Processing of settlement and corporate actions versus mobilising and optimising assets: Can securities operations be more than a cost centre?

Abstract

Securities services are in a unique situation defined by three interacting factors. First, after a decade of crisis and post-crisis changes, an unparalleled level of pressure has been placed on the financial sector profitability. As a result, the subsequent efforts by firms to reduce costs have left securities services with significantly reduced staff and resources. Secondly, the regulatory response to the crisis combined with other factors such as the implementation of Target 2 Securities (T2S) has added additional demands on securities services. Absorbing the additional work with reduced staff and budgets is a challenge and has led many firms to focus only on mandatory projects. Third, at the same time, the great amount of regulatory change and the introduction of T2S created a number of opportunities to strategically improve securities operations. Key opportunities are in reducing fragmentation and complexity in favour of more centralised models for both cash and securities. Such models reduce friction, risk and cost caused by the need to move inventory around. They also enable efficient use of triparty collateral management services. While some first movers are already implementing new strategies in 2018, the great challenge for other market participants is finding the time, resources and budget to define and implement such notable strategic change.