Creating a sustainable post-trade future

Securities services, Technology

Creating a sustainable post-trade future

January 2020

In an ever changing post-trade space, Deutsche Bank’s Global Head of Securities Services Michaela Ludbrook assesses how new technologies, combined with geographical reach and component-based services, make a difference in custody provision and create more value for clients

Picture this: you have just ordered a taxi on a ride-hailing app. While waiting for your ride, you download a TV series, recommended by an internet streaming channel based on what you have previously watched, and order a new pair of shoes from Amazon, which will arrive the next day.

If the vast amounts of data powering these services to provide tailored and personal insights to customers near real time, then could they also apply to securities services to effect the same level of speed, efficiency and transparency for investors? After some exploration, we believe the answer is yes.

However, mimicry of the current state of our personal lives in our business lives is not only dependent on the newer technologies that make this desired state possible, but also on their relevance in geographic markets across multiple service capabilities, in addressing clients’ need for efficiency, transparency, speed and cost reduction.

Michaela Ludbrook

Michaela Ludbrook

Deutsche Bank’s Global Head of Securities Services

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Simply put, the ongoing structural margin compression in the securities post-trade industry reflects the asset management industry’s declining fee levels and the increasing regulatory and market requirements for asset protection and market stability. A divergence in the direct relationship between what is paid, and the asset protection received, needs solutions that would ensure a more sustainable future in post-trade. One of them potentially lies in bringing post-trade services closer to trade, using technology and component-based services to create value for counterparts in securities transactions, by helping them to perform better and to keep costs low for end investors.


Creating sustainability in post-trade

Three recent projects show how these objectives can be met to address regulatory change and create these outcomes
Michaela Ludbrook

Three recent projects show how these objectives can be met to address regulatory change and create these outcomes. First, is the provision of real time data and settlement analytics to clients, equipping them with a risk view of their settlement horizon including a view of trades at risk of penalty and buy-in. With the Central Securities Depository Regulation’s (CSDR) next important Settlement Discipline Regime milestone coming in September 2020 such insights can be delivered real time by Deutsche Bank as a valuable information conduit sitting between the CSDs, their clients and their trading parties. These insights, provided intraday, make use of client level data aggregated at a market level (in the CSDR markets where Deutsche Bank is present) and presented on a dashboard to enable clients to anticipate where they may potentially be failing to settle on time (within market cut off time) and empower them to make choices to remedy their actions.

The second project centres on the exploration of smart contracts in a digitised asset environment. Using distributed ledger technology (DLT) to digitise assets, securities services, which is currently delivered through a set of hierarchical processes of custody and settlement, could be assimilated into smart contracts, with nodes representing the lifecycle of the security and its ownership. Within those nodes, to make the process quicker and more efficient, custody services could be brought into the securities lifecycle earlier. For example, by programming asset servicing calculations and other rules into DLT-based securities , this shifts the activity right up to the issuance set-up stage where coding happens. This creates potential for new operating and business models where more efficiencies could be realised. Since codes in a DLT-based bond can include calls on investor-awareness rules, compliance-awareness rules as well as asset lifecycle rules, the issuance set-up stage would become a new value creation point.

Third, is a successfully piloted solution in which Deutsche Bank has used DLT to further automate custodial services. The solution addresses the transparency requirements within many custodial services, such as around the tax processing of asset holdings at an ultimate beneficial owner level, and streamlines complex data and reconciliation processes for both the bank and its clients. The solution allows for sharing of this information to authorised counterparts, removing duplication and, at the same time, permitting access to the beneficiary details to the relevant party only. The first implementation of the solution will help reform the shareholder information disclosure in Europe for global and sub-custodians, as set out in the Shareholder Rights Directive II, followed by tax processing automation and further product build-out.

In the same way that customers prefer the choice provided by popular delivery platforms, clients favour tailor-made services and solutions provided by custodians

Michaela Ludbrook

Replicating what works

These projects show how the industry could replicate online retail platforms, where securities are ordered, tracked and received to address the need for transparency, efficiency, speed and cost-reduction. In the same way that customers prefer the choice provided by popular delivery platforms, clients favour tailor-made services and solutions provided by custodians, allowing them to plug and play services such as custody, asset servicing, lending, borrowing and asset optimisation.

*This article first appeared in The Network Forum Journal





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