Volante’s Fiona Hamilton on The world of treasury and capital markets

Fiona Hamilton, Research Director, Volante Technologies

The regulatory introduction of payments schemes such as SEPA started the ball rolling by mandating the adoption of ISO 20022-based messaging, which was richer than the preexisting proprietary or SWIFT MT-based formats in the ability to carry more detailed and semantically correct information. Technology over the past decade or so has transformed the consumer experience of sending or receiving payments, and more importantly the expectation of immediacy and visibility via apps such as PayPal, Apple Pay and so on. These have then driven the global explosion of real-time payments solutions within the wholesale markets, such as SEPA CT Inst, TIPS, TCH RTP, Ripple and dozens of other schemes across the globe and consumer-related regulations such as PSD2/Open Banking that are embracing the API economy.

While it can certainly be said that the journey is not over in terms of ubiquity and accessibility, it is easy to see that this embracing of new ways of executing payments transactions is bringing business benefits to the financial institutions by way of more certainty of cash positions and visibility of where in the settlement cycle the transaction is. At the same time, it is also fulfiling the expectations of customers in speed and visibility of execution, in addition to providing opportunities for the aggregation of account information and the potential for firms to leverage additional value-add and differentiating services.

Now contrast that to what has been happening in the treasury and capital markets domains. Twenty-five years ago when the payments
domain was still in slumber after congratulating itself for replacing telex with the formation of SWIFT in the late 1970s, the capital markets and treasury were completely reinventing their process paradigm. This was happening both in terms of ‘big bang’ market reforms by removing human-based exchanges, but also by coming up with mechanisms of data exchange that facilitated straight-through processing (STP) such as FIX, OASYS (Omgeo now), FpML, ISO 15022 and CLS.

These standards were and still are good at what they do in their front/middle/back and asset silo contexts; however, as I have seen first-hand in meetings with groups of buy and sell-side institutions and also with those that work for sometimes forgotten (technology under invested)areas such as property finance and corporate actions, the provision of straight-through processing is far from fixed. STP is still a challenge and often made worse by all the standards in place.

Undoubtedly the payments domain has some way to go to realise the dream of complete transparency of where and when cross-border
payments are going to settle, as opposed to domestic clearing which is increasingly becoming real-time but with API and SLA-based services.Contrast this with the ability of the treasury and payments operation of an investment bank to provide services to its own internal customers.

Most middle and back office systems in capital markets are specific to the functions required to process those asset classes; but rather bizarrely the cash/payments leg of transactions is often seen as something that is dealt with by another party who may be the other side of a Chinese Wall in a bank or via a banking relationship in the case of a buy-side firm.

Surely the head of equities settlement, or OTC Derivatives Collateral Management or the agent executing a property finance deal for hundreds of millions of dollars should have the same visibility of rates and final confirmed settlement over the same timescales as those in the retail and corporate world are now beginning to see. In the same way that a corporate treasury values liquidity management, why is it so hard for the internal wholesale treasury and payment services providers to embrace the concept of real-time that the old payments school has woken up to?

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