Evolving regulations and the technology impact
01 July 2020
Enhance, don鈥檛 replace. This is the message from Hudson FinTech as it identifies innovative technology to help securities finance firms address the changing regulatory landscape
Image: everything possible/shuttertock.com
To support repo and securities finance trade capture and position management, regulations, analytics or reporting, the industry needs a common, flexible and robust technology platform that allows users from across an organisation to view and analyse the data needed to perform their job functions, and it needs to be future-proof. But that doesn鈥檛 exist, right? Wrong.
Over the past few years there has been a great deal of talk about 鈥榙isruptive technology鈥� and as a result, the trading landscape changing at a rapid pace. New markets are being created and e-trading is proceeding unabated.
But, the core technology of a trader鈥檚 desktop seems to have been overlooked. Many of the trading applications being used by large trading firms use technology which dates back to the 1980s 鈥� why is that? More importantly, why does it cost so much and take so long to make changes to these trading applications?
Trading data workflows
In any trading business, the trader has data to view and aggregate 鈥� this could be market data, firm positions, or current trades. In securities finance, you also need to track open trades for margin and lifecycle actions.
Core technology solutions in this space are limited to only a handful of dominant vendors operating proprietary solutions with little flexibility. These systems are effective when they are fed the right information, which comes from many different parts of an organisation and from different systems. To plug any gaps in processes or functionality, many firms use an array of small in-house applications, or even spreadsheets running on desktops.
Technology Nirvana
Market participants generally agree that an ideal solution would be a common, flexible and robust technology platform, implemented across an organisation to allow users to access the same data. It needs to be future-proof, as benefits are reduced if a firm creates a single technology trading application and then has to create workarounds and add other applications to satisfy future changes.
Technology reality
Let鈥檚 suppose you have a vendor-supplied collateral management and repo trading system which supports all trade types and actions that you need. However, you have an opportunity to do some new emerging market trades, a small volume perhaps, but new business nonetheless. So, you try to enter the trades into your existing system and immediately run into a fundamental issue 鈥� for many emerging markets currencies, there are inconsistencies in the way weekends are counted in different asset classes. These disparities don鈥檛 easily fit into global systems.
The first thing to do is to speak with your vendor, who is happy to provide an enhancement for a fee that may be many times larger than all foreseeable income from these trades. What about your in-house development team (assuming you have one)? If they have the capacity, they can do it, eventually. In-house development teams are expensive to maintain and most often do not have spare capacity for such jobs, and their solution will invariably take a long time to produce. In the end, most firms capture these trades incorrectly on their books and records, and keep a spreadsheet separately with the 鈥榬eal鈥� trade model.
The alternative
It seems strange that with so much innovative technology being used in financial markets (making things faster, more efficient, less risky and cheaper) trading application technology has not evolved significantly for 40 years. We are still stuck with choosing either legacy systems (big, inflexible and expensive to change) or excel (flexible, easy to use, but not robust). Or more commonly, using both.
The alternative is a toolkit of interchangeable parts that can be unassembled and re-assembled at ease, rather like LEGO.
Modern video games are designed in such a way. The concept is called a 鈥榞ame engine鈥�. A game engine is a toolbox with all of the components required to create a game 鈥� graphics systems, sound systems, physics systems, artificial intelligence systems, etc. These building blocks are all carefully designed by experts in their respective areas. A game designer then combines the building blocks to create the game. With the right tools in your toolbox you can create a flight simulator, an adventure game, a strategy game, or any combination of these 鈥� or even something completely new. The Hudson Platform is such a tool, specifically designed for financial markets.
New technology for repo and securities finance
In repo and securities finance the world is changing at a rapid pace. From the market migrating from voice trading to ECNs, to new regulations such as the 色花堂Financing Transactions Regulation (SFTR), securities lending is changing faster than ever before and the current technology simply can鈥檛 keep up.
The Hudson Platform is an advanced repo trading application, which has the functionality and robustness of a legacy system, and the flexibility of excel. By creating small, discreet, and well tested blocks that can be re-composed in any way, the Hudson Platform is able to solve a wide variety of issues faced in repo and securities finance, both big and small.
If you suddenly need to handle BRL or MXN dates, for example, instead of trying to modify the existing system (and probably breaking things along the way) or using excel to do some of the manual calculations, there is a better way.
Using the Hudson Platform, you simply need to create a new building block for these specific currency dates and with minor configuration changes you can put that into your workflow.
Use cases
The most obvious uses are where market requirements change and legacy systems need to be adapted, like with new regulations. These changes usually involve hugely complex relationships between instruments, currencies, margin requirements, internal management reporting and consistent external reporting.
鈥� Trade capture and position management 鈥� adding new products or workflows
鈥� Regulatory reporting 鈥� capturing data, normalising it and presenting it for reports
鈥� Real-time analytics
鈥� Risk management
The platform can be used to link together your existing systems across capital markets 鈥� for repos, swaps, exotic instruments, plus many more. It can be used to sit on top of existing legacy systems, for edge cases where revenues don鈥檛 justify the cost of system upgrades, or as a completely new trading application. The end benefit is to maximise the investment already made in your existing complex systems.
Welcome to the future
As we look back on recent regulatory changes and consider possible future regulations such as SFTR, or the third Markets in Financial Instruments Directive, perhaps the most important part of any platform is that it is future-proof. With new emerging requirements (regulatory, new business, new clients, risk management policies, etc) the core Hudson Platform can be used to modify and adapt workflows, meaning no more costly add-ons or excel spreadsheets.
