The sell-side is seeking enhancements to reconciliations and confirmations capabilities. The buy-side is focusing on fails and collateral management.
DTCC (The Depository Trust & Clearing Corporation) has published a white paper examining how capital markets operations responded during the Covid-19 pandemic and where market participants are focused in a post-pandemic future.
The paper is based on a survey conducted with assistance from McKinsey & Company on a global set of 35 buy-side and sell-side firms in December 2020 and January 2021. The survey was supported by in-depth interviews with 15 leaders in the Ops and OpsTech space.
The paper says post-trade operations and operations technology proved largely resilient at buy- and sell-side firms during the pandemic, but that several key challenges emerged as market volatility surged throughout 2020.
Cash fixed income and cash equities were most impacted by the pandemic-induced market volatility in terms of operational post-trade processing challenges.
From a processing perspective, settlements/payments and collateral/valuations were impacted the most, with 58% of sell-side firms reporting challenges in settlement and payments during the peak of the pandemic
Buy-side firms typically experienced less disruption to post-trade processes than sell-side firms due to simpler operational models, with the sell-side reconciling breaks and settling trades across hundreds of counterparties.
Respondents cited efforts made in recent years to re-engineer and automate processes and upgrade technology platforms as the main reason for firms’ resilience during the pandemic.
The survey also highlighted opportunities to further optimise post-trade processes across the capital markets. For the sell-side, these include making enhancements to reconciliations and confirmations capabilities, while the buy-side prioritised an increased focus on fails and collateral management.
More than half of the firms surveyed said they are planning to either increase capacity, build new capabilities or re-engineer post-trade processes.
Respondents also highlighted a need for a continued focus on shortening settlement cycles – specifically for US securities – due to the impact of high trading volumes and volatility on liquidity and margin.
The full report is available here.