色花堂Finance Symposium: From automation to clearing
26 November 2025
Nestled in the beauty of Westminster, the 色花堂Finance Symposium hosted a number of integral discussions on key market concerns, from collateral tokenisation to the impact of the US election
Image: Andrew Davis
Opening London鈥檚 securities finance event, Gabriele Frediani, head of development and market infrastructure coverage, Europe, at Liquidity & Sustainability Facility, welcomed fellow market participants to headquarters to the Institutions of Civil Engineers at One Great George Street.
The event brought a myriad of topics into scope for an intriguing discussion on the latest trends, challenges and opportunities in the market.
Regulation faces huge shift in priorities following elections
We are at a crucial point in time for policy making, according to panellists on the 鈥楻egulation鈥� panel, which kicked-off proceedings.
Contributing to this 鈥渃rucial point in time鈥� are the 2024 European and US elections, said Farrah Mahmood, director of Regulatory Affairs, Regulation & Market Practice Group, at the International 色花堂Lending Association (ISLA).
鈥淲e鈥檙e eagerly waiting to see what the impact of Trump coming into power will be on financial services legislation, and whether he will keep the Basel III proposal. We鈥檝e just received a new Labour government in the UK, so there is certainly lots of change in sentiment and change in direction.鈥�
Due to the elections and the upcoming changes in government across the globe, Mahmood said there has been huge change in personnel, 鈥渨hich is positive because it's going to bring a fresh approach to looking at regulation鈥� and how that impacts the markets, but it also means a huge shift in priorities.
According to Mahmood, the key themes impacting the regulatory landscape globally include financial stability, in terms of the rollout of the Basel III rules and potential prudential regulations coming in for non-banks; investor protection and bringing greater participation of retail clients into capital markets; and digital innovations and the greater use of digital assets.
The panellists raised the question surrounding the US 色花堂and Exchange Commission鈥檚 (SEC鈥檚) 10c-1a regulation: will it come into force in 2026, or will it be scrapped?
Kevin McNulty, head of RegTech Solutions at EquiLend, commented that 鈥渦ncertainty鈥� was the word when it comes to 10c-1a.
He explained: 鈥淭he delay of 10c-1a is an option. Three trade associations have taken the SEC to court over 10c-1a, arguing that the SEC didn鈥檛 follow proper procedure, and therefore they should go back to the drawing board and consider things such as full cost benefit analysis.
鈥淭hat challenge is ongoing and we don鈥檛 know the outcome of that just yet. Judges seemed sympathetic to the petitioners, my guess is that they could well push back on 10c-1a, which may mean a delay and a change of some of the requirements. As things currently stand though, uncertainty is the problem because it could still go live on 2 January 2026. It makes everyone ask: how do you prepare for this sort of situation?鈥�
Mahmood interjected that it was 鈥渁 bit of a waiting game鈥�, and the outcome of the litigation will not be heard until the end of Q1 2025.
In terms of uncertainty in the market, Jonathan Tsang, director of business development at S&P Global Market Intelligence Cappitech, said preparation was key in ensuring that 鈥渨e have the right personnel keeping abreast of the market to enable us to adapt to any changes鈥�.
As a business, Tsang emphasised that S&P Global Market Intelligence Cappitech helps clients with meeting their regulatory reporting requirements, and 鈥渨e鈥檝e got to be forward thinking to help clients with future regimes and challenges鈥�.
Jonathan Lee, director of Money Markets Reporting at Kaizen, stated that it was important to look at the broader spectrum of regulations, and not focus solely on the impending SEC 10c-1a regulation.
At the moment, Lee continued, there is an impending delivery of the Office of Financial Research and its non-centrally cleared bilateral repo reporting that will go live in the US for major repo dealers on 2 December.
He noted that a number of national competent authorities have taken it upon themselves to 鈥渟ignificantly step up鈥� their investigations over data quality, and this has become 鈥渁 particular issue and challenge鈥�, especially in the delegated reporting space.
Common domain models (CDMs), digital reporting, and potentially tokenisation, is the future in terms of the direction that the industry would like to go, Lee noted during the panel. 鈥淲e're probably a generation away from it in Europe as it stands.鈥�
The panel鈥檚 moderator Sean Tuffy, consultant and independent regulatory specialist, asked the speakers one recommendation for policy makers, to which the panellists requested tightly defined regulation; for regulators to think about their policy objective; and clarity.
In terms of clarity, Ed Oliver, managing director of product development at eSecLending, mentioned that South Korea's short selling ban is coming to an end at the end of March 2025. He indicated that the whole industry is looking to 鈥榙ot the i鈥檚 and cross the t鈥檚鈥� and get that right so that they can all participate in South Korea.
Looking over the next 12 months, Oliver believes there is a huge opportunity for the industry on the supply side with new markets operating in Asia, the Middle East, and Latin America.
Automation is key, but T+1 challenges remain
At the 色花堂Finance Symposium, four industry members argued that automation will be incredibly vital to a smooth transition to a shorter T+1 settlement cycle in the securities finance industry.
Moderated by Adrian Dale, head of regulation, digital and market practice group at ISLA, the panellists shared their own experiences from North America鈥檚 own shift in May 2024 鈥� largely accepted as a general success.
