Post-Trade Undergoes Wholesale Change
The post-trade environment is undergoing a wholesale change according to Mack Gill, the former chief executive of the London Stock Exchange Group’s technology subsidiary, who has joined a fintech provider.
Gill has joined Torstone Technology, a cloud-based provider of post-trade securities and derivatives processing, in London as chief operating officer and member of the board of directors. He was most recently chief executive of MillenniumIT, the trading technology company and subsidiary of London Stock Exchange Group, for four years.
He told Markets Media: “A wholesale change is taking place in post-trade with higher budget being allocated than 10 years ago. A major refresh and re-architecture is happening in global financial markets.”
Torstone Technology was founded in 2011 by a software development team that had worked together at KBC Financial Products to build a platform for the investment bank. Mack said Torstone’s solution is cloud-based, so the technology can be centralised and enable firms to consolidate risk management with a view of the whole book on an intraday basis, not just at the end of the day, and in real-time.
“Torstone is in a sweet spot as it has modern but proven technology,” he added. “It was designed by an investment bank as a global cross-asset class platform and is the only firm in this space with this pedigree. We have the right technology at the right time and it is also future proof.”
At the beginning of this year Torstone connected to UnaVista, the London Stock Exchange Group’s Approved Reporting Mechanism (ARM). This allows users of Torstone’s regulatory compliance module to comply with the reporting requirements under MiFID II, the regulations coming into force in the European Union at the start of next year. UnaVista will be connected to all required national regulators across the EU so firms will be able to address all their reporting in one place. Last month two UK brokers, N+1 Singer and Peel Hunt, selected Torstone for MiFID II reporting.
Gill expects investment in post-trade to continue after MiFID II goes live. He said: “Institutions with legacy systems have been through a lot of pain dealing with regulatory change. They do not want this repeated every two to three years so the technology investment cycle will go past the MiFID II implementation date.”
The need for investment in post-trade was highlighted by the European Post Trade Forum in a report to the European Commission last month.
The European Commission set up the European Post Trade Forum last year. An informal expert group from across the markets was given the objective of reviewing post-trade issues including collateral markets and derivatives with the aim of supporting the Capital Markets Union. The CMU wants to harmonize capital markets across all the EU member states so the region is more attractive to private capital. The report listed 12 barriers to harmonization, put five further barriers on a watch list, and prioritized actions that need to be taken to dismantle them.
The EPTF said: “The post-trade landscape in Europe is still characterized by diversities and fragmentation that cause inefficiency and risks. Operational, fiscal and legal harmonisation and standardisation as proposed in the Giovannini Reports are means to increase efficiency and to reduce risks.”
The Giovannini Group of financial market experts was formed in 1996 to advise the European Commission. The group published reports in 2001 and 2003 which identified 15 Giovannini Barriers preventing efficient EU cross-border clearing and settlement. The new report identified the Giovannini Barriers which are still in place, as well as new barriers and bottlenecks that need to be dismantled for the CMU.
EPTA also noted that the original Giovannini Barriers focussed on cash securities as derivatives, securities finance activities and collateral management were less developed.
“This has changed,” said the report. “The size and complexity of derivative markets, securities finance activities and collateral management can easily be compared with cash securities markets and CCPs have become critical market infrastructures. In addition, new products, and unfortunately their corollaries, new barriers, have also appeared.”
One of those new products, and barriers, is exchange-traded funds where there is a high degree of fragmentation, in particular in the post-trade space, in Europe. For example, there is a legal issue related to the settlement of Irish ETFs in Germany which leads to the same fund carrying different identification codes depending on the market where it is traded or settled.
US regulators will not support a forced relocation of euro clearing.
Use of algos has risen with the increase of electronically streamed NDF prices.
Liquidity of interest rate swap clearing services will increase.
Gross market value of outstanding OTC derivatives contracts last year fell to the lowest level since 2007.
Almost two-thirds of market participants are optimistic about the future.