Post-trade market becomes financial linchpin
By Margaret Cappa
The post-trade market, once the tedious distant cousin of trading, is now an incredibly important linchpin of the financial system since it can be the point of entry for key procedures that prevent risk. But can its infrastructure work effectively and support the regulations being imposed post-crisis?
“There’s huge hope in the financial markets that the infrastructure providers are going to bring things like transparency and a lot of safety to the whole marketplace to prevent some banks from doing crazy things,” said John Byrne, founder and chief executive of Information Mosaic. The firm specialises in post-trade automation solutions, serving seven of the top 10 global custodian banks.
Byrne led a session on the topic The New Risk: Are post-trade market infrastructures fit for purpose post-crisis this week at Sibos, attended by both infrastructure providers and their clients. Fit for purpose has a couple meanings, he explained. For one, post-trade automation systems must be able to work in the current context.
“Does the technology stand up? People are trading in one millionth of a second, so it’s not just if it ‘works’ – does it work in a millionth of a second?”
Next, settlement and clearing providers must be up to the challenge of reaching and sustaining sound, effective governance policies and practices that require investment in operations, risk management and data reporting technologies.
“Larger, more mature infrastructure firms may be in a better position to address this now, while the newer players may have to come up to speed in order to deal with new sets of regulations and demands for providing risk-based information,” said Byrne.
As regulations such as the Dodd Frank Act in the US and Emir in Europe come into effect, settlement and clearing providers are working hard to implement new standards and regulations. And while their infrastructure may be fit for purpose, the vagueness of these pieces of legislation is not lending them any help.
“They are global ambitions for how to regulate the financial markets and everybody’s agreed at a high level, but getting that to work at a detailed level is a challenge,” he said.
However, even with some ambiguity, global legislation is invaluable to the international financial market since it will regulate multi-national banks, some of which are bigger than countries, and provide a level playing field so that regulatory arbitrage can be avoided, said Byrne.
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