Introducing the topic, Dale offered a stark prediction that this is a 鈥渘ew regulation on the block. This topic is what we will be talking about for the next three years鈥�.
Matt Johnson, director for ITP Product Management and Industry Relations at the Depository Trust and Clearing Corporation (DTCC), explained that from his client鈥檚 US perspective, 鈥渢here was a heavy focus on automation. Firms looked at their own operating models, architecture. What the US did was it highlighted the focus on regulatory backing鈥�.
He continued to point to the impact that the SEC鈥檚 decision to set a date by which all members of the industry must transition, is key to making the transition as smooth as possible. He suggested that this could be a key lesson for the UK and Europe.
Johnson later stressed that improving behaviour in the markets should be at the forefront of the regulators鈥� minds.
鈥淥ne thing that is incredibly difficult to change is how to get better behaviour in our markets,鈥� Johnson said before asking. 鈥淗ow can we reduce friction points? How can we achieve standardisation? That is how we will achieve better behaviour in markets.鈥�
Calling on the regulators to take initiative, he insisted: 鈥淩egulatory backing is hugely beneficial. The post-trade code of conduct is the right thing to do and market participants need to adhere to that.鈥�
Steering the conversation towards a more securities finance-specific focus, Gabi Mantle, global head, Post-Trade Solutions at EquiLend, said that they worked with their clients to improve their recall process.
She explained that previously, recalls had been heavily reliant on manual processes, including sending emails 鈥� an issue which often led to the slow processing of recalls and increased the likelihood of manual risk.
She explained that the adoption to their more automated version of recalls was initially 鈥渟low but steady鈥�. However, three weeks before the shift to T+1, there was an influx of adoption and 鈥渨e saw the volumes of recalls triple and a lot of firms had adopted the automation.鈥�
She added: 鈥淓verybody knows they need to automate, but there are still challenges.鈥�
For Bill Meenaghan, CEO and founder of SSImple, automation will be key to overcoming those specific challenges. He explained that if the entire process has adopted automation and there is a level of standardisation, then 鈥渢hat is going to get you to a point where recalls will become more efficient.鈥�
He continued to explore the impact on Standing Settlement Instructions [SSI], adding plainly: 鈥淪SIs should be automated from the point of them being issued, usually by a custodian or prime broker.鈥�
鈥淭his is the time we begin to look at that,鈥� Meenaghan said. 鈥淚f you can automate properly at the beginning of the process and allow every member of the industry access to the SSI data on a permissioned basis, that is the right way to properly automate the SSI process.鈥�
Despite the panellists' insistence on automation, Meenaghan offered a realistic prediction. He warned: 鈥淲e may not have finished the SSI automation process by the time T+1 goes live at the end of 2027, but it is a goal we should aim for.鈥�
Collateral tokenisation can support the shift towards T+1
鈥淭he potential of technology is tremendous,鈥� said Martin O鈥機onnell, solutions architect at HQLAx. 鈥淚t鈥檚 not so much about redefining collateral management; it鈥檚 about absorbing these technologies within existing collateral management processes because the business case makes sense.鈥�
Moderated by Glenn Handley, consultant and founder of SecFin Solutions, 鈥楾he collateral era鈥� panel discussed the evolving landscape of collateral management and related regulation.
Introducing the topic of tokenisation, Handley said: 鈥淚f you think about it, it makes no sense to move these trillions of dollars of securities and cash around the world multiple times a day. Looking into the future, we have to do it differently.鈥�
Greg Donovan, vice president of collateral services for EMEA at State Street, added that the anticipated shift towards T+1 in Europe is adding pressure to mobilise collateral more efficiently.
Another panellist believed that the environment will become more complex before it becomes more simple, and that immediate, industry-wide uptake of new solutions is not realistic.
鈥淭here鈥檚 going to be a variety of participants who are going to use traditional assets, settlement, and structures, while others will be interested in this new technology, so for a period of time, you鈥檒l need to have interoperability between both ecosystems,鈥� he said. 鈥淐reating an environment where clients can easily transition between both ecosystems is something that drives us every day.鈥�
On that note, Donovan added: 鈥淭okeinsation is fantastic. It鈥檚 a great use case, but it鈥檚 the scale of adoption that鈥檚 going to be key to this.鈥�
Deploying an asset as collateral without actually moving the asset between custody locations can enhance liquidity and support the adoption of accelerated settlement, according to Donovan, but there is a need for industry collaboration to achieve widespread adoption.
He added: 鈥淯ntil you arrive in a world where the issuance of the asset itself is on blockchain, there will have to be some sort of intermediation of non-on-chain assets.鈥�
As EMEA head of triparty at J.P. Morgan, Graham Gooden sees a potential role for triparty agents as a facilitator to help broaden adoption.
鈥淏y integrating tokenised assets into triparty, you increase their utility through the ability to refinance and reuse across the collateral ecosystem,鈥� he said. 鈥淭riparty already has the benefit of the network effect built up through many years of integration across markets and participants. Connecting the new technology to complement established market best practices is the quickest way to build momentum and help move the industry forward.鈥�
The panel also discussed the impact of uncleared margin rules (UMR) on buy side firms, with Donovan noting that many entities rushed to comply without fully optimising their collateral processes, leading to inefficiencies.
