A fast-growing market and a more demanding client base have exposed several operational weak points of the industry’s current operations. As volume and complexity keep growing, this will increasingly become a bottleneck of the industry. For institutions and retail investors alike, lack of speed results in capital being locked up, and exposes them to more counterparty risks. The current operations to process trades is costly too. Various estimates put the global post-trade processing cost at US$20-40 billion a year (and counting). Speed and costs aside, market participants are also exposed to more operational risks. Last but not the least, more stringent regulatory requirements also mean that institutions are more likely to see compliance issues.
Despite the challenges, the technology development has provided the industry with possibilities to make the post-trade processing cheaper, faster, and better. More firms are rethinking their post-trade operations and trying new ways to upgrade them.
New technologies available:
Application of these technologies:
1. Modernizing the legacy systems
For most established companies, modernizing the legacy system is a politic, if expedient choice. The systems are still working and are mission-critical. The agility and flexibility coming with microservices and native cloud technologies are of considerable worth in modernizing the legacy systems.
2. DIY
Some of the financial services companies may decide to build a new solution by themselves or try to acquire such capabilities through deals.
3. Try new solutions
Many companies in the Asia-Pacific region find themselves in expansion mode, and thus may find new solutions more appealing a choice. More trading asset classes and cross-border fund flows give both sell-side and buy-side institutions the justification to upgrade their middle and back office.
This is made more urgent by the quick geographic expansion of the business.
Summary
Most of the challenges faced by the industry will persist unless the industry is willing to change. Capital market participants will have to deal with heightened regulatory requirements, pressure on margin, intensifying competition, all while managing growth rate unique to the Asia-Pacific market. Nevertheless, they do not have to continue to deal with these challenges the same way they used to. And it is the new way of doing business that will carry them far despite those seemingly insuperable obstacles.
