• Avi Ghosh, Head of Marketing & Communications at SIX Securities Services


• 05.01.2016 12:45 pm
undisclosed

Blockchain and T2S

While T2S went live in the middle of this year, only a handful of CSDs, including ourselves and Italy’s Monte Titoli have actually joined. The project has been subject to repeated delays, and some have even speculated that it risks being compromised by fast evolving disruptive technologies in 2016, such as blockchain. Blockchain has been identified as a potential threat to T2S as it could revolutionise clearing and settlement.

In recent weeks, discussions have taken place between the London Stock Exchange, LCH.Clearnet, Societe Generale, CME Group, UBS and Euroclear under the name Post Trade Distributed Ledger Working Group to explore how blockchain could be used to run post-trade processes. Whilst there are big expectations for blockchain in 2016, there are still many unanswered questions when it comes to the technology’s applicability to T2S. In moving to T+instant, we would be replacing a small operational risk with a very large credit risk because if a trade settles instantly, a counterparty needs to come up with the money instantly. As it stands, it’s not entirely clear that distributed ledger processing is the best solution to achieve that.

Financial crime compliance

Perhaps unsurprisingly, this is an issue that rose to the top of both regulators' and banks' priorities in 2015. In August, ISSA published 17 “Financial Crime Compliance Principles for Securities Custody and Settlement” to be implemented by the global community of securities custodians and infrastructures to address the critical challenges posed by financial crime. For adoption to be successful in 2016, it will come down to the commitment of various providers to not only adopt the principles themselves, but to communicate and implement them throughout their sphere of influence, including clients and suppliers.

Next year the Working Group will continue to explore the improvement and extended application of the Principles to other aspects of the market. In order to facilitate implementation, the Group has committed to complete, release and maintain supporting documents, maintain and review the Principles annually, and engage with the regulatory, member and service provider communities.

The ongoing push for collateral

At SIBOS in Singapore the general consensus from the banks in attendance was that whilst the amount of collateral in the system is increasing, there is still not enough available overall. The inevitable collateral discrepancies to come – whatever their cause – make the issue of collateral management systems all the more urgent for 2016. In the aftermath of the financial crisis many firms sought to replace their collateral management systems. As EMIR requirements come into play next year and beyond, firms need a holistic visibility of their collateral – the ability to assess what they have and how they can make the most efficient use of it. Getting visibility over what firms are holding and being able to cope with increasing volumes of collateral calls without operational headaches should be a big priority.

In 2016 we will need to see simultaneous action on three fronts: improving global visibility on each firm’s available collateral; accurately assessing the aggregate amount and quality of collateral available in the market; and ensuring the ability of existing collateral management systems to optimise collateral management efficiency.