Future of the Post-Trade Industry, Part I: Identifying the Drivers of Change

by Arin Ray,  Axel Pierron, December 2, 2013
Global

Abstract

Post-trade processes at financial institutions have traditionally not been given their due importance, but the crisis of has changed firms’ priorities dramatically. While downsizing enabled cost-cutting in the short run, firms had to consider long-term cost savings by improving operational efficiency and making strategic technology decisions.

In the report Future of Post-Trade Industry, Part I: Identifying the Drivers of Change, Celent identifies different drivers that are likely to influence the future of the industry. The regulatory environment has undergone rapid changes in recent times. This has created additional obligations on the mid-back office processes, particularly in the areas of risk management, reporting, and regulatory compliance. In the evolving environment it has become essential that firms address the complete trade cycle in a much more holistic way, and many buy side and sell side firms are acting in that direction.

Competition among exchanges is forcing them to improve systems to handle trading and settlement processes in a more efficient manner. Celent has identified the following drivers that will have major impact on the post-trade industry in the cash market.

“Firms are working under severe budget constraints with a large portion of the technology budget being spent on addressing regulatory and compliance issues,” says Axel Pierron, Senior Vice President with Celent’s Securities and Investments Group and coauthor of the report. “Significant investments to achieve true process efficiency and improvement are difficult to come by in the short run. However, automation of large number of manual processes frees up resources, and some firms are looking at the problem from this perspective.”

“Budget constraints are pushing firms toward considering outsourcing mid-back office operations,” says Arin Ray, Analyst with Celent’s Securities & Investments Group and coauthor of the report.  “Given that all firms have to adhere to same set of regulatory requirements, some vendors are considering coming up with a utility model of offering that will allow multiple firms to use a basic core platform to address many of these issues. However, customizing such an offering to suit firm specific needs, especially for large financial institutions, will be a challenge.”

The report begins with a discussion on the functions served by the post-trade industry and the actors playing in the market. We then look at the latest trends that are impacting different participants to provide a good snapshot of the market conditions. We then try to forecast how the industry will look five years down the line. For that we first try to identify the main drivers that will be influencing the post-trade environment in the years ahead. The next chapter discusses each of the drivers in detail, and how they will impact the post-trade ecosystem. In a separate report we analyze the quantitative impact of these drivers under different assumptions and scenarios.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
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Table of Contents

Executive Summary

1

Introduction

3

 

Evolution of the Trading Environment

3

 

Global Financial Crisis and Shift of Focus

3

 

Scope of This Report

4

The Post-Trade Environment

5

 

Definition of Processes and Participants

5

 

Industry Trends

6

Identification of Drivers Impacting the Post-Trade Industry

9

 

Ranking of Drivers

11

Discussion on Drivers and Their Impact

13

 

Macroeconomic Drivers

13

 

Regulation

16

 

Technology and Process Improvements

20

 

Market Infrastructure

23

Conclusion

28

Leveraging Celent’s Expertise

29

 

Support for Financial Institutions

29

 

Support for Vendors

29

Related Celent Research

30

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