鈥淭here was a bit of a rush in 2022 to comply, by which I mean: 鈥業 must set up a means of segregating my initial margin. I must have a process to calculate it. If that is ugly, if that is inefficient, that's okay, as long as it gets done this year鈥�.鈥�
However, Wassel Danmak, director of collateral management at Vermeg, believes that technology can help buy side firms better utilise their collateral management systems to fulfil UMR obligations, such as by identifying less liquid assets and modelling different stress scenarios.
He also highlighted the potential of artificial intelligence, from a simple chatbot to an AI agent that can do all the repetitive tasks of the collateral management space, including UMR compliance.
US Treasury clearing to present operational burden
The US Treasury clearing mandate is to present a significant burden to firms, according to panellists.
Setting the scene for the 鈥楢 clear view鈥� panel, moderator Darren Crowther, general manager of 色花堂Finance and Collateral Management at Broadridge, discussed the extent of US Treasury clearing volumes and how upcoming regulation will see this soar.
As at July 2024, US Treasury clearing is around US$7.5 trillion daily volumes. This means a minimum of 150,000 trades are being struck per day, according to Crowther.
In the world of data exchange, that is circa one million messages a day being exchanged back and forth between all of the Government 色花堂Division (GSD) members at the Fixed Income Clearing Corporation (FICC).
The expectation, Crowther indicated, is that this will go up to about US$11 trillion or higher in daily volumes, meaning another 100,000 trades, and a further 400,000 or 500,000 messages every day.
鈥淪o with the volume additional trades and the increase of data that鈥檚 going to be transferred back and forward, the operational burden that鈥檚 going to be put on organisations is quite significant, and that will flow into an international space as well, as the mandate is around how those trades are also cleared,鈥� Crowther explained.
The US SEC鈥檚 final rule on mandatory clearing was approved last December, it is part of the broader reform agenda that the SEC and US Treasury has embarked upon.
This is one of the most prominent rules and it could have a significant impact, not just on domestic transactions and counterparties, but also across the world, says Michalis Sotiropoulos, head of Government Relations, Europe, at DTCC.
In terms of timing, there are three key deadlines. The first is in March 2025, which refers to the infrastructure part of the rule, so CCP providers and clearing members will have to set up segregated accounts. The two other deadlines for the scope are December 2025 for cash transactions, and June 2026 for repo transitions.
In today鈥檚 ever changing regulatory landscape, firms are often faced with changes to operational processes, market conditions, and technological advancements. However, challenges can also enable tactical and strategic transformational opportunities, stated Richard Gomm, associate director, product and business development, at SIX.
He added: 鈥淚nstitutions may be able to tactically or strategically transform their organisations while also implementing changes that are designed to fulfil any proposed changes to regulations.鈥�
Key considerations when tackling this upcoming regulation include strategy and the associated business models, technological infrastructure, margin processes, risk management frameworks, and repapering 鈥� something that will be a 鈥渉uge task for everybody鈥�.
Moving to the next topic, Crowther indicated that DTCC鈥檚 FICC is currently the only clearing offering in US Treasuries, with CME and the Intercontinental Exchange (ICE) also 鈥減utting their hat in the ring鈥�.
Commenting on this, Cyprien Dupont-Madinier, head of repo Europe, at the Bank of Montreal, said: 鈥淗aving one CCP makes things easier from a dealing perspective, a pricing perspective, a liquidity perspective and margining perspective. Having everything in the same place allows dealers to optimise netting opportunities and reduce capital consumption.
鈥淚n addition, looking at the driving forces behind the rule, which are to reduce risk and increase the operational efficiency, it would seem to advocate in favour of having one CCP over multiple CCPs.鈥�
However Cyprien also noted that having everything in just one CCP would concentrate risk into one critical piece of market infrastructure (potentially at the mercy of an IT outage).
It would then call into question whether that infrastructure should be left in the hands of the private sector or whether it should be under the supervision of a public regulator.
The latter potentially adds new risk layers as the regulator tends to focus on liquidity risk when a CCP focuses on counterparty risk. He also stressed that competition in the CCP markets could drive technology innovation and pressure costs down. As such he believes that 鈥渢he jury is still out there鈥� on the optimal number of CCPs.
Gomm interjected: 鈥淟ooking at mandated clearing and the introduction of new CCPs, diversification of risk using new entrances to the market, is great for us.
鈥淏ut, holistically, across the market, it is not always viewed well from a trading perspective, given fragmentation of liquidity pools and portfolios. Commercial considerations pertaining to fee concessions and revenue share opportunities should be at the forefront of firms selection criteria when looking to appoint a CCP of choice. Such incentives will help to alleviate the costs associated with fragmentation of portfolios etc.鈥�
Other considerations concerning the wider market include competitive clearing fees, eligibility schedules, and other concessions like partnership programmes.
Concluding his final thoughts on the panel, Gomm warned that there will be additional focus on mandatory clearing of repo and fixed income transactions in the UK.
The future of securities finance
In the 鈥楲ooking forward鈥� panel, industry experts gathered to explore the latest developments, innovations, and future trends in the securities financing industry.
