Although markets may have calmed down following the extraordinary volatility in March/April 2020, financial institutions are bracing themselves for further Covid-19-induced uncertainty and stress. Low interest rates along with unpredictable asset price gyrations are playing havoc on return generation at banks, asset managers and investors.
If organisations are to withstand this ongoing crisis, they need to engage with post-trade service providers who are not only robust but innovative.
By Brendon Bambury, SIX.
The article has previously been published in the PostTrade 360° event magazine.
Central to the Swiss Stock Exchange’s ethos is a desire to innovate and provide leading solutions to solve real-world client problems. As the seriousness of the pandemic became increasingly obvious, financial institutions scrambled to access repo markets in order to obtain high quality liquid assets (HQLA) enabling them to meet collateral calls and facilitate redemption requests as in the case of asset managers. The entities which implemented automation and operational efficiencies into their collateral management activities – either internally or through leveraging platforms such as the Swiss Stock Exchange’s Future Tri-Party Agent (FTPA) service – have largely weathered the volatility.
Longer-term, institutions – including wealth managers and private banks – will likely struggle to deliver alpha. In order to safeguard client assets amid the revenue uncertainty, institutions will need to identify operational savings so as to maximise performance. One way this can be done is through tax optimisation. However, a number of institutions are reliant on antiquated technologies and manual intervention when performing tax optimisation functions, which can be disadvantageous for clients insofar as they may not benefit from the tax relief they are entitled to. Tax optimisation can have a material impact on portfolio performance, so it is essential organisations take it seriously. In response, the Swiss Stock Exchange has developed a new Advanced Tax Service (ATS) which provides financial institutions with tax reclaim support, helping them to deliver further value for their clients.
Evolving with the times
Digitalisation has been a recurrent theme in post-trade circles as custodians and market infrastructures look for ways to remain relevant in this rapidly evolving environment. The Swiss Stock Exchange fully recognises that markets are undergoing an unprecedented transformation, which is why it has created the SIX Digital Exchange (SDX), a fully integrated issuance, trading, settlement and custody infrastructure for digital assets. Nonetheless, financial institutions do need to be pragmatic and realistic in how they implement these ambitious technology change programmes.
Most critically, organisations need to be technology agnostic when developing new products. Although SDX is leveraging R3’s Corda Enterprise Blockchain solution to facilitate trade settlements, it is also using commoditised technology sourced from NASDAQ, which is not Blockchain-enabled. This is because there is limited point in building an exchange platform on a Blockchain. While Blockchain has many applications and use cases, organisations need to be sensible in how they deploy it. If existing technologies can solve commercial problems or deliver business-wide efficiencies, then firms should look to make use of those solutions instead.
Brendon Bambury is a specialist in strategic business development and client relationship management. In his position as Head of Post Trade Sales for the UK and Nordics, since June 2017, he is responsible for sales and relationship management. Brendon was initially appointed as a senior sales manager, during which time he strengthened the core servies of SIX in UK and international markets. In addition to managing a portfolio of key clients, he is responsible for all of the activities of the Post Trade Sales team based in the UK and the Nordics.