The Complex Post-Trade world of Securities and its API transformation

Internal communication and client communication in Securities Services remains a nightmare. This sector is actually a great example of batch processing, lack of cross border interoperability and standardization.

In July, BCG consulting and SWIFT published a white paper, looking at APIs in the Security Services industry. Adoption is low but awareness amongst asset managers grew from ~46% to ~72% (2018 data).

In late September, BNP Paribas Securities Services announced the release of 22 APIs for its client asset managers. They have worked with SWIFT so that this set of APIs are interoperable across different platforms.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

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A glimpse at the complexity of the post-trade cycle

Currently, Securities services are not real-time and messaging adheres to the ISO 20022 standard (processed by SWIFT). I won’t recommend reading the ISO 20022 for Dummies book (unless you plan to work in this area). Just think of ISO 20022 as the standard for electronic data interchange between financial institutions (FIX protocol, ISDA, SWIFT use it). It covers any messages and business processes around securities trading and settlement. Despite this standard, the Securities industry lacks interoperability, especially for cross border interactions with different regulations.

Asset managers that need data (e.g. NAV calculations, distributions, settlement status etc) cannot obtain these real-time. They actually receive such data typically in files that they then have to integrate to their internal systems for monitoring positions, risk control and reporting. No straight-through processing is available.

BNP Paribas Securities Services has just initiated the process of unlocking value for the Securities industry with these APIs.

BNY Melon[1], the largest custodian bank, has started to tackle this complex issue in Asia and for over the counter derivates. Their first API offers clients the streaming of data such as counterparty names and positions into their own data lakes and analytics systems. This obviously makes better risk management and investment decision making intraday (instead of waiting for the end of the batch delivery of the data).

RBC Investor and Treasury Services[2]  intends to develop APIs for the Transfer Agency part of post-trade process. This would stream the data of clients and redeemers of mutual funds.

Clearly, the industry is still taking baby steps in this direction and Philippe Rualt, head of digital transformation at BNP Paribas Securities Services, believes it will take at least 3yrs to stream via APIs globally, even for data as simple as NAVs.

Fragmentation is hard to crack. Lack of standards and different regulations are real challenges for post-trade securities sector. The real issue is that a new business model is needed that will incentivize industry players to scale the development of APIs for securities services.

It is clear that asset managers will benefit from real-time data, and both providers and clients will benefit from cost savings and efficiencies, but the key is to identify the value-add services that can be launched from API adoption.

Will some BNY Melon – incumbent large custodian and Securities service provider – become the global API marketplace for the Securities industry and provide the metadata also?

For now, we are at the first stage, during which API`s will be mostly inter-firm and within the company’s closed network. The BCG-SWIFT white papers, reports that API maturity in post-trade seems to be mostly experimental (56%).

The world is marching towards real-time processing one way or another, and the Securities Services industry is lagging.

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[1] Custodians on API quest of Holy Grail of Scale https://www.digfingroup.com/custodians-api/

[2] RBC Investor and Treasury Services, is a specialist provider of asset services, custody, payments and treasury and market services for financial and other institutional investors worldwide.

Notable Replies

  1. While media is focused on the battle between SWiFT and Ripple XRP, this article explains a different way that transactions move to real time. Real time will inevitably come to securities payments but not necessarily via DLT.

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