The seller side seeks to improve reconciliation and confirmation capabilities. The buy side focuses on failures and collateral management.
DTCC (The Depository Trust & Clearing Corporation) has released a white paper examining how operations in financial markets have responded during the Covid-19 pandemic and where market players are focusing on a post-pandemic future.
The document is based on a survey conducted with the assistance of McKinsey & Company of a global set of 35 companies on the buy and sell side in December 2020 and January 2021. The survey was supported by in-depth interviews with 15 operations executives. and the OpsTech space.
The paper says post-trade operations and trading technology have proven to be largely resilient in businesses on the buy and sell side during the pandemic, but several key challenges have emerged as market volatility has increased throughout. from 2020.
Fixed income cash and cash equities have been hit the hardest by pandemic-induced market volatility in terms of post-trade processing operational challenges.
From a processing perspective, settlements / payments and guarantees / evaluations were the most affected, with 58% of sales companies reporting problems with settlement and payment at the height of the pandemic.
Buy-side businesses have typically experienced less disruption in post-trade processes than sell-side businesses due to simpler operating models, with the sell side accommodating pauses and settling transactions between hundreds of counterparties.
Respondents cited efforts in recent years to reorganize and automate processes and upgrade technology platforms as the main reason for the resilience of businesses during the pandemic.
The survey also highlighted the possibilities for further optimizing post-trade processes in financial markets. For the sell side, this includes improving reconciliation and confirmation capabilities, while the buy side has prioritized increased focus on failures and collateral management.
More than half of the companies surveyed said they plan to increase capacity, build new capacity or rethink post-trade processes.
Respondents also stressed the need to continue to focus on shortening settlement cycles – particularly for US securities – due to the impact of high trading volumes and volatility on liquidity and margin.
The full report is available here.