Author: Tony Scianna, executive vice president, SunGard’s brokerage & clearance business
As everyone acknowledges, the once familiar landscape of financial services is rapidly changing. Keeping track of these changes can be overwhelming, but within the post-trade solutions area, I think there are three key areas to watch.
The first is regulatory oversight. With global governments and their taxpayer funds helping to stem the global financial crisis, governments and regulators will demand increased, faster and more reliable oversight and accountability. With the greater focus on over-the-counter transactions, for example, monthly and weekly capital calculations are clearly insufficient. So, what’s the answer?
The second area to watch is counterparty and asset exposure. Firms must be able to look across multiple applications and disparate technologies to determine what their exposure is to or with any given client or counterparty. Moreover, they need this information in real-time. That is a major challenge for most firms.
It is equally important to be able to assess exposure and risk to a given asset, underlying industry, company or institution or even country. Can you look across multiple asset-specific applications and present a holistic view of your complete exposure to a particular asset class, industry, company or country?
Finally, current market conditions are changing the way that broker dealers and hedge funds are looking at the traditional clearing model. Hedge funds are “de-leveraging” – returning to the onshore world to reduce their leveraged amount as well as their exposure to foreign governments’ bankruptcy and protection laws.
With this comes a concern about leaving all of their assets at a single bank, broker-dealer or prime broker. Many are opting to utilize multiple prime brokers, and the larger ones may chose to become self-clearing broker-dealers in order to control their own destiny.
Broker-dealers are seeing the same types of issues. The ones with a large enough capital structure are rethinking the correspondent clearing model and are also looking at becoming self-clearing broker-dealers. They can take over the controls and reduce their exposure to their clearing broker-dealer’s balance sheets, decisions and exposure.
Of course, the challenges may be easy to identify, but the solutions are not. What are some of your concerns and ideas about the changing financial landscape? Share your perspectives below or discuss your insights with industry peers at SunGard City Days.