By: Eswara Subramanian, Director, BFS Consulting group, LTIMindtree

The post-trade landscape is made up of a complex web of processes, including allocations, confirmations, clearing, settlement, collateral management, asset servicing, custody, and reporting. These functions are siloed systems that still rely heavily on human intervention. This lack of integration creates significant inefficiencies, which have been widely recognized in industry reports. These fragmented processes are crucial, handling over $3,360 trillion worth of transactions and processing quadrillions of securities across major market infrastructures.

According to the World Economic Forum, such legacy systems are a major contributor to complexity and opacity, affecting a firm’s overall balance sheet, as today’s fast-past, digital world requires more streamlined processes. Firms faced challenges like trades not getting matched until T+1 or 8% of the investment managers find archivals hard if the audit is conducted.

Despite these challenges, the market is evolving. New players, asset classes, solutions, and investors are continuously entering the scene, reshaping the market dynamics.

However, the rise in trading volumes is not without its challenges. Settlement failures remain a persistent issue, with equities in the European Economic Area experiencing double-digit failure rates.

As settlement failures continue to pose risks, there is a growing push to digitalize market infrastructure. This shift aims to reduce settlement times and mitigate the risks associated with fragmented, outdated systems. The move towards digitization is imperative to ensure the post-trade ecosystem can keep pace with the evolving demands of modern markets.

Key factors driving digitalization in post-trade infrastructure

• Transition to T+1 settlement cycle
• Growing regulatory oversight of post-trade operations
• Expanding system capabilities to accommodate global market demands
• Regulatory pressure for enhanced transparency and quicker responses
• Obstacles created by legacy platforms reliant on outdated technologies
• High costs stemming from maintaining disconnected and fragmented systems
• Issues with inconsistent and redundant data across systems
• Demand for an improved customer experience through a unified platform and actionable data insights
• Responding to the rise of fintech and startups capturing niche market opportunities

Adapting to the rise of digital assets is essential, and wealth management firms are eager to tap into the growing opportunities in the APAC region, driving a wave of technological advancements.

To support firms entering the APAC market, an automated, centralized solution is necessary. This system should enable rules-based pricing, straight-through billing, cross-border settlement capabilities, and efficient exception management. Moreover, it must seamlessly integrate with both internal and external products and services to ensure smooth operations across all business functions.

Implementation hurdles

The landscape of post-trade services has evolved significantly, especially with the rise of cross-border securities and the integration of settlement systems such as target2-securities (T2S). Similarly, the shift towards dematerialization of securities has played a key role in accelerating the electronification of post-trade processes, further reshaping the industry.

However, despite these innovations, numerous challenges persist. A major hurdle is the fragmentation of post-trade processing systems among sell-side participants.

The ongoing evolution of regulations, such as the Fundamental Review of the Trading Book, further complicates the situation. These fragmented systems struggle to meet regulatory demands, creating significant obstacles to compliance and adaptability in the face of ever-changing legal requirements.

A clear strategy for transformation

Defining an operating model and creating a clear roadmap are the first steps in an organization’s transformation strategy. The aim is to transition from fragmented, isolated processes to a unified system that eliminates redundancy. This requires a streamlined model built on shared data, business logic, and integrated processing, achieved by consolidating middle and back-office functions.

By merging these operations, firms can eliminate silos, improve efficiency, and reduce duplication. For example, a position management system that serves the front, middle, and back offices can enhance coordination across functions. This approach can extend to other services, fostering independent, interconnected systems.

Furthermore, collaboration among market participants to share back and middle-office systems reduces costs, boosts adaptability to new technologies, enhances competition, and offers more customer choices, freeing firms from outdated technological constraints.

Modern post-trade solutions

Modern post-trade solutions streamline operations across asset classes and business lines. This consolidation enhances the entire trade lifecycle—from deal capture through to settlement—by relying on a single verified data source. Such solutions replace siloed systems, enable greater automation, and boost visibility, significantly improving cost efficiency, reducing operational risk, and supporting regulatory compliance. Enhanced straight-through processing (STP) and proactive exception management capabilities also contribute to improved performance and resilience in managing market volatility.

Leveraging innovative post-trade solutions also provides clients with reliable, efficient, and transparent services. By gaining end-to-end control over post-trade processes and ensuring early resolution of trade exceptions, these solutions support growth and scalability while aligning with industry standards. They also strengthen back-office operations, support faster decision-making, and ensure a more unified view of data—positioning firms to meet current and future client and regulatory demands.

Digitalization of post-trade controls and systems

In the digital era, firms are transforming post-trade operations by reimagining back-office processes using robotic process automation (RPA) and low code/no code (LCNC) platforms. These innovations enable near real-time processing with a more digital, user-friendly experience. The migration of legacy systems to the cloud, powered by APIs, ensures seamless integration, scalability, and improved availability, facilitating synchronization with front-office applications. This enables visibility into trading processes and pain points in an automated fashion that improves decision-making.

A key aspect of this transformation is the development of a technology platform that acts as a bridge between outdated systems and modern solutions, gradually digitizing post-trade services, reducing manual effort, and streamlining workflows. This platform also enhances communication between back and middle offices, leveraging APIs to improve interoperability. In addition, post-trade control systems will play a crucial role in reducing and managing risk. Large banks often have multiple internal systems and they must be de-siloed to streamline processes in a sustainable manner for future success that also meets customer expectations for swift digital experiences. Furthermore, the adoption of an Open API architecture allows for rapid integration with fintech tools and platforms, supporting more efficient post-trade processing and operations. Moreover, open standards allow flexibility to adapt enabling future-proof systems that can evolve rather than proprietary systems that are rigid.

Conclusion

Modernizing post-trade operations in today’s digital era requires a thoughtful, incremental approach, particularly due to the challenges posed by legacy systems. A “big-bang” overhaul is not practical for most firms. Instead, the focus should be on simplifying technology, re-engineering processes, reducing manual tasks, and digitizing essential services. By leveraging cloud technology, API integration, and distributed ledger technology (DLT) tokenization while fostering better communication between back and middle offices, firms can create a more streamlined, data-driven environment. This transformation not only improves productivity but also provides deeper insights into risks, fueling the push for ongoing modernization.

References

• Curo Fund – Post Trade Processing, SmartStream, 2024https://www.smartstream-stp.com/resources/curo-fund-post-trade-processing/
• Trade Process Control – Highly scalable and flexible, Smartstream, 2024 https://www.smartstream-stp.com/resources/trade-process-control/
• FTF Award – Best new Post Trade Solution: TLM Aurora Trade Process Control, Smartstream, 2024 https://www.smartstream-stp.com/resources/ftf-award-best-new-post-trade-solution-tlm-aurora-trade-process-control/
• Clearing and Settlement Mechanisms, The European Payments Council, https://www.europeanpaymentscouncil.eu/what-we-do/epc-payment-scheme-management/clearing-and-settlement-mechanisms
• Collateral management is required at various stages of the trade life cycle, 2024 https://www.linkedin.com/pulse/collateral-management-required-various-stages-trade-life-saxena-ko52c/
• Transforming post-trade processing with FIX, reducing TCO and accelerating growth, Broadridge, 2022 https://www.broadridge.com/_assets/pdf/br_e-book_transforming-post-trade-processing-with-fix-march-2022.pdf
• The case for a multi asset approach to post trade processing, Broadridge, https://www.broadridge.com/white-paper/capital-markets/the-case-for-a-multi-asset-approach-to-post-trade-processing