How far can we go in eliminating friction from post-trade settlement? In this third and final article in the series, Vikesh Patel, Swift’s Head of Securities Strategy explains why the answer to this question depends on fresh thinking and industry-wide collaboration.
Read article one in this series: More speed, less friction in securities settlement
Read article two in this series: A work of friction? Drivers towards seamless securities settlement
Ahead of the recent COP27 climate summit of global leaders in Egypt, I read a call to arms from the International Energy Agency. Its experts warned of a “collaboration gap”: more intense international cooperation is needed to put the world on track to meet its climate commitments.
It’s a familiar story. The International Space Station was transformed from fantasy to reality only by the efforts of five space agencies, representing 15 countries. More recently, the accelerated development and roll-out of Covid-19 vaccines was made possible by vast international efforts.
Innovation is critical to any significant progress. And, in many instances, collaboration is essential to success. It’s something we should bear in mind, I believe, when we consider the vision for our own industry’s future.
An antidote to fragmentation
In my first article, I looked at how fragmentation can arise in post-trade settlement due to several factors. From trade execution through to post-trade settlement, multiple systems, organisations and territories are involved in the process, which can add friction and complexity. And, while global standards exist, they’re not always consistently applied across regions, markets or businesses.
Any solution must recognise these realities and take into consideration the needs of all players. As the securities industry accelerates its evolution with extensive digitisation and innovation, overcoming fragmentation also requires looking for opportunities where centralisation can be achieved and services mutualised to gain efficiency.
Time for a rethink
Industry players are, inevitably, focused on improving their own customers’ experiences and setting themselves apart from the pack.
So far, providers have been able to do this by proving they can manage inefficiencies. But in today’s environment with rising inflation, high interest rates and low (or no) growth, that is no longer a sustainable model. Margins are now so low on services such as settlement and corporate actions that competing in that space is unlikely to make business sense.
Rather, firms will need to differentiate themselves in other ways – like building great customer experiences and innovative front-end solutions. They can also start to deploy the growing volume of post-trade data to deliver new value-added services.
In the years ahead, firms will need to closely monitor their capital allocation and spending more than ever. And at the same time, look for ways to achieve even higher levels of automation and straight-through processing in areas like settlement and corporate actions, which can only be attained through collaboration across the industry.
Everyone is currently investing heavily in digital transformation. However, if it’s only done in isolation, it could result in more fragmentation – and the opportunity for a major leap forward will be missed.
Towards a frictionless post-trade future
As I mentioned in my second article, a unique transaction identifier (UTI) has the potential to be a valuable tool to increase transparency and eliminate friction in securities settlement processes.
But transformation will require a change of mindset at the highest levels and across the industry. Businesses have a choice: to continue to invest in their own operations in an isolated way; or join forces and collaborate to tackle the root cause of friction to move the securities industry, and everyone in it, forward faster.
I believe the latter can be done. We’re not talking about slowing climate change or building a space station. But we do have it in our power to deliver meaningful advances in our own sector: faster trading velocity, more growth in markets, and the ability to support companies’ ambitions and economic wellbeing in a frictionless future.
Find out more
All you need to know about the Unique Transaction IdentifierLearn more about the work ongoing to implement the UTI across the post-trade industry and the benefits of increased transparency for all parties across the securities settlement lifecycle.
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Swift Securities View
We’re collaborating with the securities community to develop a new service that enables market participants to track securities transactions from end-to-end throughout their lifecycle. Find out more about Swift Securities View and how you can benefit.
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- Read article one in this series: More speed, less friction in securities settlement
- Read article two in this series: A work of friction? Drivers towards seamless securities settlement