Moderating the panel, Jonathan Adams, consultancy lead at Progressive SecFin, initiated the conversation surrounding innovation in the industry with the question of uptake of new technology within securities financing.
Mike Lambert, product director for securities lending at Broadridge, highlighted the mixed progress in the industry. He emphasised that uptake is largely dependent on what parts of the industry the focus is on: 鈥淭rade services, and reconciliation have seen good take-up. But having said that, there are still firms that are not doing any post-trade automation, which is surprising.鈥�
He continued: 鈥淥n the trader side, the GC business is pretty much automated for most large players, but the specials and financing businesses are not as much, as trading is still a negotiation process.鈥�
Understanding the importance of this negotiation process to traders, he believes that automating the entire trade lifecycle would be 鈥渃ounter-productive鈥�. Rather, he suggested, 鈥渨hat we should be doing is giving traders greater insights into how to negotiate and what they should negotiate鈥�.
The panel also discussed the idea that the post-trade industry is currently in the midst of utilising advanced technologies. These technologies, they suggest, have not been applied at scale, to deliver solutions to individual and private wealth clients.
Addressing the second question as to why some firms continue to persist in utilising legacy technology over innovation, the panel notes uncertainty as a key factor, highlighting how a lack of clarity surrounding future market structures may have made it difficult for some firms to invest in innovation.
From the legal perspective, Paul Landless, partner at Clifford Chance, also highlights cost as a blocker. He stated: 鈥淟egacy infrastructure is a real challenge for many people looking at resourcing budgets.鈥� He went on to mention that lack of regulatory clarity and security concerns in adopting new types of innovative systems further prevent firms from 鈥榣etting go鈥� of legacy platforms.
Tammy Phillips, CEO and founder of Astrix Networks, agreed. She believes that cost is a major barrier to adopting new forms of technology, and that trust is required that the technology will work.
Phillips underlines that it takes imagination to invest in new technology, and businesses, or market participants will be reluctant to take the next steps to implement change if they cannot envision how these new technologies will succeed in the future.
Tech companies, she emphasised, are now the ones investing in innovation, while the market currently requires more time to break away from legacy infrastructure.
Adams lastly poses the question of whether automating the securities lending and borrowing process requires AI. The panel believes that, initially, AI will be utilised as a decision support tool. However, as the model, and the technology surrounding it, improves with time, they note it will become essential to the automation process. They conclude that automating securities and lending will require AI to not only collect the data, but to feed off and provide new insights and thought processes.
Ultimately, the panel provided valuable insights into the evolving landscape of the securities financing industry, highlighting the challenges, opportunities, and the role of technology in shaping the future.
Manual processes hinder technological evolution
There is a need for financial institutions to be agnostic towards new technologies because a one-size-fits-all approach is unlikely to succeed, according to panellists.
Roy Zimmerhansl, principal at Pierpoint Financial, who moderated the 鈥楲eaders in lending鈥� panel, set the tone by emphasising the need to improve business efficiency through incremental changes rather than large-scale overhauls.
The panel agreed that while there are numerous technology solutions on the market, integrating them into existing legacy systems and workflows remains a significant hurdle.
Ross Bowman, head of client management for agency lending and financing collateral services at BNP Paribas, said: 鈥淲here we need to do a better job is looking more internally to see whether we can fix the problem we鈥檙e trying to solve through our own developments a lot of us have purchased over the years, but we don鈥檛 use them to the fullest extent of its entire range of capabilities. So that means getting your own house in order.鈥�
Regarding new technologies, he added: 鈥淭he reality is, in today鈥檚 market, you鈥檒l still be dealing with half the entrance that will want to send you emails and use spreadsheets.鈥�
In response, Eileen Herlihy, managing director and global head of Trading Services Sales at J.P. Morgan, added: 鈥淢anual processes don鈥檛 perform well when you鈥檝e got market volatility. And the more exception processes you have, the more that is going to hurt, especially in the period of market stress.鈥�
Adnan Hussain, managing director and global head of treasury and securities lending at HSBC, highlighted the significant potential in regions like the Middle East and ASEAN, but cautioned that the diversity of these markets poses unique integration challenges.
"There are definitely opportunities, but the scale of those markets is enormous," he said. 鈥淓ven when we think about the Middle East, while the countries might be fairly synonymous from the outside looking in, they are very individualistic and therefore do have very different infrastructures.鈥�
Hussian believes the key could be introducing new technologies within these markets at an early stage, as they are building from scratch, to support wide adoption and better interoperability.
However, Bowman argued: "There is some adaptation you have to apply to those markets, which often creates manual processes and the less efficient processes when you start out, in order to get the market up and running for individual use cases.鈥�
The panel also emphasised the appetite for intraday liquidity coming from emerging markets, specifically in Asia and Europe.
Towards the end of the discussion, the speakers shared their future predictions for the securities lending market.
鈥淚t may seem aspirational or utopic, but I think that ultimately, the industry will end up in a space where automation is assumed across the full lifecycle of the trade,鈥� said Hussain. 鈥淗owever, the responsibility will still be around the analytics and the execution itself, as well as the maths and the mechanics around it.鈥�
Wrapping up, Bowman noted: 鈥淭here鈥檚 plenty of opportunity and solutions out there, but I think a lot of the change is not necessarily going to come as a big bang from the industry. It鈥檚 going to come from a lot of sweat and tears internally within organisations to get your own house working first, get your data clean and correct, and then you鈥檒l be in a much stronger position to interact with the wider market.鈥�
The event brought a myriad of topics into scope for an intriguing discussion on the latest trends, challenges and opportunities in the market.
