Effectively managing and storing trade data will ensure that technology used to comply with current regulations remains usable for future requirements, says the chief product and engineering officer, Calypso.
“[Having] data in a consistent format, where applications dealing with different product types, different parts of the trade life cycle and workflow are all contributing to that data source, and reading from that same data source, makes the job of reporting on that data so much easier,” says Calypso’s Richard Bentley.
“Without that, for every single regulation that comes along, you are going to have to go to every application involved in the workflow that is impacted, modify those applications to extract the right data from each, pull it all together in a consistent format, try to transform and enrich it - and do that continually.”
In the 2019 bobsguide Rankings – announced in late November – Calypso ranked top for both regulatory compliance and integration with other systems. The firm came second in the degree of straight-through processing category. The rankings are voted for by market participants, and it is the second year in a row that Calypso has enjoyed success in the competition.
All the data processed by Calypso’s solutions during the trade lifecycle is stored in a single repository, in a unified format. This, Bentley says is needed to facilitate reconciliation with the multiple systems used across the trading lifecycle.
“Anyone providing technology into this market has to consider the boundaries of that technology and the multitude of platforms, and systems it needs to talk to and integrate with,” he says. “A small change in one system can break something downstream - and this plane is in the air; you can’t afford to ground it for a few weeks until you understand what the problem is.
“As vendors, we should not just be providing interesting, innovative bits of kit for our clients to use, but partnering with them to ensure that their solutions and their infrastructure are capable of dealing with current compliance obligations, and are future proofed so that new waves of regulation can be absorbed without the kind of upheaval that we’ve seen in some scenarios.”
Throughout 2020 the European Securities and Markets Authority (Esma) is scheduled to send reports to the European Commission on several reviews of requirements set out under the second Markets in Financial Instruments Directive (Mifid II) and the Markets in Financial Instruments Regulation (Mifir).
There has also been talk of the introduction of Mifid III. In December 2019, former Member of the European Parliament, Kay Swinburne told Financial News that she expects there to be changes to parts of Mifid II before the end of 2020.
“They have a legal requirement to do that [review Mifid II] by the end of next year , but I don’t think they will wait that long. This will be a Brexit-initiated rewriting of certain parts of Mifid II,” she said.
Increasingly burdensome regulation is the new norm and the industry must get used to and prepare for this, according to Bentley, who also points out that the costs of compliance cannot be underestimated. He points to the work financial institutions had to undertake to come in line with Mifid II – stretching back “three or four years” prior to the rules’ go-live date in January 2018.
“If you look to the future, where is the light at the end of the tunnel? And let’s face it, it is a very long tunnel indeed. I have had conversations over the years with people saying ‘well, we just need to get past the consequences of the global financial crisis and this block of regulation.’ I don’t see that happening anytime soon. I think that this is the new normal.”
“There is no need to rip and replace, and frankly if you look at clients’ budgets, embarking on a massive capital-intensive project to completely reinvent their post trade processing infrastructure is just not feasible – particularly when these same clients are also trying to manage the implications of regulation and evolve their existing systems for compliance.”
There are also additional cost pressures from the market to reach same day settlement, and to facilitate this, firms are increasingly looking to machine learning for predictive analytics. Calypso is in the process of conducting a number of proofs of concept with vendors specialising in artificial intelligence to provide such capabilities.
“It is no longer possible for a human being to intervene in every trade to make sure that [a trade] gets booked out properly, is sent to clearing, or is settled in time. Those processes need to be automated and they are key areas where you will continue to see the deployment of artificial intelligence,” he says.
“As a trade or a booking progresses through the system, it is about predicting those issues because the volume is such, and the time windows so short, that you actually need to know if you are going to have an issue with a particular trade ahead of time - not when that issue actually manifests.”
Solutions in the market remain in their infancy due to the challenges around data cleansing, according to Bentley.
“An essential starting point to overcome these data hurdles is to locate and get all the data in the right place, in the right format so there is an accurate foundation for any kind of processing or modelling that you want to apply.”