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Tales of the unexpected
Tales of the unexpected

Tales of the unexpected


Alan Cameron

Alan Cameron

Head of Brokers Market Strategy

BNP Paribas Securities Services

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I often hear people saying that our post-trade world is in a time of unprecedented change. There is a lot of change, but it is far from unprecedented. In fact, in our post-trade space the only constant is change

In the last thirty years, we have introduced immobilisation, dematerialisation, versus payment settlement, central counterparties, standardised and shortened settlement cycles, whilst expanding our geographical and asset class coverage. At the same time, our working environment has been revolutionised with the introduction of the internet, digitalisation, the Euro and T2S. 

Change can be predictable or unexpected. Businesses that manage predicted change and anticipate unexpected change will thrive. 

Through the looking glass

At BNP Paribas, we think of change in the context of five axes - horizons, regulation, technology, business models and risk. In this article I will briefly outline the main predicted changes for each axis, hazard a guess on the unexpected changes that might come and consider how we can better anticipate unexpected change.

Our horizons have expanded geographically and we can predict that, with the continued global rise of capitalism, they will continue to do so. This geographical expansion has to be managed. What is not so easy to predict is the growth of new asset classes. We have not been particularly good at this in the past. The growth of derivatives, ETFs, tracker funds, securitisation, swaps and now crypto-currencies has often surprised us. Anticipating the emergence of unexpected new asset classes will be difficult. We should expect the unexpected.

For regulation, we can anticipate that there will be a continued focus on withstanding – and ideally reducing – risk. Our regulators will ensure that market players are well capitalised, and that they understand, measure and consider the risks that they take. It is harder to anticipate what regulators will do about growth or, rather, the lack of it. However, we do at least know that this is high on regulators’ agendas.

Technology has shaped our post-trade world and will continue to do so. We can envisage that artificial intelligence and machine learning will make us more efficient. However Distributed Ledger Technology could bring unexpected and more fundamental change - potentially upsetting the building blocks that our post-trade world is built upon.

We can see that outsourcing is becoming the preferred business model. Outsourcing develops from being driven by tactical levers, to becoming strategic, then to mutualising services. In the post-trade world, outsourcing is starting to become strategic so we can predict that our business models will further develop with more and more back-office functions being outsourced. The timeline might be debated but the direction of travel is clear. What is unexpected is moving to a business model beyond outsourcing where full post-trade processing can be bought ‘as a service’.

Since the financial crisis managing risk has become measured, automated and industrialised. There is increased focus on taking and measuring collateral. This is embodied in the continual rise of central clearing. We can presume that this will continue. What is less predictable is how our industry will address the many more ambiguous risks that we face, such as conduct, reputational and geopolitical risk. Equally, the impact of operational risk and cyber security threats are hard to measure, or even unmeasurable.

Anticipated and unanticipated changes in post trade

The three musketeers 

Preparing for predictable change might be difficult but at least it is actionable. More concerning is learning how to anticipate unexpected change. To do this, I feel that, we need to develop three attributes.

The first is to develop peripheral vision and be aware of what is going on. We can do this by being connected - both externally and internally. This will allow us to understand our clients’ expectations, our competitive challenges, industry trends, new technologies and business models. If we can expand this peripheral vision beyond our industry, then so much the better.

The second attribute we need to develop is the ability to think. Of course, we can all think, but we do not often do so. We have to make time for this. Is it not curious how often people say that a thought came to them in the shower, or maybe whilst walking the dog. That is because these are some of the few times in the day when we are not receiving information. We have to unplug ourselves to make time to think. That is when we might become curious about a weak, but possibly important, signal that we have picked up. Or we realise the truth lurking behind some data.

Thirdly, and finally, we have to be brave. We do not always have to fall in with the prevailing view. Sometimes, we need to trust our instincts. In business, we often have incomplete or ambiguous information. So we have to find the courage to act and behave like an entrepreneur.

If we can be aware, give ourselves time to think and sometimes have courage, then we will anticipate even unexpected change and propel our businesses forward in a changing world.