Regulation faces huge shift in priorities following elections
We are at a crucial point in time for policy making, according to panellists on the 鈥楻egulation鈥� panel, which kicked-off proceedings.
Contributing to this 鈥渃rucial point in time鈥� are the 2024 European and US elections, said Farrah Mahmood, director of Regulatory Affairs, Regulation & Market Practice Group, at the International 色花堂Lending Association (ISLA).
鈥淲e鈥檙e eagerly waiting to see what the impact of Trump coming into power will be on financial services legislation, and whether he will keep the Basel III proposal. We鈥檝e just received a new Labour government in the UK, so there is certainly lots of change in sentiment and change in direction.鈥�
Due to the elections and the upcoming changes in government across the globe, Mahmood said there has been huge change in personnel, 鈥渨hich is positive because it's going to bring a fresh approach to looking at regulation鈥� and how that impacts the markets, but it also means a huge shift in priorities.
According to Mahmood, the key themes impacting the regulatory landscape globally include financial stability, in terms of the rollout of the Basel III rules and potential prudential regulations coming in for non-banks; investor protection and bringing greater participation of retail clients into capital markets; and digital innovations and the greater use of digital assets.
The panellists raised the question surrounding the US 色花堂and Exchange Commission鈥檚 (SEC鈥檚) 10c-1a regulation: will it come into force in 2026, or will it be scrapped?
Kevin McNulty, head of RegTech Solutions at EquiLend, commented that 鈥渦ncertainty鈥� was the word when it comes to 10c-1a.
He explained: 鈥淭he delay of 10c-1a is an option. Three trade associations have taken the SEC to court over 10c-1a, arguing that the SEC didn鈥檛 follow proper procedure, and therefore they should go back to the drawing board and consider things such as full cost benefit analysis.
鈥淭hat challenge is ongoing and we don鈥檛 know the outcome of that just yet. Judges seemed sympathetic to the petitioners, my guess is that they could well push back on 10c-1a, which may mean a delay and a change of some of the requirements. As things currently stand though, uncertainty is the problem because it could still go live on 2 January 2026. It makes everyone ask: how do you prepare for this sort of situation?鈥�
Mahmood interjected that it was 鈥渁 bit of a waiting game鈥�, and the outcome of the litigation will not be heard until the end of Q1 2025.
In terms of uncertainty in the market, Jonathan Tsang, director of business development at S&P Global Market Intelligence Cappitech, said preparation was key in ensuring that 鈥渨e have the right personnel keeping abreast of the market to enable us to adapt to any changes鈥�.
As a business, Tsang emphasised that S&P Global Market Intelligence Cappitech helps clients with meeting their regulatory reporting requirements, and 鈥渨e鈥檝e got to be forward thinking to help clients with future regimes and challenges鈥�.
Jonathan Lee, director of Money Markets Reporting at Kaizen, stated that it was important to look at the broader spectrum of regulations, and not focus solely on the impending SEC 10c-1a regulation.
At the moment, Lee continued, there is an impending delivery of the Office of Financial Research and its non-centrally cleared bilateral repo reporting that will go live in the US for major repo dealers on 2 December.
He noted that a number of national competent authorities have taken it upon themselves to 鈥渟ignificantly step up鈥� their investigations over data quality, and this has become 鈥渁 particular issue and challenge鈥�, especially in the delegated reporting space.
Common domain models (CDMs), digital reporting, and potentially tokenisation, is the future in terms of the direction that the industry would like to go, Lee noted during the panel. 鈥淲e're probably a generation away from it in Europe as it stands.鈥�
The panel鈥檚 moderator Sean Tuffy, consultant and independent regulatory specialist, asked the speakers one recommendation for policy makers, to which the panellists requested tightly defined regulation; for regulators to think about their policy objective; and clarity.
In terms of clarity, Ed Oliver, managing director of product development at eSecLending, mentioned that South Korea's short selling ban is coming to an end at the end of March 2025. He indicated that the whole industry is looking to 鈥榙ot the i鈥檚 and cross the t鈥檚鈥� and get that right so that they can all participate in South Korea.
Looking over the next 12 months, Oliver believes there is a huge opportunity for the industry on the supply side with new markets operating in Asia, the Middle East, and Latin America.
Automation is key, but T+1 challenges remain
At the 色花堂Finance Symposium, four industry members argued that automation will be incredibly vital to a smooth transition to a shorter T+1 settlement cycle in the securities finance industry.
Moderated by Adrian Dale, head of regulation, digital and market practice group at ISLA, the panellists shared their own experiences from North America鈥檚 own shift in May 2024 鈥� largely accepted as a general success.
Introducing the topic, Dale offered a stark prediction that this is a 鈥渘ew regulation on the block. This topic is what we will be talking about for the next three years鈥�.
