Interoperability is Key to Digital Transformation of Post Trade


DLT will support the end goal of aligning market participants in real time

In the trade lifecycle, post-trade processes have been comparatively slow to be upgraded, but the area is catching up to execution and pre-trade.

Kathy Ong, BNP Paribas Securities

The digital transformation of post-trade “is clearly not just about putting in place a new platform based on new technologies. It really requires a sea change in our approach,” said Kathy Ong, Regional Product Manager, Custody and Clearing Services at BNP Paribas Securities Services, during GlobalTrading’s roundtable webinar on Digital Transformation of Post-Trade in Asia, held September 9. 

This is pertinent in initiatives like HKEX Synapse, the ASX CHESS replacement, and going forward T+1 and even corporate actions in the custody world. All these will require a fundamental change in the way we operate,” Ong added. 

Working towards 2023

There has been an acceleration in the digital transformation of post-trade, which may pick up further as the deadline for implementing several new industry-wide frameworks approaches. As Lyndon Chao, Managing Director, ASIFMA Equities and Post Trade pointed out, “2023 seems to be a critical line in the sand, with ASX Chess replacement, HKEX Synapse, and the US T+1 initiatives all converging towards industry adoption around that time.”

“We’ve seen with Covid that sometimes the industry has to be forced to move, so maybe some of these externalities coming online in 2023 might push us over the line,” said Chao. “I’m hopeful for that. Technology renovation of the Post Trade space is long overdue.”

Lyndon Chao, ASIFMA

In order to meet the 2023 deadline, interoperability – which drives adoption – will be key. Ong warned that “fragmentation and that lack of interoperability could impede digital transformation across markets because it could make it very difficult and costly for the industry to connect. That’s the reason we’re working very closely with global industry groups including SWIFT to come up with recognized, common digital connectivity standards.”

Exchanges such as ASX are also keenly focused on ensuring interoperability, especially when it comes to distributed ledger technology (DLT) employed in such initiatives as CHESS, Synapse and SGX’s Marketnode. Tim Hogben, Group Executive, Securities and Payments at ASX remarked: “We are cognisant of engaging with other exchanges and financial markets around building out capability and interoperability of smart contracting languages and ledgers. Adoption and interoperability will be really important, and so is working with the other exchanges – because we all have common customers and clients.” 

Banking on DLT

DLT, and the smart contracts that run on it, is expected to be a game changer for post-trade. “At BNP Paribas, we believe strongly that smart contracts can create value for clients in certain areas of post-trade,” said Ong. “As a clearer, we can do this by providing connectivity to the market and creating a layer over the existing market infrastructure, to give clients access to information, datasets and shortened cut-off times, while shielding them from these kinds of infrastructure changes.”

“Take Stock Connect, especially last year when volumes went up dramatically – because there are only so many more warm bodies that you can throw at a T+0 or T+1 market before the cracks start to show,” Ong continued. “That’s why we have a strong focus on Synapse because it seeks to move from sequential processing to concurrent processing. In other words, this is actually challenging the global market practice. If it works, it would be the very embodiment of the idea of transformation.”

Daniel Hildebrand, SGX

As for interoperability of DLT, the region’s exchanges appear to have gotten off on the right foot, with Synapse, CHESS and Marketnode all adopting the same open-source smart contract language, DAML. “One of the concerns raised at the beginning was around standardization,” noted Daniel Hildebrand, Head of Digital & Depository Services, Equities at SGX. “It seems like DAML is a common technology used in the region right now, but we will continue to explore other options to identify the ones that best address market demands.” 

So far, DLT and DAML have shown their worth for SGX through the issuance of eight bonds by Singapore-based issuers on the Marketnode platform worth S$3.2 billion, with issuances from international issuers expected later this year. “The Marketnode platform uses DAML as the smart contract language to issue and service bonds, using a conventional database. At the same time, we are also seeing interest from market participants to host nodes of a DLT based solution themselves. We’re keeping these separate from our core infrastructure because we understand time is needed to adapt to such new technologies,” noted Hildebrand. 

Getting everyone on the same page in real-time

Tim Hogben, ASX

“The power of what we’re doing is best summed up as synchronisation of the industry. Making sure everyone is on the same page, at all times, in real-time,” explained Hogben. “What happens then is you create interconnected businesses while importantly ensuring data privacy and integrity. Smart contracts can be put on top of that, bringing self-enforcing business logic to business processes or multi-party workflows. Then they can be deployed to make transactions more transparent and efficient. What you need initially to achieve that is the data in a standardized format.”

For Hogben, ASX’s mission is clear. “We see the need to deliver richer, more accurate data faster. If we can solve for that we can improve client and internal workflows, reduce operational risk, lower operating cost and provide opportunities for new product and innovation.”

Moreover, Hogben believes it is incumbent on organizations such as exchanges to provide the requisite infrastructure on a mutualized basis. “Take Amazon, which is reliant on but didn’t need to build its own distribution capability; the infrastructure, in the form of roads, trucks, postal services, etc., was already in place. Exchanges provide similar infrastructure in financial markets and will do the same with DLT.”

Moving towards scalability and outsourcing 

Tae Yoo, HKEX

Another major trend, which is also supported by interoperability, is the shift towards outsourcing. Tae Yoo, Managing Director, Markets Division at HKEX observed: “The pandemic accelerated and forced remote working, and what has transpired is that a lot of organizations have started thinking about what they can give to a third party and what is not unique in the way they operate their businesses. As a consequence, organizations are looking to cooperate around sharing technologies, working with third parties – be it prime brokers, clearers, custodians, technology providers – so they can focus on what makes them unique. They are moving towards being specialists rather than generalists.”

Legacy issues

While progress towards digital transformation of post-trade has picked up, impediments remain, one of the most pervasive of which is perhaps the industry’s legacy technology. “People are asking why we aren’t following the same path as the new large technology and digital companies, and why they aren’t getting the same experience they get in their personal lives in their financial markets dealing. It’s because digitalizing existing businesses is really hard and expensive,” said Hogben. 

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