As investing becomes more global and capital travels with a disregard for physical borders, identifying trends in the global flow of trades is an increasingly relevant topic of interest.</p> Trade processing is currently undergoing an evolution born of necessity to become more efficient, seamless and cost-effective. Not only are independent investors affected by the strides the international community has made in the post-trade processing space over the past few decades, but also government agencies and regulators, as well as industry standards bodies are at the forefront of these market changes. As the market evolves, investors, government regulators and industry associations must cooperate more closely than ever to achieve the common purpose of a more efficient marketplace.</p> Significant improvement</h4> For investors trading in distant time zones there has been significant improvement in dealing with counterparties of vastly different infrastructures and standards. The trade processing cycle is at a much more advanced and automated stage than a decade ago. Global settlement cycles are largely standardised and continue to evolve to become more efficient, while industry bodies are working more closely to develop a global set of best practices.</p> Shortening the settlement cycle</h4> A high degree of technological automation and convergence between players is the crux of the solution to working towards change and evolution in the securities settlement cycles.</p> Absolutely critical is a massive investment in technology. Faster settlement requires a higher degree of automation than that currently existing for some players. Technology will have to develop to the point where, once a trade is made in an order management system, it can pass through from the buy-side to the depository ’untouched by human hands’. Buy-side and sell-side firms and custodians will have to become completely automated and plugged into one another’s systems and depository linkages. The way to achieve this is robust common technology and a strict commitment to using only industry standard methods of communication.</p> Industry standards</h4> As the markets evolve and become more global, they will demand greater efficiency. Guidelines developed by industry standards groups are therefore a critical point of organisation for these efforts. Industry operations must be streamlined. The Standards Coordination Group’s investment roadmap is a prime example of such collaboration in the standards community. It aims to bring together various standards organisations, such as SWIFT, the Financial Information Exchange (FIX) protocol system and the International Securities Association for Institutional Trade Communication (ISITC), to be collectively responsible for developing consistent, standard messaging schemes for the financial services industry. The automation required to allow for shorter settlement cycles, for example, depends heavily on standards messaging, and this is where the industry standards bodies can have their biggest impact.</p> Regulatory impact</h4> The regulatory environment has been heavily involved in developing market practices and standards. Most notably, the European Central Bank’s T2S programme has been at the forefront of market evolution in the trade processing space. Other regulatory issues to consider surround Basel III development and capital requirements. Additionally, industry players might have to post higher collateral with their CCPs and other financial market infrastructures, as regulations such as Dodd-Frank in the USA and the European Market Infrastructure Regulation in Europe include new margin requirements for specific asset classes and clearing houses.</p> Industry consolidation</h4> The industry will see a greater shift towards consolidation and convergence, potentially leaving out those smaller players that are unable to adapt due to lack of scale, technology investment and flexibility.</p> This article first appeared in the Journal of Securities Operations and Custody Volume, and is authored by Gary Probert, Citi, and Asmaah Ali, Citi. </p> Read the full article</a></p>