By Ed Tyndale-Biscoe, Product Owner Secured Funding at ION Markets

Market volatility and new investment opportunities have impacted trading volumes significantly in recent years. With levels surging across capital markets, repo is no exception, with strong growth across all regions in core markets that shows no signs of slowing. This rise in volume has resulted in an exponential increase in the amount and type of data available. This has a ripple effect on growth in the market; higher trade volumes corresponds to more information at traders’ fingertips, improving decision making, and driving further growth.

To empower firms that seek to capitalise in today’s data-driven environment, vendor offerings have had to evolve to keep pace. As market demands continue to force the acceleration of innovation around electronic trading, firms are increasingly seeking higher quality and tailored solutions to establish or maintain a competitive advantage.

A lack of a full-scale adoption of electronic trading techniques has resulted in siloed and unconnected systems remaining prevalent. Recognising these obstacles, market participants are investing in innovative platforms that can integrate with existing systems whilst also managing heightened volumes. Coupled with broader market changes, such as evolving regulations, this digital transformation will ensure electronification continues to proliferate at its current rate. However, will it necessarily result in a more productive environment for traders across the repo market?

Data – understanding the opportunities

For traders, the effective use of data presents a multitude of possibilities and benefits. Access to more information provides greater transparency across the market, enabling firms to identify and execute only the most efficient trades with the greatest benefit. Oversight of vast quantities of data is also crucial when it comes to mitigating risk – allowing end users and information security teams to identify and rectify pain points before they develop into wider issues.

Given the structure and underlying competitive nature of the repo market, firms rarely share captured data or insights, which has had repercussions for the industry. This breeds operational inefficiency as the time taken to source and analyse data could instead be concentrated elsewhere. Consequently, demand has increased for solutions which can break down data barriers and consolidate information. Through improved accessibility, firms can bridge the gap between the between business areas and legacy systems.

It is against this backdrop that there has been a shift to automated platforms, leveraging the latest technologies which can capture and process this information in a secure, flexible and scalable manner. However, this transition to a digital approach has created a fresh set of challenges. Many firms attempting this transition rely on disconnected legacy systems which are inflexible, unable to interoperate easily, and cannot provide a holistic view of data.

Technology’s response

Firms have realised the need to reduce this operational friction. It is vital to becoming more time and cost efficient and for building flexible, yet stable systems. As such, investment has increased in innovative data-driven platforms able to interoperate within existing systems and adapt alongside market changes. Evolving regulations reiterate the need for firms to improve their transparency to comply, encouraging upgrades and the implementation of new platforms. Most notably, this adoption of electronification is being driven by MiFID II and SFTR in Europe, as well as new regulations being proposed by the US Treasury. Today, this is evident in electronic trading. Accounting for more than 30% of repo volumes in the wholesale markets, and with rising cost pressures and regulatory changes, it will only increase.

In particular, this has shifted vendors toward automated platforms that easily integrate into existing systems. These enable firms to seamlessly enhance trading abilities, avoid large scale build projects – often deemed costly and complicated – and provide optionality. By evolving and changing strategies in parallel to their needs, firms can remain agile and compete or even outperform competitors who lag behind.

As these approaches become increasingly normalised across markets, firms are only now beginning to understand and exploit the competitive advantages on offer. The real-time capabilities of new solution architectures allow firms to better understand their market and change investment positions accordingly. The transparency that such systems provide enables traders to uncover previously unnoticeable patterns of information. These insights are key to improving the industry’s understanding and flexibility around decision making.

What next?

Embracing digital transformation is instrumental to the success of firms operating in the securities finance industry today. Vendors must continue to innovate and invest in solutions that are adaptable and can provide a holistic and unfragmented view of the market. This will include solutions leveraging advanced technologies which can provide competitive advantages. The key aim of these solutions? To break down and remove the roadblocks to efficiency enabling interoperability and increased data access. This will ensure that firms can realise the immediate and future benefits from a surge in data volumes.