Matt Johnson, director for ITP Product Management and Industry Relations at the Depository Trust and Clearing Corporation (DTCC), explained that from his client鈥檚 US perspective, 鈥渢here was a heavy focus on automation. Firms looked at their own operating models, architecture. What the US did was it highlighted the focus on regulatory backing鈥�.
He continued to point to the impact that the SEC鈥檚 decision to set a date by which all members of the industry must transition, is key to making the transition as smooth as possible. He suggested that this could be a key lesson for the UK and Europe.
Johnson later stressed that improving behaviour in the markets should be at the forefront of the regulators鈥� minds.
鈥淥ne thing that is incredibly difficult to change is how to get better behaviour in our markets,鈥� Johnson said before asking. 鈥淗ow can we reduce friction points? How can we achieve standardisation? That is how we will achieve better behaviour in markets.鈥�
Calling on the regulators to take initiative, he insisted: 鈥淩egulatory backing is hugely beneficial. The post-trade code of conduct is the right thing to do and market participants need to adhere to that.鈥�
Steering the conversation towards a more securities finance-specific focus, Gabi Mantle, global head, Post-Trade Solutions at EquiLend, said that they worked with their clients to improve their recall process.
She explained that previously, recalls had been heavily reliant on manual processes, including sending emails 鈥� an issue which often led to the slow processing of recalls and increased the likelihood of manual risk.
She explained that the adoption to their more automated version of recalls was initially 鈥渟low but steady鈥�. However, three weeks before the shift to T+1, there was an influx of adoption and 鈥渨e saw the volumes of recalls triple and a lot of firms had adopted the automation.鈥�
She added: 鈥淓verybody knows they need to automate, but there are still challenges.鈥�
For Bill Meenaghan, CEO and founder of SSImple, automation will be key to overcoming those specific challenges. He explained that if the entire process has adopted automation and there is a level of standardisation, then 鈥渢hat is going to get you to a point where recalls will become more efficient.鈥�
He continued to explore the impact on Standing Settlement Instructions [SSI], adding plainly: 鈥淪SIs should be automated from the point of them being issued, usually by a custodian or prime broker.鈥�
鈥淭his is the time we begin to look at that,鈥� Meenaghan said. 鈥淚f you can automate properly at the beginning of the process and allow every member of the industry access to the SSI data on a permissioned basis, that is the right way to properly automate the SSI process.鈥�
Despite the panellists' insistence on automation, Meenaghan offered a realistic prediction. He warned: 鈥淲e may not have finished the SSI automation process by the time T+1 goes live at the end of 2027, but it is a goal we should aim for.鈥�
Collateral tokenisation can support the shift towards T+1
鈥淭he potential of technology is tremendous,鈥� said Martin O鈥機onnell, solutions architect at HQLAx. 鈥淚t鈥檚 not so much about redefining collateral management; it鈥檚 about absorbing these technologies within existing collateral management processes because the business case makes sense.鈥�
Moderated by Glenn Handley, consultant and founder of SecFin Solutions, 鈥楾he collateral era鈥� panel discussed the evolving landscape of collateral management and related regulation.
Introducing the topic of tokenisation, Handley said: 鈥淚f you think about it, it makes no sense to move these trillions of dollars of securities and cash around the world multiple times a day. Looking into the future, we have to do it differently.鈥�
Greg Donovan, vice president of collateral services for EMEA at State Street, added that the anticipated shift towards T+1 in Europe is adding pressure to mobilise collateral more efficiently.
Another panellist believed that the environment will become more complex before it becomes more simple, and that immediate, industry-wide uptake of new solutions is not realistic.
鈥淭here鈥檚 going to be a variety of participants who are going to use traditional assets, settlement, and structures, while others will be interested in this new technology, so for a period of time, you鈥檒l need to have interoperability between both ecosystems,鈥� he said. 鈥淐reating an environment where clients can easily transition between both ecosystems is something that drives us every day.鈥�
On that note, Donovan added: 鈥淭okeinsation is fantastic. It鈥檚 a great use case, but it鈥檚 the scale of adoption that鈥檚 going to be key to this.鈥�
Deploying an asset as collateral without actually moving the asset between custody locations can enhance liquidity and support the adoption of accelerated settlement, according to Donovan, but there is a need for industry collaboration to achieve widespread adoption.
He added: 鈥淯ntil you arrive in a world where the issuance of the asset itself is on blockchain, there will have to be some sort of intermediation of non-on-chain assets.鈥�
As EMEA head of triparty at J.P. Morgan, Graham Gooden sees a potential role for triparty agents as a facilitator to help broaden adoption.
鈥淏y integrating tokenised assets into triparty, you increase their utility through the ability to refinance and reuse across the collateral ecosystem,鈥� he said. 鈥淭riparty already has the benefit of the network effect built up through many years of integration across markets and participants. Connecting the new technology to complement established market best practices is the quickest way to build momentum and help move the industry forward.鈥�
The panel also discussed the impact of uncleared margin rules (UMR) on buy side firms, with Donovan noting that many entities rushed to comply without fully optimising their collateral processes, leading to inefficiencies.
