Global custodians leading the way with trading technology

Trade and post-trade efficiency are amongst the top priorities for many of our clients. Understanding the major drivers are essential.

Trade and post-trade efficiency are amongst the top priorities for many of our clients. Understanding the major drivers are essential – from global efficiency trends and regulation to technology powered by artificial intelligence (AI) and digitalisation.

In this environment, the role of the custodian is an ever-changing one. Global and regional themes dominate, for example the shift to T+1 trading, and their impact on the local landscape continues to influence the complexity to invest both into and out of Australia and New Zealand.               

In addition, over the past few years a line has been drawn for custodians to become either niche or industrialised participants.  BNP Paribas’ Securities Services business’ is very much in the industrialised camp and continues to invest, expand and innovate where possible, choosing partners that specialise and enhance business capabilities. 

The desire for greater operational efficiency in an evolving landscape 

A major concern for clients investing in Australia and New Zealand is the complexity of their operations. Corporate actions in Australia, for example, are highly complex compared to most markets. This is especially true for offshore clients who don’t have the local market experience. As part of ongoing enhancements, the ASX’s infrastructure improvements have resulted in further future efficiency gains for the Australian market in the area of corporate action announcements, for example, allowing information to be disseminated to all parties at the same time. In addition to this, the ASX CHESS Replacement project also offers potential opportunities to challenge and adapt changes to further drive market efficiency. 

In New Zealand, the post-trade environment has its own complexities via the operation of two Central Securities Depositories (CSDs). The lack of automated connectivity between the two CSDs can add additional costs and inefficiencies which are potentially passed onto end-investors. This can limit offshore investors searching for channels to access to the domestic market.  

For some clients, there is a trend towards the ongoing replacement of legacy platforms across front, middle and back offices. Institutions using ageing platforms, especially post-COVID, are considering whether they should replace the platform they have or partner with a provider that already has the technology and continues to invest in it. 

BNP Paribas’ Securities Services business’ has people on the ground to help clients remove that complexity. Our aim is to make processes and implementation clearer and simpler. Connectivity is a priority, as well as going beyond the role of a traditional custodian. We are a global organisation interlinked to a range of markets teeming with nuances and differences. Our aim is to present a single picture to clients regardless of where the connectivity is in the market. 

A living example is our integrated bank model approach. Our execution desks here in Australia, and globally, provide execution-to-custody services. This means clients who wish to purchase or sell a particular stock can do so through our local desk in Australia – internalising the whole trade flow and providing cost benefits to clients. 

In New Zealand, we have also made significant improvements in operational efficiencies. There are two exchange platforms – NZX is the equities clearing house and exchange while NZClear provides the financial markets with clearing and settlement services for high-value debt securities and equities. This means that activity in New Zealand often drives a need to move stock from one platform to the other during the post-trade process, leading to much higher charges. The Securities Services business of BNP Paribas is the first global custodian to offer access to the NZX, offering clients the potential to limit the movement of stock across both platforms and thus offering a reduced overall charge to operate in the market. 

Staying ahead of trade and post-trade technology 

Trade and post-trade technology is rapidly evolving. The Indian market for instance moved its securities markets from T+2 to a T+1 settlement cycle in a phased manner. The efficiencies of moving to a T+1 settlement cycle have been well discussed over the last 12 months on the global stage, in terms of settlement risk, lower margin requirements and greater available liquidity. 

While the likes of India have already moved, there are operability concerns from offshore investors into such markets. These relate to geographical time constraints for foreign investors and their intermediaries to manage settlement instructions and funding across the relevant counterparties. 

In Australia, the ASX surveyed its participants on the concept of T+1, and the results were mixed, with no aligned consensus. There are certainly varying schools of thought, with custodians largely predicting that eventually all markets operating on T+2 will move to T+1. The US, Canada and a number of the exchanges in the Americas have already announced a move to T+1. While T+0 exists in Hong Kong (via stock connect) and China today, it further highlights market nuances across regions and the importance of the role that custodians provide.  Conversations on T+1 in Europe are on-going so a move for Australia and New Zealand to T+1 seems plausible. 

From our perspective, BNP Paribas’ Securities Services business believes there is a need for a structured approach, alongside on-going industry consultation. A move does offer benefits for areas such as capital requirements due to a smaller settlement cycle, representing a smaller window for settlement risk. As investors around the world consider a move to T+1, including investment into Australia and New Zealand, depending on their geographical location, it may well represent considerable challenges when working against the global clock. 

This leads to an increasing importance for custodians to provide clients with key information to support client activity. From our perspective, and as part of the shift to T+1, our service offer becomes even more important. In addition, round-the-clock support, standardisation, connectivity and partnerships are key. That is where global organisations and custodians who have a ‘follow the sun’ model become even more relevant. 

Improving client experience 

Digitalisation and artificial intelligence are definitely drivers of investment in our quest for improving client experience. BNP Paribas’ Securities Services business recently announced the launch of a virtual agent, NOA (NextGen Online Assistant), available on NeoLink. NOA leverages the latest cognitive technology of Amelia, a trusted leader in Enterprise Conversational AI. Leveraging Amelia’s advanced machine learning for context recognition, NOA helps clients find the information they need quickly and efficiently.

As part of the initial launch, the virtual agent is able to answer queries around custody activity including settlement, cash and market information. Following the first phase, NOA’s functionality will extend to other custody applications to support clients throughout the investment cycle. BNP Paribas’ Securities Services business has an expert team dedicated to digital assets. We are supporting experimentations on that topic, while laying the foundations as the technology matures and the regulations evolve. 

The role of digital assets 

On the regulatory side, the Australian Securities and Investments Commission (ASIC) has taken a proactive approach to engaging with the industry on the topic of digital assets over the last few years via consultations and industry awareness sessions. In response, the industry has engaged with the regulators on the topic of licensing and the Australian Custodial Services Association has established a working group on the topic of digital asset custody. The Australian Treasury published a consultation on the topic of digital asset service provider licensing in March 2022 with a view to establish a level playing field for existing traditional service providers and new entrants focused on digital assets. 

As a global custodian, our goal is to be the long-term partner of choice of our clients, and as such, we believe that innovation and protection of our clients’ interests should go together. Fostering real, durable change is a process. That is why we are taking an incremental approach, experimenting with distributed ledger technology and digital asset processes in regulated environments to build a resilient, compliant, and sustainable digital asset space. 

BNP Paribas’ Securities Services business is transforming its role as a custodian 

The role of custodian has long since expanded from asset safety and efficient settlement. As the financial services industry continues its digital transformation, custodians have a significant role to play in ensuring the safety and security of all client assets, digital or otherwise. 

We will continue to invest and ensure that we are using the right technology and investing enough money to support our growing operations and custody offering. State of the art technology, good systems, and efficient, reliable trade and settlement times are major wants and needs for our clients. Clients want and need technology that is easy to use, customised, and that can help to dial up communication with their providers. We understand that as they outsource their operations, they need to be confident in their business partners – such as BNP Paribas’ Securities Services business.