Internet technology is redefining the buy and sell relationship, giving investors direct, global and real-time access to various types of markets. It is creating new ‘virtual’ communities and speeding up the whole commercial experience. These new devices include portals, e-commerce services, trading networks, and dynamic online marketplaces.
The simplicity of online access to global trade information is making it much easier for users to compare prices with every other online provider. The beauty of the online browser approach is that it facilitates global information sharing at lightning speed. All users have instantaneous access to the most recent updates, thereby providing greater market transparency.
Due to the simplicity of the systems involved, pressure is now building for the business-to-business (B2B) financial sector to use internet technologies to optimise business flexibility.
Twenty years ago, dumb terminals were used to manually input and retrieve data. About 10 years ago, everybody started to talk about something called Windows. Suddenly, interacting with computers got softer, with the software adapting, shaping and customising itself to user needs. It also brought with it the concept of decentralised, local validation. The whole user experience was revolutionised, but at the underlying business level nothing had changed.
Internet technology, however, will be intuitive for the users, provide easy navigation and workflow assistance, and will be equipped with advanced search capabilities. Furthermore, it will leverage technology spending by reducing maintenance and support costs. Online information available in real time will eliminate, for example, the need for local databases. A standard internet browser will also remove the need to install and support complex, proprietary software. Users will have instant access to service upgrades, without the need to install and roll out updates.
These benefits serve to explain our move to Euroclear Online, which will be the next generation of Euroclear communications, offering real-time access to all Euroclear services. Because of the way it leverages and presents information to clients, Euroclear Online will provide a clean information trail for any given transaction. With internet browser technology, the process of information reporting becomes a fast and uncomplicated process, so that more efficient bilateral communications can be achieved.
More than just providing a new user interface, the success of the internet technology revolution in the settlement business is fuelled by standards, such as XML, IP and browser technologies that have become de facto standards. Adding these standards to existing and new data formats, like ISO 15022, will create new opportunities for financial business process integration.
The ISO 15022 scheme for securities messages will eventually replace the current ISO 7775 messages. ISO 15022 has been developed to speed up the message definition process and ease straight-through processing (STP) for securities industry professionals. Once ISO 15022 is implemented for technologies such as MQSeries, and uses a standard XML syntax on a standard IP transport layer, we are convinced it will become the standard to which the whole market should evolve.
Of importance, STP cannot be achieved if the information flow is disjointed. This explains the need for a product like MQSeries. It enables business applications to exchange information across different platforms by sending and receiving data as messages. As it is message-based, the process can be made event-driven. So instead of a system having to explicitly request or ‘pull’ updated information, it is replaced by the ‘push’ technology offered by MQSeries. Information is then proactively distributed, allowing you to react immediately as soon as anything happens. We believe this will be the solution of choice to support shortening settlement cycles.
Although the settlement business is already highly automated and efficient, the financial market wants to cut costs and further optimise settlement efficiency. Until such time as the market is truly standardised, settlement systems will need to have the flexibility of supporting several standards to ensure easy integration with multiple back-office systems. As settlement systems continue to merge and consolidate, it will be important to use these standards as the basis for creating a single interface among the various systems.
In fact, the need to support multiple proprietary standards for different service providers is a luxury that cannot go on much longer. Transaction information will need to flow seamlessly through automated systems, from trade execution to settlement reporting, regardless of the counterparties involved. Such automated lifecycle management requires lower STP administration costs, with future XML technologies offering opportunities to realise standardised business integration.
As we can understand, the issue preventing greater use of the public internet is not just security, but availability and reliability. Of course, even over a private IP network, access control, authentication and encryption procedures will be needed to ensure the highest possible level of transaction integrity and security. To this effect, internet public key infrastructure (PKI) and virtual private network (VPN) security mechanisms will likely be used.
Looking ahead, new standards are likely to facilitate seamless and global STP. In a marketplace without boundaries, internet-based solutions are expected to contribute to lower settlement costs and risks, while enhancing the user’s experience.
With an internet browser already a regular feature on every desk, a web interface is the ideal means through which to expand any service provider’s range of services. It will permit the service provider to be much more creative, allowing users to interact with a larger volume of data in a more convenient and intuitive manner.
Jan Sonck is director of Euroclear Bank