鈥淭here was a bit of a rush in 2022 to comply, by which I mean: 鈥業 must set up a means of segregating my initial margin. I must have a process to calculate it. If that is ugly, if that is inefficient, that's okay, as long as it gets done this year鈥�.鈥�
However, Wassel Danmak, director of collateral management at Vermeg, believes that technology can help buy side firms better utilise their collateral management systems to fulfil UMR obligations, such as by identifying less liquid assets and modelling different stress scenarios.
He also highlighted the potential of artificial intelligence, from a simple chatbot to an AI agent that can do all the repetitive tasks of the collateral management space, including UMR compliance.
US Treasury clearing to present operational burden
The US Treasury clearing mandate is to present a significant burden to firms, according to panellists.
Setting the scene for the 鈥楢 clear view鈥� panel, moderator Darren Crowther, general manager of 色花堂Finance and Collateral Management at Broadridge, discussed the extent of US Treasury clearing volumes and how upcoming regulation will see this soar.
As at July 2024, US Treasury clearing is around US$7.5 trillion daily volumes. This means a minimum of 150,000 trades are being struck per day, according to Crowther.
In the world of data exchange, that is circa one million messages a day being exchanged back and forth between all of the Government 色花堂Division (GSD) members at the Fixed Income Clearing Corporation (FICC).
The expectation, Crowther indicated, is that this will go up to about US$11 trillion or higher in daily volumes, meaning another 100,000 trades, and a further 400,000 or 500,000 messages every day.
鈥淪o with the volume additional trades and the increase of data that鈥檚 going to be transferred back and forward, the operational burden that鈥檚 going to be put on organisations is quite significant, and that will flow into an international space as well, as the mandate is around how those trades are also cleared,鈥� Crowther explained.
The US SEC鈥檚 final rule on mandatory clearing was approved last December, it is part of the broader reform agenda that the SEC and US Treasury has embarked upon.
This is one of the most prominent rules and it could have a significant impact, not just on domestic transactions and counterparties, but also across the world, says Michalis Sotiropoulos, head of Government Relations, Europe, at DTCC.
In terms of timing, there are three key deadlines. The first is in March 2025, which refers to the infrastructure part of the rule, so CCP providers and clearing members will have to set up segregated accounts. The two other deadlines for the scope are December 2025 for cash transactions, and June 2026 for repo transitions.
In today鈥檚 ever changing regulatory landscape, firms are often faced with changes to operational processes, market conditions, and technological advancements. However, challenges can also enable tactical and strategic transformational opportunities, stated Richard Gomm, associate director, product and business development, at SIX.
He added: 鈥淚nstitutions may be able to tactically or strategically transform their organisations while also implementing changes that are designed to fulfil any proposed changes to regulations.鈥�
Key considerations when tackling this upcoming regulation include strategy and the associated business models, technological infrastructure, margin processes, risk management frameworks, and repapering 鈥� something that will be a 鈥渉uge task for everybody鈥�.
Moving to the next topic, Crowther indicated that DTCC鈥檚 FICC is currently the only clearing offering in US Treasuries, with CME and the Intercontinental Exchange (ICE) also 鈥減utting their hat in the ring鈥�.
Commenting on this, Cyprien Dupont-Madinier, head of repo Europe, at the Bank of Montreal, said: 鈥淗aving one CCP makes things easier from a dealing perspective, a pricing perspective, a liquidity perspective and margining perspective. Having everything in the same place allows dealers to optimise netting opportunities and reduce capital consumption.
鈥淚n addition, looking at the driving forces behind the rule, which are to reduce risk and increase the operational efficiency, it would seem to advocate in favour of having one CCP over multiple CCPs.鈥�
However Cyprien also noted that having everything in just one CCP would concentrate risk into one critical piece of market infrastructure (potentially at the mercy of an IT outage).
It would then call into question whether that infrastructure should be left in the hands of the private sector or whether it should be under the supervision of a public regulator.
The latter potentially adds new risk layers as the regulator tends to focus on liquidity risk when a CCP focuses on counterparty risk. He also stressed that competition in the CCP markets could drive technology innovation and pressure costs down. As such he believes that 鈥渢he jury is still out there鈥� on the optimal number of CCPs.
Gomm interjected: 鈥淟ooking at mandated clearing and the introduction of new CCPs, diversification of risk using new entrances to the market, is great for us.
鈥淏ut, holistically, across the market, it is not always viewed well from a trading perspective, given fragmentation of liquidity pools and portfolios. Commercial considerations pertaining to fee concessions and revenue share opportunities should be at the forefront of firms selection criteria when looking to appoint a CCP of choice. Such incentives will help to alleviate the costs associated with fragmentation of portfolios etc.鈥�
Other considerations concerning the wider market include competitive clearing fees, eligibility schedules, and other concessions like partnership programmes.
Concluding his final thoughts on the panel, Gomm warned that there will be additional focus on mandatory clearing of repo and fixed income transactions in the UK.
The future of securities finance
In the 鈥楲ooking forward鈥� panel, industry experts gathered to explore the latest developments, innovations, and future trends in the securities financing industry.
Moderating the panel, Jonathan Adams, consultancy lead at Progressive SecFin, initiated the conversation surrounding innovation in the industry with the question of uptake of new technology within securities financing.
