The Post-Trade Reshuffle

In 2001 and 2003, the Giovannini Group released two reports on what stood in the way of an integrated European financial market. These so-called “Giovannini barriers,” numbering 15, have been slowly eroded over the years as market practices have harmonized, pan-European projects such as Target2-Securities have been launched, and most recently, the idea of capital markets union (CMU) has gained full-throated support from lawmakers and European Commission (EC) officials alike.

Earlier this week, the European Post-Trade Forum published its report on the state of post-trade infrastructure in the Union, released alongside a consultation from the EC that aims to identify weaknesses and flaws in European post-trade processes. It found that most of these Giovannini barriers had been taken down, but in some cases, more had been added. Much of these were to do with post-trade areas, and the report made a number of strong recommendations for relatively wide-ranging reform.

The momentum behind this reform is significant. In September 2016, the International Swaps and Derivatives Association (Isda) also announced a long-running project that would aim to modernize and reform derivatives trading practices, spurred on by developments in technology, and a lingering sense that many ways of doing business are simply out of date.

Isda isn’t alone in that assessment. Senior market figures have expressed exasperation to me in the past that confirming an equities trade is a 10-plus step process, for instance, while most fintech companies I speak with all follow a similar narrative: Something is broken, and they’re here to fix it.

The fact is, reform is long overdue. Technology and processes from the 1990s still dominate in some areas of post-trade, particularly in derivatives. And if you look at much of the work that is taking place, whether that’s through emerging technologies such as distributed ledger, from legislative work, or consolidation within the industry, it becomes clear that, taken holistically, a widespread effort is under way to re-engineer the very process of trading—unconsciously so, perhaps, but there nonetheless.

The EC consultation and Isda’s work are encouraging first steps, in this regard. I’m working on a lengthy piece examining this very topic at the moment, so if anyone has any thoughts, please feel free to shoot me an email at [email protected].

This week on Buy-Side Technology

• Axe Trading makes a pivot from the sell side to the buy side, with the release of its new execution management system, which has all the bells and whistles you might expect from a sell-side version.
• Eze Software Group inked another partnership, hot on the heels of its deal with OTAS Technologies a few months ago. This time it’s partnering with Trade Informatics for transaction cost-analysis. Which it also did with IHS Markit a couple of years back.
• The Euroclear–Depository Trust and Clearing Corp. (DTCC) vehicle GlobalCollateral is heading to the cloud, through a partnership with CloudMargin—the first through its partner program.
• Australia can be a strange place, what with 70 percent of the country being desert wasteland, prime ministers skulling pints at cricket matches and men fighting kangaroos over dogs, and now this. Aussie businesses, colleges and government bodies have formed a partnership for quantum computing. They do things differently Down Under.