Regulatory formulations across the world have introduced enhanced market practices in the financial services industry in a bid to make it more secure and resilient. For buy-side firms in the over the counter (OTC) derivatives market, these regulatory stipulations have led to more stringent requirement for central counterparty (CCP) clearing. Additionally, changes in the market structure, and new client clearing models are forcing buy-side firms to transform their business model and process infrastructure.
If you’re a buy-side firm and want to thrive despite the wave of regulatory changes and market dynamics, here is how you can identify and make the most of the opportunities coming your way:
- Clearing Model Optimization: Closely assess your business model, partners, and market coverage in light of the changes in the industry. Re-evaluate your clearing relationships to ensure the best terms where clearing costs and collateral requirements are concerned.Your firm must also consider moving away from non-standard products if the cost and complexities of dealing in the market are too high. Finally, evaluate the markets that are most attractive to you and focus resources there, rather than being present in all markets.
- Operational Processes and Platform Augmentation: A review of processes and platforms could reveal redundancies, overlaps, and bottlenecks that need to be addressed to make buy-side firms more competitive. Such a review will also highlight simplification and modernization opportunities.Some of the headline issues your firm could address are: consolidating and harmonizing the exchange traded derivatives (ETD) and OTC processes, enhancing process integration to improve risk management and decision making, streamlining some key support functions across business silos to develop an enterprise shared services unit, and leveraging external utilities and managed services platforms for cost efficiencies.
- Value-Added Solutions: To provide clients with the best services, buy-side firms could look at engaging with value-added solutions providers. When evaluating such partners, you should look at how such a relationship can help with capital and risk management efficiency, and simplify market and service access.As a buy-side firm, you can also benefit from engaging with clearing service partners who provide advanced tools to augment their operational capabilities. New partners can support your business by providing access to platform-based services e.g. to aid trade matching, post-trade processing, and reconciliation. They can also add value by providing capital and liquidity management, reporting and analytics services, and reporting-as-a-service to help with regulatory requirements across jurisdictions.
- Digital Transformation Enablers: As a buy-side firm, you can’t ignore the emerging technological innovations. To keep up, you must reinvent yourself as a digital-enabled service provider and prioritize digital transformation efforts across your products, processes, platforms, and delivery infrastructure.Some of the digital initiatives could be around developing Big Data and analytics capabilities for smarter risk and capital decisions, dashboards and heat maps for real-time transaction control, and robotic process automation to streamline manual tasks.
The change that regulations are forcing upon buy-side firms is being driven by new technology imperatives and changing customer expectations. Proactively undertaking transformation projects to become more efficient and future-enabled will provide you a competitive edge – provided you start soon. If you’d like to know more about these opportunities and the steps you can take to transform your business, read my whitepaper: Transforming CCP Clearing for Buy-side Firms.