Putting operational efficiency first
The main message from this year's Sibos conference is that consolidation among market infrastructure and market participants will lead to a more efficient securities industry, particularly in Europe. Heather McKenzie reports.
By holding its annual operating conference in Boston, Brussels-based financial messaging co-operative Swift hoped to attract representatives from the local mutual funds community, among whose number are Fidelity and Putnam Investments. However, the fund managers largely stayed away.
In the US, particularly, Swift is perceived as a European payments organisation. Its efforts over the past 15 years to bring more fund managers on board have led to a steady increase in securities-related message traffic on its network - around half of total message traffic is now from the securities world. But the payments tag has been a difficult one to shift.
All the leading asset-servicing banks were Sibos exhibitors and it is indeed on the exhibition floor that most of the real action took place. The conference sessions were fairly anodyne and gave the impression of being overly rehearsed and more of an exercise in motherhood statements than in industry debate.
Unsurprisingly for what is an operations conference, 40% of delegates at the first securities session of the event considered operational efficiency and cost reduction to be the primary concern for the securities industry. The convergence of alternative and traditional asset management was cited as important by 26% of delegates, while 21% were most concerned about structural changes and 13% chose regulation.
Tim Keaney, co-chief executive of BNY Mellon Asset Servicing, said cost efficiency was critical in the funds industry - nothing new in that - and that standardised identifiers across all security instruments would help lower costs. A lack of automation was one of the biggest obstacles to lower costs, he said, pointing up that more than 80% of the transactions BNY Mellon receives from its distributors are manual.
Jean-Baptiste de Franssu, chief executive of Invesco Europe, was surprised that regulation scored such a low vote. "As much as we have been integrating the financial services industry across Europe, we are still facing unfair competition," he said. "There are a number of areas where mutual funds are not in as good a position as some other products that can be sold to clients."
In another conference session, Jan Bart de Boer, global director of brokerage, clearing and custody at Fortis, said regulators were creating more challenges than solutions. Client demands required pricing, valuation and servicing of ever more complex financial instruments, he said. Along with a demand for 24/7 availability of systems, this would increase costs while revenues continued to come under pressure.
De Boer also said exchanges and central securities depositories were increasingly competing in the custody and clearing business. As a result, some players (although not Fortis) should consider getting out of the securities services business, he said.
tephan Zimmermann, deputy chairman of Swift, said that the front office was changing "beyond recognition in terms of products, technology and geographic breadth". However, the back office was struggling to match the demands being placed on it and sometimes had become a bottleneck to market development.
There were varying suggestions from speakers as to the best solution to these problems. Mark Yallop, group chief operating officer of brokerage Icap, said the industry needed a smaller number of market infrastructure providers that are commercially run and could attract the best talent.
The search for talent is an important issue, Paul Bodart, executive vice-president at BNY Mellon in Brussels, told IPE. "In continental Europe, the number of people leaving the job market in financial services is bigger than the number of people entering it," he said.
"There is intense competition for talent in the job market. The people entering the job market now have a different attitude towards work and are more likely to shift jobs in their 20s because they are marrying and having children later."
Bodart said BNY Mellon was spending more time with its existing employees to understand their concerns and aims. The bank was also conscious of the need to help its staff achieve a good work/life balance and had introduced flexi-time schemes, which had been "extremely well received".
Meanwhile, on the exhibition floor, JPMorgan Worldwide Securities Services launched CustodyConnect, a white-label type solution for financial institutions that offers custody and related services to local or regional markets (see page 41).
CustodyConnect provides technology and processing services for institutions that want to improve and expand their offering but cannot afford the necessary investment in infrastructure required. Swedbank, the Swedish financial institution, is the first bank to use the service.
White-labelling, which is well-established in the FX markets, is gaining a foothold in securities services as some players struggle to keep up with the investment required to service increasingly complex instruments.
It also works for such institutions as JPMorgan, which have invested heavily in their custody systems and see white-labelling or insourcing as a way to recoup some of these costs.
One of the main conclusions from the Sibos debates was that consolidation among market infrastructure and market participants would lead to a more efficient securities industry, particularly in Europe.
However, the problems are so varied that a solution isn't going to come along soon. In the interim, the market players will continue to develop "fixes" that will chip away at the high cost of settlement but won't deliver the much needed killer blow.