Smart partnering: The next evolution in the post-trade space

Abstract

The financial services industry is undergoing a period of unprecedented change as it adjusts to the banking crisis of 2007–08 and its ongoing aftershocks. An imminent wave of new legislation and regulatory initiatives is already reshaping the industry, especially for institutions and infrastructures in Europe. Investment budgets are being largely consumed through the need to ensure regulatory compliance, leaving little for product innovation and development. In particular, the advent of new capital and collateralisation regulations has exposed the high proportion of market players without sufficiently sophisticated collateral management systems to handle the new requirements efficiently. This new environment will be more competitive, and a previous tendency to buy in scale through mergers and acquisitions (M&A) has become problematic for anti-trust authorities and has shown itself to be costly, often failing to create promised shareholder value. This paper argues that ‘smart partnering’ is a better strategic solution to building and sustaining competitive advantage in the current climate. The complexity in today’s financial markets means it is not feasible for suppliers to self-manufacture every product and service for their clients. Specialising in products that differentiate and then creating partnerships with other suppliers with particular expertise can result in a win-win situation for all counterparties involved.