimes the industry has to be forced to move, so maybe some of these externalities coming in 2023 could push us to cross the line,” Chao said. “I have high hopes for that. The technological renovation of the Post Trade space is long overdue.

Lyndon Chao, ASIFMA

In order to meet the 2023 deadline, interoperability – which drives adoption – will be key. Ong warned that “fragmentation and lack of interoperability could hamper digital transformation in all markets, as it could make connection very difficult and costly for the industry. That’s why we work closely with global industry groups, including SWIFT, to develop common and recognized digital connectivity standards.

Exchanges such as ASX are also focusing on ensuring interoperability, especially with regard to Distributed Ledger (DLT) technology used in initiatives such as CHESS, Synapse and SGX’s Marketnode. Tim Hogben, Group Executive, Securities and Payments at ASX noted:We are aware of engaging with other exchanges and financial markets around capacity building and interoperability of languages ​​and smart contract ledgers. Adoption and interoperability will be very important, as will collaboration with other exchanges, as we all have common clients and clients. “

Bank on DLT

DLT and related smart contracts are set to be a game-changer for post-trade. “At BNP Paribas, we believe that smart contracts can create value for clients in certain post-trade areas,” said Ong. “More clearly, we can do this by providing connectivity to the market and by creating a layer on top of the existing market infrastructure, to give customers access to, while at the same time, access to information, data sets and downtime. protecting against this type of infrastructure changes. “

“Take Stock Connect, especially last year when volumes increased dramatically – because there is only a limited number of people you can throw into a T + 0 or T + 1 market before the cracks hit. are starting to appear, “continued Ong. “This is why we place great importance on Synapse, as it seeks to move from sequential processing to simultaneous processing. In other words, it calls into question the practice of the world market. If it works, it would be the epitome of the idea of ​​transformation.

Daniel Hildebrand, SGX

When it comes to DLT interoperability, trade across the region seems to have started off on the right foot, with Synapse, CHESS, and Marketnode all adopting the same open source smart contract language, DAML. “One of the concerns raised at the start was about standardization,” noted Daniel Hildebrand, head of digital and repository services, actions at SGX. “It appears that DAML is a commonly used technology in the region at this time, but we will continue to explore other options to identify which ones best meet the demands of the market.”

So far, DLT and DAML have shown their value to SGX through the issuance of eight bonds by Singapore-based issuers on the Marketnode platform valued at S $ 3.2 billion, the issues of S $ 3.2 billion. ‘international issuers are expected later this year. “The Marketnode platform uses DAML as the smart contract language to issue and manage bonds, using a conventional database. At the same time, we are also seeing the interest of market players to host the nodes of a DLT-based solution themselves. We keep them separate from our core infrastructure because we understand that it takes time to adapt to these new technologies, ”noted Hildebrand.

Getting everyone on the same page in real time

Tim Hogben, ASX

“The power of what we do boils down at best to the timing of the industry. Make sure everyone is on the same page, at all times, in real time, ”explained Hogben. “What happens then is that you create interconnected businesses while ensuring the confidentiality and integrity of the data. Smart contracts can be added to this, bringing self-applicable business logic to business processes or multi-party workflows. Then, they can be deployed to make transactions more transparent and efficient. What you need initially to achieve this is the data in a standardized format.

For Hogben, ASX’s mission is clear. “We see the need to deliver richer, more accurate data faster. If we can solve this problem, we can improve customer and internal workflows, reduce operational risk, reduce operating costs, and provide opportunities for new products and innovations.

In addition, Hogben believes that it is the responsibility of organizations such as exchanges to provide the required infrastructure on a shared basis. “Take Amazon, which depends but does not need to develop its own distribution capacity; the infrastructure, in the form of roads, trucks, postal services, etc., was already in place. Exchanges provide a similar infrastructure in financial markets and will do the same with DLT. “

Towards scalability and outsourcing

Tae Yoo, HKEX

Another major trend, also supported by interoperability, is the shift to outsourcing. Tae Yoo, Managing Director of the Markets Division at HKEX observed, “The pandemic has accelerated and forced remote working, and what has happened is that many organizations have started to think about what they can give to a third party and what is not unique in the way they operate their businesses. As a result, organizations seek to cooperate around technology sharing, working with third parties – be they prime brokers, clearers, custodians, technology providers – so that they can focus on this. that makes them unique. They become specialists rather than generalists.

Legacy issues

While progress towards aftermarket digital transformation has accelerated, obstacles remain, perhaps one of the most prevalent of which is technology inherited from industry. “People are asking why we don’t follow the same path as the new big tech and digital companies, and why they don’t get the same experience that they get in their personal lives in their transactions in the financial markets. This is because digitizing existing businesses is really difficult and expensive, ”Hogben said.

Interoperability is Key to Digital Transformation of Post Trade first appeared on GlobalTrading.

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