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Powering smarter securities and community efficiencies

Powering smarter securities and community efficiencies

Securities,
16 September 2021 | 6 min read

The securities industry has a lot to gain through collaboration, especially in areas where there’s no advantage to compete. Here’s how the SWIFT community is facilitating this and the opportunities to look out for.

The Covid-19 pandemic has challenged global financial markets in unprecedented ways. But it also presents an opportunity for reflection and acceleration of digitisation initiatives. We spoke with Charifa El Otmani and Jonathan Ehrenfeld, SWIFT Capital Markets Strategy Co-Heads, about the challenges firms face today and why the post-trade community is navigating towards collaborative solutions.

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The SWIFT platform for capital markets: Your mission, our vision

What operational challenges and improvements are financial institutions focused on right now?

Charifa El Otmani:

To paint a picture of the volatility experienced by the market during the pandemic, in March 2020, there was close to a 30% year-to-date growth on Delivery versus Payments instructions sent over the SWIFT network.

As volumes increase, however, so do the number of exceptions that operations teams need to manage. This can be challenging in normal times, requiring a lot of manual intervention and multiple back and forth phone calls and emails to fix. And this has become even more challenging during the pandemic, with all the operational and security complexities introduced by remote working. So managing exceptions in a more cost and time-efficient way is one key area of focus for the industry at the moment.

Charifa El Otmani
In areas where there is no competitive advantage for financial institutions to differentiate their services, collaboration offers an opportunity to mutualise costs and amplify benefits across the industry.
Charifa El Otmani Director Capital Markets Strategy, SWIFT

Jon Ehrenfeld:

We’ve also seen firms looking to streamline how they consume services from various providers. There is an increased focus on interoperability that stems from the complexities of having to connect to and maintain operational relationships with multiple service providers and systems, often for a single process flow. Operations teams are asking SWIFT how we can help make their lives easier by offering a single window into multiple services and providers.

What opportunities are there to be created through industry collaboration?

Jon:

Industry collaboration and consortiums between fintechs and financial institutions are not new. Besides creating opportunities for innovation, a major driving force behind this is the ability to reduce costs by creating shared efficiencies. Here again, exception handling is a good example. But to manage exceptions effectively, you need transparency across the transaction value chain about the status of instructions.

This is something we’re collaborating with the financial community on and developing a new service that will leverage the ISO 23897 unique transaction identifier (UTI) – which was implemented for some derivative contracts following the financial crisis and is starting to be implemented for securities transactions as well – to provide an end-to-end, two-sided, and neutral view of transactions.

By bringing this all together onto an industry marketplace, with ease of access via the SWIFT platform, financial institutions gain the operational bandwidth to allocate resources to other service differentiating areas such as user experience and exciting innovation initiatives.

Jonathan Ehrenfeld
Our goal is to enable smarter securities processes through expanded platform capabilities that offer access to mutualised services in areas such as transaction tracking, pre-validation, screening and data and analytics tools.
Jonathan Ehrenfeld Co-Head of Securities Strategy, SWIFT

Charifa:

In areas where there is no competitive advantage for financial institutions to differentiate their services, collaboration offers an opportunity to mutualise costs and amplify benefits across the industry. That’s why the community is turning their attention to market utilities and platforms to help them reduce costs while maintaining high levels of service, usability, efficiency, and this within a secure and resilient environment.

In this way, the community is looking at SWIFT to be the “platform of platforms” to enable access to the best-in-class capabilities of different providers via a single collaborative platform.

What are the key considerations of creating a collaborative platform?

Charifa:

In our role as a neutral industry cooperative, we aim to adopt an inclusive approach to service development and cost mutualisation that benefits the whole community and elevates service levels across the industry.

Connecting users and providers onto a collaborative platform encourages the development of sustainable and value-enhancing services. But these efforts must be aligned with industry best practices and requirements too. For this, we leverage our experience working on industry transformation projects and close relationships with industry-led committees and associations, to ensure that the best interest of the financial industry is considered. Such is the case when we worked on standards solutions to help financial institutions cope with SRD II and CSDR requirements, for example.

Jon:

The platform also needs to be easy to connect to and onboard. Alongside integration options leveraging APIs and cloud technology, interoperability between standards within the platform helps lower the barriers to participation.

The platform community spirit also moves the industry towards higher levels of standardisation and harmonisation in areas such as transaction identifiers, which can facilitate efficiencies by enabling visibility throughout the settlement and reconciliation value chains.

It is also in the industry’s mutual interest to reinforce its cybersecurity and financial crime compliance controls. Therefore the platform should include embedded and mandatory security controls to safeguard users in an automated manner.

How is the SWIFT platform evolving to meet these needs?

Jon:

Over the next two years and beyond, we’re embarking on a strategy to transform the SWIFT platform to provide instant and frictionless payments and securities transactions. Our goal is to enable smarter securities processes through expanded platform capabilities that offer access to mutualised services in areas such as transaction tracking, pre-validation, screening and data and analytics tools.

It’s important for us to stay agile and flexible so we can respond to market trends and customer demands. For instance, our initiatives to improve post-trade processing efficiency, transparency and speed are key to supporting the industry’s move to shorter settlement cycles and meeting demanding CSDR requirements.  

Our vision to be the connector of platforms also extends to bridging environments for traditional and alternative assets such as tokenised assets. We are exploring with the community ways to evolve our platform to offer the same level of security, resiliency, transparency, and service quality for these assets, and the environments where they can be issued, settled and traded, as we do for traditional assets.

Charifa:

SWIFT’s biggest strength is its community. We actively collaborate and consult with our members from the point of ideation to implementation. As we strive to build incremental value in our offerings, we continuously test and fine tune specifications based on community feedback. And, as we’re developing a collaborative platform, financial institutions rely on SWIFT to nurture partnerships with other participants as well, including specialist vendors and other providers, to enable best-in-class solutions for the whole community.

Collaboration initiatives as part of our Smarter Securities strategy are well underway. We welcome interested parties to join us on this journey towards a more efficient post-trade processing future.

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