Post Trade Services: why the buy side needs to commit

With the multitude of regulation being debated or approved for implementation, the financial sector must navigate myriad new rules. Post-trade operations, typically an area of activity driven by the sell side, though more recently also by larger buy side firms, are also challenged by the slate of new regulatory or market events, whether that be EMIR, Dodd Frank, CSD-R or T2S.

With punitive fail costs, the requirement to evidence electronic confirmation or affirmation, financial sanctions, collateral and liquidity concerns, trade reporting, stock lending requirements, fines and bad press all likely consequences of poor operational processes, neither buy nor sell side can afford to ignore the new, planned or live market changes.

It is also interesting that the debate around shortened settlement cycles in Europe have shifted from whether they are a good idea, to one of how to implement and migrate, but there still seems to be challenges with who takes the lead on this.

Many large sell side firms are looking to extend their operational processes to further reach their total trade population, via new or existing market solutions. Their belief is that by matching more of their trades earlier in the lifecycle they can reduce downstream issues or impacts, be that the potential for failure, correct reporting or reduction of liquidity issues.

But how well set is the industry today to meet these challenges? With recent reports suggesting that the planned regulation will add costs to already pressured operational budgets, at a time of diminishing return on equity, is this asking too much of the industry? Will the planned regulations actually have the desired effect of lessening likelihood of default, increasing operational resiliency and giving regulators worldwide more oversight of banking activities?

One thing that seems certain is that to ensure enough is being done across the industry, the buy side needs to lead more industry change to ensure total community participation. With much of the regulation becoming law, these challenges will not be something any trading counterparty can avoid.