Mike Lambert, product director for securities lending at Broadridge, highlighted the mixed progress in the industry. He emphasised that uptake is largely dependent on what parts of the industry the focus is on: 鈥淭rade services, and reconciliation have seen good take-up. But having said that, there are still firms that are not doing any post-trade automation, which is surprising.鈥�
He continued: 鈥淥n the trader side, the GC business is pretty much automated for most large players, but the specials and financing businesses are not as much, as trading is still a negotiation process.鈥�
Understanding the importance of this negotiation process to traders, he believes that automating the entire trade lifecycle would be 鈥渃ounter-productive鈥�. Rather, he suggested, 鈥渨hat we should be doing is giving traders greater insights into how to negotiate and what they should negotiate鈥�.
The panel also discussed the idea that the post-trade industry is currently in the midst of utilising advanced technologies. These technologies, they suggest, have not been applied at scale, to deliver solutions to individual and private wealth clients.
Addressing the second question as to why some firms continue to persist in utilising legacy technology over innovation, the panel notes uncertainty as a key factor, highlighting how a lack of clarity surrounding future market structures may have made it difficult for some firms to invest in innovation.
From the legal perspective, Paul Landless, partner at Clifford Chance, also highlights cost as a blocker. He stated: 鈥淟egacy infrastructure is a real challenge for many people looking at resourcing budgets.鈥� He went on to mention that lack of regulatory clarity and security concerns in adopting new types of innovative systems further prevent firms from 鈥榣etting go鈥� of legacy platforms.
Tammy Phillips, CEO and founder of Astrix Networks, agreed. She believes that cost is a major barrier to adopting new forms of technology, and that trust is required that the technology will work.
Phillips underlines that it takes imagination to invest in new technology, and businesses, or market participants will be reluctant to take the next steps to implement change if they cannot envision how these new technologies will succeed in the future.
Tech companies, she emphasised, are now the ones investing in innovation, while the market currently requires more time to break away from legacy infrastructure.
Adams lastly poses the question of whether automating the securities lending and borrowing process requires AI. The panel believes that, initially, AI will be utilised as a decision support tool. However, as the model, and the technology surrounding it, improves with time, they note it will become essential to the automation process. They conclude that automating securities and lending will require AI to not only collect the data, but to feed off and provide new insights and thought processes.
Ultimately, the panel provided valuable insights into the evolving landscape of the securities financing industry, highlighting the challenges, opportunities, and the role of technology in shaping the future.
Manual processes hinder technological evolution
There is a need for financial institutions to be agnostic towards new technologies because a one-size-fits-all approach is unlikely to succeed, according to panellists.
Roy Zimmerhansl, principal at Pierpoint Financial, who moderated the 鈥楲eaders in lending鈥� panel, set the tone by emphasising the need to improve business efficiency through incremental changes rather than large-scale overhauls.
The panel agreed that while there are numerous technology solutions on the market, integrating them into existing legacy systems and workflows remains a significant hurdle.
Ross Bowman, head of client management for agency lending and financing collateral services at BNP Paribas, said: 鈥淲here we need to do a better job is looking more internally to see whether we can fix the problem we鈥檙e trying to solve through our own developments a lot of us have purchased over the years, but we don鈥檛 use them to the fullest extent of its entire range of capabilities. So that means getting your own house in order.鈥�
Regarding new technologies, he added: 鈥淭he reality is, in today鈥檚 market, you鈥檒l still be dealing with half the entrance that will want to send you emails and use spreadsheets.鈥�
In response, Eileen Herlihy, managing director and global head of Trading Services Sales at J.P. Morgan, added: 鈥淢anual processes don鈥檛 perform well when you鈥檝e got market volatility. And the more exception processes you have, the more that is going to hurt, especially in the period of market stress.鈥�
Adnan Hussain, managing director and global head of treasury and securities lending at HSBC, highlighted the significant potential in regions like the Middle East and ASEAN, but cautioned that the diversity of these markets poses unique integration challenges.
"There are definitely opportunities, but the scale of those markets is enormous," he said. 鈥淓ven when we think about the Middle East, while the countries might be fairly synonymous from the outside looking in, they are very individualistic and therefore do have very different infrastructures.鈥�
Hussian believes the key could be introducing new technologies within these markets at an early stage, as they are building from scratch, to support wide adoption and better interoperability.
However, Bowman argued: "There is some adaptation you have to apply to those markets, which often creates manual processes and the less efficient processes when you start out, in order to get the market up and running for individual use cases.鈥�
The panel also emphasised the appetite for intraday liquidity coming from emerging markets, specifically in Asia and Europe.
Towards the end of the discussion, the speakers shared their future predictions for the securities lending market.
鈥淚t may seem aspirational or utopic, but I think that ultimately, the industry will end up in a space where automation is assumed across the full lifecycle of the trade,鈥� said Hussain. 鈥淗owever, the responsibility will still be around the analytics and the execution itself, as well as the maths and the mechanics around it.鈥�
Wrapping up, Bowman noted: 鈥淭here鈥檚 plenty of opportunity and solutions out there, but I think a lot of the change is not necessarily going to come as a big bang from the industry. It鈥檚 going to come from a lot of sweat and tears internally within organisations to get your own house working first, get your data clean and correct, and then you鈥檒l be in a much stronger position to interact with the wider market.鈥�
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