 Marianne Brown
President and Chief Executive Officer
5 May, 2011
The financial services industry has experienced a lot of change over the past decade. As Omgeo celebrates its 10th anniversary, we are proud to have been a key part of the evolving financial markets landscape. The growth in the use of electronic trading, faster execution speeds, the flourishing of more sophisticated technology and exploding data volumes, punctured by financial downturns and a number of geopolitical events that have affected the global economy, have all shaped our community during the past ten years.
Founded in 2001 by two financial technology leaders – Thomson Reuters and the DTCC – Omgeo has grown to become an integral part of the post- trade lifecycle during this transformative decade. No doubt, time will not stand still and will bring new challenges and opportunities. It’s difficult to predict what themes and trends will emerge during the next 10 years, however, we can be sure that data standardization, regulation and the move towards shorter settlement cycles will be some of the prominent issues faced by market participants globally.
Global Consensus on Data
The drive for data standardization will continue to be of increasing importance as trade volumes continue to be volatile. In addition, as automation continues to take center stage, data quality is becoming of increasing importance with standardization viewed as a significant way to improve data quality. One area where firms are paying particular attention is around Settlement and Account Instruction (SI) data. SIs include all of the details a trade needs before it can settle, including account numbers, identification codes, placement of settlement and more. By ensuring that all participants in a trade have accurate and compliant SI data, firms can process trades with more accuracy and efficiency.
For the past two years, we have seen a significant change in market participants’ desire to further standardize and automate SI processes. Although some firms still leverage manual procedures – with instructions being sent via email or fax and entered by hand – the industry is overwhelmingly committed to making improvements in this area. The reason for this is simple. Increased data quality and improved SI practices can lead to an accelerated settlement cycle, as trades move more quickly to settlement with accurate and compliant SI data. To achieve global and market-wide unity around SI standards, the market must commit to agreeing on a common language and common data representation. Several industry groups have already been working on creating SI data unity in the market and are committed to making improvements in this important area.
Regulatory Uncertainty
Driven by the fallout from the global economic crisis in 2008, regulation will remain top of mind for the financial industry as continued implementation and compliance take priority. The past 18 months were only the tip of the financial markets regulatory iceberg. Industry players will surely focus their efforts on continuing to educate government officials well into the next decade to ensure standards are developed in line with market needs and practices.
As the industry moves toward greater levels of automation in order to reduce operational risk, more derivatives trades will be executed via electronic venues and be centrally cleared. At the same time, transparency will continue to drive the need for automation as regulators begin to enforce stricter policies and request access to company information. Not surprisingly, risk management will remain a top priority. However, to effectively and accurately assess risk at an institution-wide, macro level, firms will need to implement systems that allow their middle and back offices to provide a holistic view into exposures, across multiple asset classes and geographical jurisdictions.
Drive for Shorter Settlement Cycles
Finally, we have reached a tipping point for a move toward shorter settlement cycles. Initiated by the debate in Europe, recent indications from regulators in the region suggest that we are now nearing the approval and subsequent implementation of T+2 in Europe. In fact, in the recent consultation paper on the regulation of Central Securities Depositories, the European Commission advocated T+2 as the favored settlement cycle for Europe. To achieve this, market participants and regulators will need to work together to identify the best ways to meet accelerated settlement cycle timelines, with many participants currently exploring a concept called “SDA” or same day affirmation.
Late last year, Omgeo conducted a study that showed that same day affirmation (SDA) promotes greater settlement efficiency and can be considered a pre-requisite for shortened settlement cycles. The research also confirmed that shorter cycles tend to be an important catalyst for reducing operational risk. In the months to come, securities industry players will further assess SDA and the operational processes that will need to be in place to enable T+2 while continuing to work closely with policymakers. While the markets have become accustomed to divergent cycles, we anticipate that Europe’s move to T+2 will have a significant impact on the US and other markets around the world, as markets are closely intertwined and operational risk could increase if cycles are not harmonized.
As I close, it is easy to see that the industry faces many hurdles and opportunities; this includes an uncertain regulatory environment that is truly one of the most active and prescriptive in history. Ultimately, our success in becoming a more efficient community, in meeting regulatory mandates and in developing best practices and increased standardization will only be achieved through continued partnership – with regulators and our peers.
At Omgeo, we are deeply committed to continuing to partner with regulators and our global community of clients and technology providers, as we have for the past ten years, in order to continue to transform post-trade operations and reduce risk. Our clients and partners are truly our strongest assets and we are excited to be part of their future successes while enabling market greater efficiency in the decades to come.
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