Think you have a technology problem that can鈥檛 be fixed? Think again.
Over the past few years there has been a great deal of talk about 鈥榙isruptive technology鈥� and as a result, the trading landscape changing at a rapid pace. New markets are being created and e-trading is proceeding unabated.
But, the core technology of a trader鈥檚 desktop seems to have been overlooked. Many of the trading applications being used by large trading firms use technology which dates back to the 1980s 鈥� why is that? More importantly, why does it cost so much and take so long to make changes to these trading applications?
Trading data workflows
In any trading business, the trader has data to view and aggregate 鈥� this could be market data, firm positions, or current trades. In securities finance, you also need to track open trades for margin and lifecycle actions.
Core technology solutions in this space are limited to only a handful of dominant vendors operating proprietary solutions with little flexibility. These systems are effective when they are fed the right information, which comes from many different parts of an organisation and from different systems. To plug any gaps in processes or functionality, many firms use an array of small in-house applications, or even spreadsheets running on desktops.
Technology Nirvana
Market participants generally agree that an ideal solution would be a common, flexible and robust technology platform, implemented across an organisation to allow users to access the same data. It needs to be future-proof, as benefits are reduced if a firm creates a single technology trading application and then has to create workarounds and add other applications to satisfy future changes.
Technology reality
Let鈥檚 suppose you have a vendor-supplied collateral management and repo trading system which supports all trade types and actions that you need. However, you have an opportunity to do some new emerging market trades, a small volume perhaps, but new business nonetheless. So, you try to enter the trades into your existing system and immediately run into a fundamental issue 鈥� for many emerging markets currencies, there are inconsistencies in the way weekends are counted in different asset classes. These disparities don鈥檛 easily fit into global systems.
The first thing to do is to speak with your vendor, who is happy to provide an enhancement for a fee that may be many times larger than all foreseeable income from these trades. What about your in-house development team (assuming you have one)? If they have the capacity, they can do it, eventually. In-house development teams are expensive to maintain and most often do not have spare capacity for such jobs, and their solution will invariably take a long time to produce. In the end, most firms capture these trades incorrectly on their books and records, and keep a spreadsheet separately with the 鈥榬eal鈥� trade model.
The alternative
It seems strange that with so much innovative technology being used in financial markets (making things faster, more efficient, less risky and cheaper) trading application technology has not evolved significantly for 40 years. We are still stuck with choosing either legacy systems (big, inflexible and expensive to change) or excel (flexible, easy to use, but not robust). Or more commonly, using both.
The alternative is a toolkit of interchangeable parts that can be unassembled and re-assembled at ease, rather like LEGO.
Modern video games are designed in such a way. The concept is called a 鈥榞ame engine鈥�. A game engine is a toolbox with all of the components required to create a game 鈥� graphics systems, sound systems, physics systems, artificial intelligence systems, etc. These building blocks are all carefully designed by experts in their respective areas. A game designer then combines the building blocks to create the game. With the right tools in your toolbox you can create a flight simulator, an adventure game, a strategy game, or any combination of these 鈥� or even something completely new. The Hudson Platform is such a tool, specifically designed for financial markets.
New technology for repo and securities finance
In repo and securities finance the world is changing at a rapid pace. From the market migrating from voice trading to ECNs, to new regulations such as the 色花堂Financing Transactions Regulation (SFTR), securities lending is changing faster than ever before and the current technology simply can鈥檛 keep up.
The Hudson Platform is an advanced repo trading application, which has the functionality and robustness of a legacy system, and the flexibility of excel. By creating small, discreet, and well tested blocks that can be re-composed in any way, the Hudson Platform is able to solve a wide variety of issues faced in repo and securities finance, both big and small.
If you suddenly need to handle BRL or MXN dates, for example, instead of trying to modify the existing system (and probably breaking things along the way) or using excel to do some of the manual calculations, there is a better way.
Using the Hudson Platform, you simply need to create a new building block for these specific currency dates and with minor configuration changes you can put that into your workflow.
Use cases
The most obvious uses are where market requirements change and legacy systems need to be adapted, like with new regulations. These changes usually involve hugely complex relationships between instruments, currencies, margin requirements, internal management reporting and consistent external reporting.
鈥� Trade capture and position management 鈥� adding new products or workflows
鈥� Regulatory reporting 鈥� capturing data, normalising it and presenting it for reports
鈥� Real-time analytics
鈥� Risk management
The platform can be used to link together your existing systems across capital markets 鈥� for repos, swaps, exotic instruments, plus many more. It can be used to sit on top of existing legacy systems, for edge cases where revenues don鈥檛 justify the cost of system upgrades, or as a completely new trading application. The end benefit is to maximise the investment already made in your existing complex systems.
Welcome to the future
As we look back on recent regulatory changes and consider possible future regulations such as SFTR, or the third Markets in Financial Instruments Directive, perhaps the most important part of any platform is that it is future-proof. With new emerging requirements (regulatory, new business, new clients, risk management policies, etc) the core Hudson Platform can be used to modify and adapt workflows, meaning no more costly add-ons or excel spreadsheets.
Think you have a technology problem that can鈥檛 be fixed? Think again.
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100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 色花堂Finance Times
