DTCC Study highlights key challenges in post trade space

Michael Bodson, President & CEO, DTCC.

Buy and sellside firms’ post-trade operations (Ops) and operations technology (OpsTech) proved largely resilient during the pandemic, but several key challenges emerged as market volatility surged throughout 2020, according to a new white paper, Managing through a Pandemic: The Impact of COVID-19 on Capital Markets Operations from the Depository Trust & Clearing Corporation (DTCC).

The study which was conducted with McKinsey & C, canvassed 35 buy and sell-side firms and examined how capital markets operations responded during the Covid-19 and areas of focus in a post-pandemic future.

It  showed that cash fixed income and cash equities were most impacted by the pandemic-induced market volatility, with 30-35% of firms reporting operational post-trade processing obstacles in these asset classes.

From a processing perspective, settlements/payments and collateral/valuations took the biggest hit, with 58% of sell-side firms reporting challenges in the former during the peak of the pandemic.

The report noted that buyside firms typically experienced less disruption to post-trade processes than their sellside counterparts due to simpler operational models. This is because the latter has to reconcile breaks and settling trades across hundreds of counterparties.

It also found that the sudden transition to a remote working operating model was achieved almost seamlessly, and in most cases within a matter of days, due to the ability to implement tactical changes to operating models.

Respondents cited that efforts made in recent years to re-engineer and automate processes and upgrade technology platforms were the main reason for firms’ resilience during the pandemic and their ability to manage an unusually prolonged business-continuity planning (BCP) event.

A significant majority stated that the pandemic validated their Ops priorities and investment plans.

Michael Bodson, President & CEO at DTCC, said: “During, and in the immediate aftermath of the COVID-19 pandemic, the industry remained resilient, with buy and sellside firms working seamlessly to support unprecedented volumes and ensure uninterrupted trading for clients and underlying investors. However, opportunities remain for further optimising post-trade processes across the capital markets.”

This includes firms needing to further simplify and standardise a sub-set of post-trade services which were affected. For the sellside, these means enhancing reconciliations and confirmations capabilities, while the buyside should put fails and collateral management at the top of their its priority lists.

Over half of respondents plan to increase capacity, build new capabilities or re-engineer post-trade processes.

Moreover, shortening settlement cycles was also seen important due to the unprecedented trading volumes and volatility on liquidity and margin.  More than 50% of firms plan to increase capacity in support of these processes.

The report also revealed that the stigma around working from home and productivity no longer exists, with many firms planning to retain part of the remote and flexible working model post-pandemic across post-trade operations.

Bodson added: “As the impact of the pandemic continues to unfold, firms must keep their focus on delivering continued improvements to efficiency, while reducing risk. At the same time, to unlock new sources of value and remain relevant to clients, a focus on innovation will be essential. The industry will need to embrace collaborative approaches, common processes, best practices and deploy operating models that continue to meet the evolving needs of market participants.”

©Markets Media Europe 2021

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