The Future of Post-Trade: How Tech Transformation Is Reshaping the Landscape

In recent years, financial market infrastructure has clearly proven its resistance to global disruptions and managed extreme levels of volatility during the Covid-19 pandemic, geopolitical events, supply-chain disruptions, and rising levels of inflation. 

During the pandemic, post-trade service providers globally mainly focused on resilience, digitalization, and automation of existing operational models, while transformative investments slowed down. We now see signs of an increased focus on innovation and modernization of underlying infrastructure, combined with a growing interest in utilizing new technologies to transform business and operational models. 

Nasdaq’s Market Platforms division supports more than 25 CCPs and CSDs globally across clearing, risk management, and CSD functions with mission-critical technology infrastructure and services. With a large, industry-wide need for infrastructure modernization, Nasdaq is further elevating its strategy and investments to deliver a holistic business development approach and architecture across the post-trade value chain to support post-trade organizations on their transformation journeys. Meet leaders in Nasdaq’s expanding post-trade technology team, responsible for product strategy and deliveries to Financial Market Infrastructure providers (FMIs) globally, as they elaborate on challenges and opportunities ahead for the industry. 

Christian, what are the key drivers for transformation? 

FMIs globally are looking to transform their business models to attract a larger and more international customer base, launch new products and services in an agile manner, and utilize modern technologies to attract new business or improve efficiency. This drives the need for standardization, application of best market practices, and offering multiple service choices to a more diversified customer base. However, many FMIs are constrained by their existing infrastructure, which was often architected more than 20 years ago and optimized to support local requirements rather than international requirements, new business models, and the embracement of innovative technologies. 

In addition, during the past decade, risk management has developed from a traditional middle office function to a business-critical activity, where real-time risk management, data-driven decision-making, and management of an ever-increasing amount of data create new challenges for risk managers.  

Another major driver for transformation arises from the digital asset space. The launch of digital assets offerings in different shapes and forms have skyrocketed, with increased regulatory attention and scrutiny as a result. We see an increasing number of initiatives aiming to harmonize the structures of traditional and digital assets. We believe that FMIs have a key role to play in bridging the gaps between traditional and digital assets. 

Lastly, with high inflation and increasing interest rates, cost efficiency and models to optimize and reduce the cost of capital will continue to be strong transformative drivers. This puts further pressure on standardization, the shortening of settlement cycles for cash markets, and applying new technologies and services to optimize the use of capital and enhance the distribution of liquidity. 

How are new technologies enabling transformational change in post trade?

Post-trade infrastructure upgrades have traditionally been driven by a need for operational efficiency, reducing risk, or supporting new business models, which in many ways are technology agnostic, even if the choice of software and architecture has a significant impact on cost and time to market. However, as some of the new technologies develop and mature, such as cloud technology, artificial intelligence and machine learning (AI/ML) are of a more transformative nature since it enables the community to provide services, share data, and collaborate in new ways. 

We believe that, by evolving our technology into a modern, cloud-based offering, we will not only modernize our own and our customers’ technical infrastructures but also enable us to build new trusted networks together with our customers and partners. 

Integration of our technology with AI/ML tools is another key strategic investment area, which we believe will support our customer’s data-driven decision-making and support, for example, risk managers to manage risk and a substantial amount of data in a real-time risk environment. 

Looking at the future of post trade, what are some of the major developments you foresee in the coming years?

I believe that five years from now, many FMIs will have initiated or progressed the move to the cloud or hybrid cloud/on-premises structures, also for core clearing and CSD services. The Options Clearing Corporation (OCC) is a pioneering example, which plans to operate its modernized technology infrastructure on cloud technology, set to launch in 2025. 

I also think that; 

• A platform-based ecosystem for financial market infrastructures will start to materialize, where collaboration between financial intermediaries and technology partners will play an increasing role and bolster the development of new services and business models. In my view, cloud technology is a critical enabler for such development. 
• Most financial markets will require real-time margining, and modern, purpose-built SaaS solutions for risk management will enable efficient and comprehensive risk analytics leveraging AI/ML technologies. 
• Digital assets will become part of institutional investors’ portfolios, driving further standardization and harmonization of regulatory structures, solutions, and processes, creating new business opportunities for FMIs. 

Anna, what key trends in clearing do you believe will have the most impact on markets over the next five years? 

There is a continued need for technology modernization in the clearing space to be able to improve and expand services, combined with a drive to reduce costs for CCPs and their members. I see five major trends that tie into this:

• Collateral optimization – the cost of capital is high, and ensuring efficient utilization of collateral is important for lowering market participants’ costs and protecting liquidity. We’ll see continued efforts at CCPs globally to optimize margin requirements and collateral usage and improve accessibility to collateral across markets.
• Harmonization of digital and traditional markets; for clearinghouses, this means applying traditional workflows on digital assets to ensure proper governance and market stability and developing means to allow for cross-asset risk management.  
• Development of new operational models and processes to better capitalize on growing data volumes – internally and for members and other external users. This requires storage and management of data that ensures efficient consumption for analytics and reporting.  
• Application development collaboration – as clearing infrastructures shift towards modular architectures leveraging an underlying platform, I foresee a change in how stakeholders in financial ecosystems collaborate and innovate. Rather than in-house teams or vendors developing separate but integrated solutions, the CCP will be able to build business applications on top of the platform and thereby leverage the platform’s capabilities with regard to security, resilience, and interconnectivity. With the right approach, this might even become an additional revenue stream for the client as the applications may be added to the product portfolio of the vendor providing the platform.
• With the realization that risk needs to be monitored and managed in real-time, in combination with growing data volumes, we’ll see an increase in the use of AI/ML, together with quantum computing. This can enable fast and trustworthy scenario generations or allow for competent and fast risk data analytics that can identify adjustments to risk parameters, at the end moving into automatic real-time risk parametric adjustments. 

