Post Trade

The emergence of a new model of collaboration between banks and technology providers

Written by Mara-Lena Leinen
May 7, 2022

Learn more about our Post Trade digitalization solution, which increases flexibility and ensures additional security to capital markets businesses.

Banks and other financial institutions are currently facing a dilemma – how to enable financial services offerings at a time when there are margin pressures on the business and limited funds available for new technology and projects. Complicating this are legacy technology systems inside banks, which in many cases date back decades. These firms need a model to acquire applications and components to build an infrastructure that can support their business model.  

One of my colleagues and founders of LPA Group, Roland Probst, has an analogy that can make it easier to envision this model. He believes that banks could learn from how the automobile industry has evolved. Over the past two decades, carmakers large and small have shifted away from fully owning and operating the means of production, towards a focus on sales, marketing and service. While they focus on client-facing activities, and the assembly process, their upstream component production and sub-assembly is now entrusted to partners inside the supply chain. The only thing that makes this possible is strong third-party relationships that meet industry-level quality standards built around the client.  

This is an exciting potenial direction of travel for the banking industry. In this article, we look at a recent collaboration between LPA – developers and consultants for technology-based capital market solutions for banks, insurance companies and fund providers – and a major global investment bank that addresses challenges banks of all sizes and geographies have been struggling to resolve.

The importance of internal collaboration

This particular project started from an existing LPA client seeing how the LPA Capmatix platform could be leveraged for post-trade processes. The bank realized that functional gaps would need to be closed to support post-trade specific processes and the joint project was set up to combine the bank’s market and post-trade process expertise with LPA’s development capacity and understanding of financial technology. This was something that emerged organically inside the bank operations team – rather than coming from strategy or IT planning.  

The objective of the project was not to build a custom solution but rather a fit-for-purpose product, which could be adopted and used by other banks in a software-as-a-service model. It was designed to fit into a bank’s architecture as a complementary solution to replace individual modules or as a new asset-agnostic central utility platform replacing existing silos.  

The result is an extension of LPA Group’s Capmatix product – a one-stop-shop solution with highly configurable modules that can be used for digitizing processes in banks. The final result is a product that works across pre-sales, through trading and on to post-trade processing. Designed to improve ‘Straight Through Processing’ (STP) in the post-trade area, Capmatix allows users to introduce additional control measures while improving the bank’s key performance indicators relating to service level agreements and the level of straight through processing.  

This partnership shows that vendors and banks can team up to design, build, implement and subsequently run projects with both internal buy in and the ability to be useful for both parties afterwards. A single project can act as a proof of concept for skeptics and other potential buyers inside an organization, demonstrating how an outside company can coordinate and organize multiple parts of a large company towards a common goal. 

Measuring impact

Post-trade systems are like many parts of a bank’s infrastructure – they don’t provide money for the bank but they are mission-critical functions. For post-trade, this means the ability to efficiently and quickly process different asset classes such as derivatives. Therefore, measuring the impact of the system won’t be as simple as measuring the new customers that sign up because of this new functionality. People don’t decide where to trade based on their bank’s post-trade system provider.  

After this recent implementation, users will realize the following benefits:

  • Reduce costs – The bank’s existing infrastructure required licensing payments to multiple software providers. This integrated system jointly developed with LPA removes that need, saving the firm a significant amount of money over time.  
  • Improved efficiencies – Greater efficiencies and enhanced agility will enable employees to focus on client facing activities or other more value-adding duties will also reducing operational risk.  
  • Better client service – A modernized and streamlined process will have less risk of failure, reduce the number of manual processes needed across post trade processing through automation, and consolidate overlapping IT systems. This means fewer delays in processing and fewer false exceptions, which is something clients notice.
  • Faster time to market – With the creation and deployment of a new common infrastructure with low code configuration, the bank can reduce how long it takes to bring future products and services to market.  The bank can innovate and implement new features and products to the processes without IT involvement  

Building a sustainable model

By complementing and replacing existing platforms – which sometimes ran on archaic system languages such as COBOL – this project is a beachhead for broader transformation inside the bank. The new post-trade system will be used by a set group of users first with the capacity to easily add more.  It will be relatively simple and cost effective to add support for additional functions or asset classes, meaning the return on investment will multiply in value. It will also support enhanced customer service and security, and have a platform that can respond to regulation quickly. This is a model for great organizational agility and change that can fit inside shrunken research and development budgets. 

– a new path 

In the same way the automotive industry has embraced the mega-changes that have reshaped their businesses (electric car, driverless technology and moving to more a collaborative operating model) banks are increasingly realizing that strategic, trusted vendors will have their best interests at heart, supporting a more agile, symbiotic future.

This industry has faced its own existential challenges recently in the form of the Global Financial Crisis and subsequent waves of regulatory requirements that have led to margin compression, adaptability is one of the key factors for bank survival. Innovation through partnership represents a promising way to continue to meet these and any forthcoming headwinds. All of this means banks now need their software to work harder. This means going beyond data collection towards using cloud-based artificial intelligence to detect patterns and guide improvements previously undetectable. Smart intelligence and dashboards allow for the setting and refinement of key performance indicators that ensure continual improvement against past performance or desired targets or benchmarks. In the case of this specific project, the main driver for implementing the new platform was indeed to extend agility and automation to include its post-trade activities. Interestingly, the perspective of the bank was not to tie LPA Group in an exclusive arrangement for the software, but to encourage adoption across the industry.  

Foresight guided that a widely adopted solution would be well supported and continue to evolve, and thus outweighed any potential competitive advantage from being the sole platform user. To survive and prosper, banks need to head into their planning cycles with similar agile way to approach product development. Moreover, that means finding an external partner who can bring the ability to combine financial domain expertise with software development skill and apply that to create a long-term beneficial solution.  

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