Buy-side firms will be expected to have a real-time overview of the collateral inventory accepted by their counterparties, to allow for a better view of the firm’s overall risk positions and exposures Subhasish Bhattacharyya, Product Head - OneMARKETS
While various recent market changes will have both near- and medium-term effects on the asset servicing industry, it’s more the wave of technology disruption that could cause dramatic changes and have a lasting impact on the industry.
Let’s pause a moment and examine where we are. Many of the providers are still constrained by legacy coming from acquisitions, poor integration, multiple technology platforms and a high level of manual intervention. Quite a few of the technology platforms are dated and have been in use for two decades or more. Also, since 2008, regulation has been a dominant consideration that is limiting growth in the industry. While assets under management (AUM) have been growing over the past two years, asset service providers have not always managed to keep the expenses under control.
While technology has evolved, the industry has failed to keep pace. With demand from customers driving asset servicers to achieve operational excellence, it is clear that some of these processes tied to legacy technology are the first in the firing line. Opportunities have emerged for new technologies to replace back- and middle office processes that are repetitive, manual and cost-inefficient, with improved automation.
Advances in technology, combined with the explosive growth in data and information, have given rise to a more empowered global customer. A changing and increasingly complex regulatory environment is presenting opportunities for new services, as well as a need for major investment to support the compliance programmes of the asset servicers and their clients. Enhancing the client offering and improving control and efficiency has increased the focus on tech delivery. Rationalising and standardising applications across geographies and client segments is critical to companies. The need for investment in technology is clear. The large, full-service and boutique asset servicers succeed with the differentiation through efficiency and better pricing or more sophisticated value-added services. The ones not making the investment will become obsolete.
Asset servicers are increasingly facing demands for custom services, often with the cost absorbed by them. Asset servicers are assessing the impact of these drivers and determining how they can remain profitable, maintain market share and pursue the right growth opportunities. Leading asset servicers are following strategies to scale the business, seek efficiencies and drive toward standardisation, while determining the right client mix to achieve.
The most likely to succeed will be those that are the most disciplined in their growth strategies, diligent in addressing their data and technology challenges and responsive in meeting the rapidly technology challenges and responsive in meeting the rapidly changing needs of asset managers and asset owners. In other words, the companies that seize today’s top-line growth opportunities will be those that make the right investment decisions to manage the ever increasing demand for outsourced services.
Trends and connecting the dots
To start with, each customer segment has specific needs, and maintaining different technology platforms by an asset service provider for different customer segment is not cost-effective. Intellect’s
OneMARKETS solution provides the ability to service all segments of customers through the same cohesive platform, providing ‘platform economy’. Let’s take an example pertaining to custody business. Most custodians also have fund houses as their clientele. These fund houses would also like to have their fund accounting and transfer agency operations taken care by the custodian, so the ideal solution would be if the same technology platform that is catering to the custodial processes can take care of the other two areas.
The fund custody solution, a core offering under Intellect OneMARKETS, is targeted at custodians that also offer fund accounting and transfer agency services to fund houses, portfolio management schemes and alternative investment firms.
This can help in:
Future digitisation needs
The other growing trend among asset service providers is extending services and offering a distribution channel to multiple funds. Service providers invest on behalf of their clients, and their biggest pain pointis in interacting with multiple companies close to cut-off time. The fund distribution capability, a core part of Intellect OneMARKETS, allows clients to invest in multiple funds through one single instruction. This is integrated with the fund custody solution, so as to provide an easy access for custodial clients to invest surplus cash into short-term funds and look at overnight returns. This integration also ensures that the settlement is reflected back in custody, and that clients can have an integrated portfolio view.
Mutual funds investment experience
Another emerging trend, in line with digitisation, is a move towards client self-service. OneMARKETS’s Digital Markets Portal provides omni-channel access for end customers to:
Seamless customer engagement
Seamless customer engagement has the potential to transform an asset service provider’s business, and value delivered to the clients, by removing inefficiencies in existing processes. Increasingly, there is a demand by buy-side firms to employ big data analytics. Mutual fund distribution analytics are being used to access data on buying choices, investor demographics and churn rates, and using that information to focus their own development and sales strategies more effectively. One key development is the move towards a shortening settlement cycle.
Europe has already moved to T+2, and other regions are likely to follow suit. This increases emphasis on an integrated digital platform, which reduces manual interventions and enables a straight-through settlement process. The tried-and-tested Capital Market Interface Exchange, a technology framework from Intellect OneMARKETS, can handle multiple industry standard data exchange protocols like SWIFT, FIX and web application programming interfaces (APIs), and provide the backbone for a faster and assured settlement process.
Securities lending and borrowing has been garnering increased interest levels from asset service providers. The focus is shifting from saving money to revenue generation. This will also promote greater importance of collateral management, especially collateral optimisation. Buy-side firms will be expected to have a real-time overview of the collateral inventory accepted by their counterparties, to allow for a better view of the firm’s overall risk positions and exposures.
In the long term, simulation capabilities are expected to be incorporated in collateral management solutions. This will help investment management firms simulate margin requirements for each trade, indicating the optimal type of trade needed to achieve margin reductions. Intellect’s OneMARKETS provides securities lending and borrowing, allowing for increased market liquidity, and also provides real-time risk mitigation through a robust collateral management module.
Most banks intend to choose one of the numerous market vendors for accomplishing their regulatory and growth needs. However, most of these vendors fall short, because when it comes to addressing these specific needs from banks they have tools spanning only certain activities.
Additionally, some of those do not integrate well with other systems in bank. What banks—which are on the cusp of this regulatory and growth strategy or searching for the competitive advantage—need is effectivepartners which can provide tools that integrate well without significant costs and are extremely loosely coupled. Such solution providers can prove effective partners in the long run.
Intellect OneMARKETS offers a robust, scalable and comprehensive 360-degree digital platform that supports straight-through processing, direct market access and high-speed execution across a variety of asset classes and market segments with seamless interfaces to local and international market infrastructure providers like exchanges, central counterparties, custodians and central securities depositories. It is designed to seamlessly fit into your technology landscape in a non-disruptive fashion, and enables quick adaptation to new market entities.
Subhasish Bhattacharyya, Product Head - OneMARKETS
Subhasish has close to 22 years of experience in designing technology solutions for the banking and financial services industry. Prior to his current role as business head, Subhasish was a solution architect specialising in treasury, risk and capital markets.