Trading Technology

05:48 PM
Richard Hulit Jr., Nasdaq OMX
Richard Hulit Jr., Nasdaq OMX
Commentary
50%
50%

Post-Trade Finally Gets Its Close-Up

Once a back-office function, the post-trade space is now paramount to the success of market participants, infrastructure players and regulators alike.

The vast amount of regulations that address the post-trade environment are geographically diverse, ranging from the usual suspects (Dodd-Frank, EMIR, MiFID I/II, Solvency II) to the lesser known, though just as significant (CRA III, CRD IV, AIFM, CSDR, FACTA, G20/FSB, UCITS). National and regional standards are also being developed and enforced. Without a doubt, post-trade processing has become incredibly important, not only due to their starring role in these regulations, but also the evolving interest around reporting itself. This interest will only increase as post-trade continues to step outside of the “back-office” shadows.

Richard Hulit Jr. , Nasdaq OMX
Richard Hulit Jr. , Nasdaq OMX

Take the issue of transparency in reporting. On a global level, we’ve seen strong emphasis from central counterparties (CCPs) and central security depositories (CSDs) addressing the demand for transparency of margin, credit adequacy, exposure, and collateral management. Additionally, certainty of clearing must be ensured through pre-settlement confirmation that the settling broker had credit headroom for the owner of the trade. Along with that, new, increased levels of capital (and the subsequent regulatory requirements) are met with the rising importance of transparency for both management and market participants.

Further, many trends that touch the entire lifecycle of a trade have found their way over to the post-trade realm, causing a significant impact on how this world operates. Some of these include:

• For market infrastructure providers: responding to uncertain (or lower) volumes and an imperative to demonstrate best practices. Total cost of ownership is always a concern in this space.

• For market participants: major cost and revenue pressures leading to re-evalution of all processes/business/sourcing– customers need to innovate and explore ways to create new revenue streams.

• Unabated liquidity for marketplaces, and alpha for investors.

So how should an entity like a clearing house address all these issues and regulatory requirements? It’s the same question we ask ourselves as owner and operator of several clearinghouses and other post-trade infrastructures in various geographical locations, all with their own set of market structure challenges.

In working with our own requirements and our 80+ customers across the trade lifecycle, we have been able to leverage our expertise and hands-on knowledge in many regions, to develop new technologies to help us and our customers navigate the changing post-trade landscape.

What have we identified as crucial for the post-trade space to focus on? We found three main strategies:

• Real-time risk margin and collateral management – exposure can change in a microsecond and firms must understand and control their risk at all times.

<[p> • Flexible default management and customer segregation – to successfully manage this process, it is paramount for organizations to be able to pinpoint and segregate issues.

• Multi-asset class settlement processes and structures for post-trade customers – these capabilities are vital to those looking to expand and grow their business in this environment.

Whether or not these functions are able to be upgraded and conquered in one solid sweep is yet to be determined. Transparency and flexibiltiy are watchwords, for sure.

What is indeed a sure thing is that the post-trade world has moved to the front of the line, based on these looming cross-regional/regional regulations. And with the increased importance on transparency in reporting , real-time effectiveness will only proliferate in the future for all asset classes and post-trade entities.

—Richard H. Hulit Jr. is Vice President of Product Management and Business Development, Market Technology, Nasdaq OMX.

Comment  | 
Print  | 
More Insights
More Commentary
Gartner: 75% of Mobile Apps Will Fail Security Tests Through 2015
The rise of BYOD means enterprises must implement security testing and containment solutions, according to new Gartner research.
Chip & Pain, EMV Will Not Solve Payment Card Fraud
Switching to EMV cards will lower retail fraud, but it's not enough. Here's the good, the bad, and the ugly.
With UCITS V, $9T Isnít as Easy as It Used to Be
With UCITS V's restrictive remuneration rules and hidden costs, going global may get a little less attractive.
Banks to Increase IT Spend on Big Data Challenges, Finds Aite Report
Big data has presented the greatest challenges and dissatisfaction for banks, yet it is the most likely to see upward spending in the next two years.
Scotland Independence Vote: Haggis & Fragmentation
Scottish independence has far-reaching consequences for the global financial markets.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - July 2014
In addition to regular audits, the SEC will start to scrutinize the cyber-security preparedness of market participants.
Video
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.