A joint venture between KAS BANK and SunGard is delivering superior control to trading firms.
The European securities market is “on fire” as trading venues and market participants continue to reinvent themselves in the wake of the introduction of the Markets in Financial Instruments Directive (MiFID), says Laurens Vis, UK Managing Director, KAS BANK.
“MiFID had a profound effect on organisations in all markets, enabling participants to trade freely across Europe,” says Vis. “There is no longer a single platform on which ISINs are traded, which means our clients must provide trading capabilities throughout Europe, in order to meet the needs of their own clients as they increasingly trade across borders.”
KAS BANK is a specialist European bank offering a wide range of securities and investor services. Its clients include institutional investors such as pension funds, insurance companies and asset managers, as well as financial institutions including banks and brokers. Established more than 200 years ago, KAS BANK has always focused on securities services and acts as a general clearing member on most of Europe’s main exchanges and MTFs as well as on exchanges further afield including NYSE Euronext and Hong Kong. The bank is also a member of the major European central security depositaries (CSDs), such as Crest, Euroclear and Clearstream.
Vis says the requirement to trade on multiple markets presents challenges not only on the trading side, but also on the post-trading side of the markets. Just as the number of trading venues has proliferated since the introduction of MiFID, so too has the number of clearing venues as many central counterparties (CCPs) have been launched to service the new MTFs.
Before MiFID, a stock would trade on a single stock exchange and be cleared on a single CCP and settled at a single CSD. In the MiFID world, trading firms must establish relationships with many more exchanges and with additional post-trade infrastructures, all at increased cost and complexity. Firms will have to consider how they will collect and process trade information once deals have been transacted in this more complex environment.
And as MiFID is reviewed, with details of a ‘MiFID II’ expected to be released by the European Commision this year, financial institutions could be in for a shock, says Vis. “In MiFID I, best execution was based on the venues on which a broker was prepared to trade. In MiFID II this may not be possible – brokers may be forced to seek the best price across all venues on which a stock is available for trading. This will be a significant challenge because sell-side firms will have to connect to a growing number of exchanges and MTFs and the corresponding CCPs that clear for them.”
In reality, some firms will be unable to afford or maintain the necessary post-trade infrastructure required. This increasingly complex and fragmented environment has led many broking firms to seek providers that can help them with connectivity at the front end, as well as those that can provide post-trade clearing and settlement services.
An integrated solution
“More and more brokers have been coming to us, seeking fully integrated services not only for the clearing and settlement elements, but also for other back-office components, such as static data maintenance, settlement instructions, cash and stock reconciliation, contract notes and trade accounting,” says Peter Rouwen, Director, Sales and Business Development at KAS BANK. “These brokers simply do not have the economies of scale to establish multiple relationships with a range of service and systems providers, and are instead looking for an integrated solution with a variable cost structure.”
In order to provide an all-in service proposition, KAS BANK partnered with SunGard to offer a new service under its Broker Services division. Underpinning the service is SunGard’s Stream RIMS Middle and Back Office, a comprehensive, real-time securities post-execution processing solution. Stream RIMS is highly scalable and its comprehensive use of automation enables global capital markets organisations to achieve maximum STP.
The partnership with SunGard means KAS BANK can provide a multitude of clients with a single, global platform for clearing, settlement and back-office services. The bank’s clients do not have to run their own back offices and can therefore focus on core trading activities and adding value for their clients, says Rouwen.
“We had clients who were already using SunGard’s products and it was natural that SunGard became our partner,” he says.
“SunGard has experience in providing back office services and has a similar ‘pure player’ approach to KAS BANK. We believe that the combination of a securities services provider and an IT provider can achieve strong results.”
The service consolidates previously separate functions on to a single, robust platform that is linked directly to KAS BANK’s cross-border clearing and settlement platform. Clients can deal exclusively with KAS BANK for all elements in the trading chain – from front-office deal capture through to cash and stock position reconciliation. Other features built on the Stream RIMS-based service include full trade accounting, provision of contract notes, posting to the general ledger and comprehensive regulatory reporting from a single source.
“With the introduction of Stream RIMS we now have a full suite of back-office services combined with post-trade DMA services,” says Vis. “Our offering delivers much greater control and transparency for the benefit of our customers.”
The service is aimed at securities houses that do not conduct enough transactions to justify the significant investment required to establish back-office infrastructures for the fragmented MiFID environment.
MiFID unleashed significant price competition at the trading level, which exposed the high costs of the post-trade world. But in a more competitive environment, downward pressure on pricing is being felt along the value chain and for that reason, says Vis, KAS BANK’s clients have had to reinvent themselves and play to their core strengths. By offering a completely seamless post-trade service, KAS BANK will help its clients to gain greater control over their costs in order to focus on revenue generating front-office activities.
“The joint venture with SunGard will enable our clients to offload fixed costs in their middle and back offices and move to a more variable cost base,” says Vis.
Clients will be able to capitalise on the expertise of both KAS BANK and SunGard, something they may not have been able to do alone. “Firms who typically would have had to invest in separate back-office systems and links to securities services providers, can now use one party – KAS BANK – to take care of their core back-office functionality,” says Rouwen. “Our partnership with SunGard has changed the way we deal with our clients. We have bridged the gap between the back offices of our clients and our clearing and settlement services, offering a best of breed service. It has been a big step forward.”
As the European trading, clearing and settlement world continues to fragment and increase in complexity, says Vis, the combination of KAS BANK and SunGard will deliver superior control to trading firms, which is a “good thing for the market”.