Broker-Dealers in the Modern Post-trade Financial Landscape

The broker-dealer industry has undergone significant changes in recent years. These changes span from technological innovations to regulatory adjustments, each introducing its own set of challenges and opportunities.

Alessandro Cavallari, head of international sales, Societe Generale Securities Services (SGSS), emphasises the importance of anticipating these challenges, adding that the role of post-trade providers cannot be understated. Likewise, Steve Gutowski, head of financial intermediaries and banks coverage, SGSS, states that it's not just about foreseeing challenges “but actively crafting solutions that build upon legacy post-trade processes to ensure uninterrupted flow and secure operations.”

Recognising these industry shifts, particularly from the perspective of settlement agents, becomes paramount. Yet, a central question remains: what challenges do broker-dealers face, and how is the industry adjusting to these transformations?

Digitalisation is driving the change

There is more competition than ever for broker-dealers from high-digitalised new entrants. The more technologically advanced intermediaries can integrate digital capabilities that incumbent providers can’t match. These incumbent providers may be using dated or legacy technology. As the brokers’ clients continue seeking new innovative products, these tech-savvy intermediaries are perfectly placed to advance their market share.

If traditional brokers need to cut fees to their clients to stay ahead, this will have a detrimental impact on their margins. What else can they do? Alongside challenging market conditions, broker-dealers are being forced to adapt to stay ahead of the curve.

To reset the playing field, brokers are looking at how they can better compete and can themselves improve their technology solutions. They will also look at settlement agents and custodians, perhaps consolidating with strategic partners to increase cost efficiency.

As Steve Gutowski points out, “In the wave of digitalisation, settlement agents and custodians must rethink their operational models. Consolidating with strategic partners not only amplifies efficiency but also optimises cost structures, providing a competitive edge in the industry."

Strategic Partnerships

Brokers are seeking a global model with access to a vast network of markets, access to all major asset classes and utilising a settlement agent that can assist them in moving into new markets or solutions where required.

Brokers want integrated solutions, capturing the end-to-end value chain. The concept of a 'one-stop-shop' that seamlessly blends clearing to custody isn't just an added perk—it's quickly becoming the industry standard.

Utilising the tools of their settlement agents to manage credit risk and optimise their liquidity is vital, particularly in the face of rising interest rates.

Settlement agents are expected to have strong reporting capabilities. Data is not only crucial to the day-to-day monitoring of a broker’s activity but analysing and predicting trends. The industry's hunger is evident – not just for data, but for insights that data can provide.

Brokers are also actively embracing and leveraging other value-added services available via their settlement agents and custodians, such as stock borrowing and FX.

Innovation and Relationship: Two Sides of the same coin

The ongoing technological wave is reshaping the post-trade environment. While innovations like AI and blockchain have garnered attention, they're only part of the story. Gutowski asserts, "Technology can streamline processes, but the human touch cements client trust."

Indeed, even as broker-dealers navigate a digitised world, the essence of personal relationships remains undiminished. Cavallari highlights this sentiment, "Our industry thrives on trust, which is built on consistent interactions, understanding client needs and offering the most advanced experience."

As the financial industry becomes more digitised, a pressing question emerges: How can the industry ensure that human-centric approaches are not lost in the shuffle? The relationship between broker-dealers and settlement agents is symbiotic. Gutowski says, "Understanding human needs and expectations becomes a distinctive advantage."

This alignment between technological prowess and relational expertise will define the post-trade sphere's future. "It's not about choosing between digital and human," Cavallari adds, "it's about leveraging each to enhance the other."

Navigating the regulatory landscape

In the ever-shifting world of finance, broker-dealers face the intricacies of evolving regulatory environments. Notably, frameworks such as CSDR¹ and MiFID² II have introduced multifaceted challenges.

The role of settlement agents in this matrix can't be overstated. These agents serve as buffers, adhering to the nuances of each regulation and ensuring compliance while preserving the integrity of operations. Gutowski adds, "Our expertise aids broker-dealers in not just meeting these requirements but demonstrating trust to our clients and the industry."

The Way Forward

In the contemporary post-trade financial environment, the relationship between brokers and their settlement agents is paramount. As the industry confronts the challenges of digital transformation, escalating operational costs and an intensified emphasis on data-driven strategies, adaptability and strategic alignment are essential. Success hinges on the ability to seamlessly integrate technological advancements while meticulously selecting collaborative partners, underscoring the importance of both innovation and deep-seated expertise.

The trajectory for the broker-dealers becomes clearer:  they must integrate digital efficiencies with the indispensable value of human interactions. As highlighted by Cavallari and Gutowski, the future is reserved for those entities that adeptly balance technological prowess with the nuances of personal relationships, thus redefining standards in the post-trade domain.

Alessandro Cavallari
Head of international sales, Societe Generale Securities Services

Steve Gutowski
Head of financial intermediaries and banks coverage, Societe Generale Securities Services

¹ Central Securities Depositaries Regulation
² Markets in Financial Instruments Directive

Article published in the Trade & Funds Europe.

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