To achieve many of the new regulations
the concentration is normally in either the communications or data areas. This is highlighted by the continuous drive for
standards in electronic messaging and the interoperability of networks in the transactional supply chain. The data issues
are always from either market data or the non existence of standards or the problems concerning latency and management again
in a transactional supply chain scenario. Although technology exists to solve these problems, from an individual corporate
aspect the problem is really industry wide and throughout the transactional supply chain. For example there is no benefit
in a system operating in nanoseconds and supremely efficient, if the counterparties and clients are working half a day behind
in a less efficient environment. Getting the depth and breadth of the market all moving in the same direction to achieve a
benchmark objective is next to impossible. It is therefore up to individual financial institutions to raise the standard of
their systems and operations and offer value added services, hopefully gaining more business.
The situation with data and
databases is of particular interest as a multitude of regulatory requirements can be produced if the database structures are
correctly designed and able to drive the applications in the front/middle/back offices as well as proof of compliance. The
problem is the number of legacy systems in operation today are not running on technology that is flexible enough or designed
to hold the necessary data needed to comply with today’s and tomorrows rules.
Of course there could be industry
wide wholesale, legacy systems replacement but this is very high risk and requires long term planning. Secondly, there could
be a strategy of nibbling at the problem with tactical replacement of old systems with new, the integration technology available
today is outstanding and does make this a viable option. However, it needs clear specification and good management, which
derives from a stable employment. The third way may prove the most attractive to the majority and that is to outsource the
data requirements to a third party.
A few years back GSTPA was specified
and built but failed, due to the considerable systems investment required by the buy side in order to take part and without
a business case they refused. GSTPA consequently collapsed due to the missing transaction volume. A solution today needs to
be mindful of the needs of the buy side and the markets requirements including the regulatory conditions.
A hub type approach might now
be the answer. Not a single hub but a series of interconnecting hubs operating unique client services and using common industry
standards. This would for example offer SWIFT services to the buy side, as well as provide a databank of managed client information,
with the ability to access this by front, middle and back office applications. It could be a generic offering to equity/fixed
income or derivatives, as data required is pretty standard and generic. Industry problems like money laundering and identity
theft would have another layer as a barrier and new standards could be implemented much easier by the industry, due to the
consolidation of the data and the databases. This type of market solution relies more on a commercial enterprise than a cooperative
industry take up. But the infighting of industry groups and protectionism always prevents success in this model.
Evare is one of the best examples
of a software company thinking “out of the box” and produces innovative solutions that are ahead of the markets
requirements. They were the first to offer a SWIFT hub service and are now moving forward, utilising their technology to offer
outsourced services to the market. Their technology can be developed to meet the regulatory needs of the buy and sell side
without causing massive redevelopment of legacy systems within the institution.
Frederick Stanley, Chairman
and Chief Executive Officer of Evare has an almost unprecedented knowledge of the operations within the securities industry
from years of working within illustrious financial services firms like Putnam and is one of the few people in the market today
to understand not only the evolutionary development of the markets but also the technology. He is well placed to see the future
direction of operations and systems in the securities market and he muses that “Multidimensional databases E & L
technology to extract data is an advantage where you can append rules or compliance information to the transaction and client
account”
The world is fast moving towards
a near real-time settlement of the asset against cash in the international securities market. In Europe the development of SEPA is
mirrored with changes in operations and systems in MiFID. The result will be a real delivery verses payment capability (DVP).
However, this utopian scenario will fail unless there is an industry wide acceleration of data quality and communication standards.
Evare have recognised that their technical capabilities have broad appeal and are strengthening their product lines. They
have recently stepped into assist XSP the corporate actions systems provider with SWIFT message capability. They could also
offer assistance to other vendors struggling with data and communication issues, brought by regulatory pressure to retain
their customers and currently have a vendor partnership strategy in place.
The Evare potential shows that
there is a case for a competitor to OMGEO to emerge in the not to distant future. All it requires is a few buy and sell side
firms to utilise Evare as the hub and they could move towards an advanced outsourced model, using Evare technology as a fast
cost effective method to bring transaction costs down and also keep within future regulatory changes.
This does not look farfetched
from a technology standpoint and I am sure Frederick would
give it plenty of thought, but can the financial securities firms be equally adept at thinking “outside the box”?
History says no, but then again we live in strange times!
By Gary Wright