In addition, the industry drive towards standardization is still strong, and in five years’ time, I expect a substantial reduction in proprietary APIs together with harmonization across general functions such as trade and position management. This will lower costs and facilitate easier onboarding to new markets for participants.  

What is important when designing an infrastructure that will support clearing operators in a 5–10-year perspective? 

When modernizing its core technology infrastructure, resilience and performance are top priorities for CCPs, together with the ability to meet new customer demand, comply with regulatory changes, and drive the business forward in an agile and customer-centric manner. Also, ensuring they fit into the global best practices is a priority, given the fluidity of global trading. 

For this, they need a modular platform architecture that allows them to easily add and enhance functions and services in a short time to market while keeping constant high quality. Open APIs, cloud technology, and a hyper-efficient dev ops framework that ensures speed of development with high quality are all critical enablers and key parts of our product strategy to support this transition. 

Also, by leveraging cloud technology together with AI/ML, we will see major opportunities to improve operational efficiency by allowing for capacity scaling, either based on user behavior or fluctuating volumes.

Andreas, from a CSD perspective, what market developments do you think will influence the industry the most?

Given the role of CSDs in providing resilient and secure infrastructure around settlement and the safekeeping of financial instruments, the developments in the areas of digital assets will definitely influence the CSD industry, and we already see a number of initiatives in this space. In addition, the cost pressure throughout the chain of securities services will drive for increased efficiency in existing services but will also act as an accelerator to find new sources of revenues. The digital asset area is one opportunity for CSDs to expand their service offering by adding new asset classes to their portfolio and leveraging their existing infrastructure with the market.

I think the cost of liquidity in general and specifically in terms of collateral will accelerate the transition to shorter settlement cycles, T+1 or even T+0 that will, of course, impact the entire market but with CSDs playing a systemically important role.

Continued globalization will drive standardization, not only in terms of improving connectivity and accessibility to attract large, international participants but also in terms of processing. We will see an increased level of regional collaboration, as well as a need for automated and efficient CSD links. 

How are CSDs looking to future-proof their business?

Besides the specific initiatives and investments around DLT and digital assets, we see a number of initiatives where the CSDs are taking a holistic view of the existing technology stack supporting the more traditional services and asset classes. Replacing existing, bespoke solutions with new, modular solutions applying standardized processes and interfaces would not only attract new international clients but also allow for a shorter time to market in terms of new services.

Moving to cloud deployment of the core systems would enable more efficient use of compute capabilities, leveraging the scalability opportunity that the cloud provides.

Gerard, digital assets are seen by many FMIs as an opportunity for business expansion. What are some of the common use cases that you see? 

We can look at business expansion through two different lenses. Firstly, FMIs may want to expand their services into new asset classes; carbon is a good example. Second, they may see opportunities to tokenize the asset classes which they already service; bonds are a good example of this.

In both cases, FMIs are in a perfect position to ensure that the adoption of digital asset use cases benefits from the highest standards of risk management. They are also best placed to ensure that the advantage of this new technology serves to benefit a broad base of participants within a given marketplace.

In the end, market participants want FMIs to innovate whilst simultaneously creating services that are standardized, robust, and resilient.

Is it only FMIs that can benefit from digital assets? 

Many FMIs cover all aspects of the value chain, from trading, through clearing, to custody and settlement. Where this is the case, there is an opportunity to bring practical benefits end-to-end through the trade lifecycle. However, there is a case to be made for starting in post-trade, especially custody and settlement; this is where much of the complexity and costs are located.

Apart from FMIs, intermediary actors such as custodian banks can also benefit from tokenization especially. Many still deal with assets using legacy systems and paper processes. I’m looking forward to understanding better from this community how Nasdaq’s Digital Asset services could help them eliminate risks and help to scale certain activities.

In the longer term, how do you believe digital assets will impact and improve the financial ecosystem?

There are several ways in which the technology that underpins digital assets can bring improvements. These include workflow efficiencies, a single source of truth, elimination of reconciliations, and capital benefits. The adoption of digital assets and their underlying technology gives us the opportunity to transform, disrupt, and reimagine how marketplaces could operate.

If we think of the new technology as an enabler, then the onus is on us to ensure that we realize the potential in a safe, manageable way. Across the FMI space, we already see the possibilities, for example, further reduced settlement cycles, multi-party smart contract workflow efficiencies and mobilization of securities/collateral, to name a few. I believe that the pace of change will accelerate as the benefit of small incremental changes starts to be realized across the industry.

At Nasdaq, our approach is to provide holistic business and technology support across the post-trade value chain to support innovation and complete offerings across traditional and digital asset classes. We are excited about the transformation that the industry is going through, enabled by cloud and other new technologies, and look forward to continuing to collaborate with our customers to support their modernization journeys. 

Nasdaq Marketplace Technology

In addition to operating 18 markets, a clearinghouse, and a CSD of its own, Nasdaq is a trusted technology partner to 130 market infrastructure operators globally. Our post-trade product teams support more than 25 CCPs and CSDs across clearing, risk management, and CSD functions with mission-critical operations and the realization of new business opportunities.