By Daniel Carpenter, Head of Regulation at Meritsoft, a Cognizant company
As market participants busy themselves preparing for the Central Securities Depositories Regulation (CSDR), how many have paused to think about what happens after the introduction of the new rules in early 2022?
Global institutions have to process vast numbers of settlement fails across the many regions in which they operate. They have no way of knowing what those volumes will look like in a year, or two years from now. After CSDR, these firms will have to aggregate fails across numerous settlement platforms and different asset classes. With the need to update operational processes and procedures in order to comply with CSDR, it makes sense to address settlement fails as a whole, not just in the context of CSDR.
Given the sheer number of trades that fail to settle globally in systemically important asset classes, such as US Treasuries, market participants are increasingly focused on finding strategic solutions and leveraging new technologies. We already know that artificial intelligence (AI) plays an important part in helping to reduce and improve the settlement fails process.
The role of AI and other technologies, such as machine learning, will be key in addressing CSDR requirements, and also for identifying and reducing the overall number of settlement fails across global financial markets. But in order to roll out these and other new technologies, financial institutions should also consider the computing power and flexibility of the cloud.
Cloud can be key to minimising costs when scaling solutions across markets and regions. The flexibility delivered through the cloud means that financial houses seeking a broader fails management solution can tap into a more flexible pricing model. For example, if a firm experiences a higher than usual percentage of settlement fails, it can quickly scale up its computing capacity or, conversely, reduce its spend should volumes drop. The ability to de-risk investment in a solution, and to control costs, should be compelling.
Many firms have been focused on preparing their operations for compliance with the new rules. For those prepared to look at the bigger picture, CSDR is a wake-up call to address the broader, longstanding issues around global settlement fails, which have become more acute in the months following the pandemic-induced volatility in March 2020.
So, for global houses, the question is what more can be done on top of simply complying with the regulation when it comes into force next year? Whatever the answer, cloud should be in the picture as an integral part of the solution.