How to deliver post-trade digitalization

Jan 17, 2023 by Yogesh Kshirsagar


In practical terms, post-trade digitalization and automation has many facets and nuances.

Consequently, the concept means different things to different people. So, to make sure we’re all on the same page, here’s Investopedia’s definition of how post-trade processing works:

  • Post-trade processing is important in that it verifies the details of a transaction. Markets and prices move fast; transactions are executed quickly, often instantaneously. Many securities trades are done over the phone; the ability for mistakes is inherent, despite traders’ skill. Increasingly, trades are executed at high frequency by computers only. The chance for small mistakes to compound remains high. Post-trade processing allows the buyer and seller of securities to root out and rectify these errors. In addition to matching the details of the buy and sell orders, post-trade processing includes shifting records of ownership and authorizing payment.


Post-trade digitalization drivers versus technology

Post-trade analytics is characterized by outdated UIs, software languages and legacy technologies, making it virtually impossible to keep up with the constant stream of innovative asset tools and services. So, digital transformation is a case of problem versus technology, or cost versus benefit. The drivers (problems) haven't changed much over the last decade. However, after unprecedented market volatility and value-chain pressure, what has changed is the way we come to terms with them via new technologies. And the issue leading the conversation is the modernization of the workforce.

At a time when there’s a worldwide shortage of talent, capital markets organizations (especially in post-trade) are having to think long and hard about how they resolve that particular problem. Adopting a more flexible work culture and remote working, as well as utilizing multiple ways of identifying and attracting talent, have proved to be effective weapons in the modernization armory. Above all, digitalization and post-trade automation have triggered the development of many types of modern communication tools, digital assets and collaborative initiatives.


Other drivers of post-trade process change

Besides modernization of the workforce, other drivers of post-trade automation include:

  • Reduction of technical debt (the cloud factor)
  • Differentiated client and digital experiences, such as new channels, visualization, smart contracts and intelligent analytics
  • Revenue growth — monetization of digital assets and using data to improve the client experience
  • Regulatory compliance
  • Distributed ledger technology — DLT could play a role (e.g., immutable proof of ownership)

Each driver needs to happen in a controlled way if you want to be competitive.


New front-office responsibilities

A decade ago, it was enough for the front office to do a deal and then someone from the middle office would book the trade. Since then, there’s been a change in the process. Regulations are pushing the front office to own trading data, ensuring it’s accurate, timely and complete so that post-trade teams don’t create patchwork solutions to compensate for the lack of data quality. This helps the post-trade process become more standardized and cost-effective. As referred to earlier, the differentiated client experience that drives change is also a front-office driver with the same goals. They're not only sponsors and partners — it’s also their project.


Post-trade digitalization is happening

With our tier-one clients who are known as “too big to fail”, post-trade automation is a more focused area because the regulators are auditing them.

The way to imagine digitalization and post-trade automation is this: Visualize the whole industry split into verticals and horizontals. The verticals being business units such as equity business, fixed income business, rates business or credit business, and the horizontals being front office, middle office, and back office and clearing. So far, the post-trade space has been more horizontal. But when you start looking at this problem in the vertical space as well, then you can put the ownership back a little bit. Because when you know you are referring to post-trade in the context of the equities business, you know what data in upstream systems needs modifying, as opposed to referring only to the post-trade process without any reference to business units.

As mentioned, you’ll see this will also happen with tier-two and tier-three clients. Right now, regulators are more focused on larger organizations.


Helpful tech solutions, tools and services

Cloud is one of the most beneficial technological solutions because it has become the basis for other technologies, such as AI, ML, standardization and scalability. Also, we’re using data standards more, especially before regulation, which helps with API evolution and integration. And then there’s automation — not necessarily robotic process automation (RPA), though it could be DevOps automation or other tools and services already being used.

There will be scope for increased use of data analytics and AI in post-trade operations to help make decisions and increase data transparency. Similarly, DLT and other emerging technologies will no doubt also prove invaluable to post-trade functions over time.


Practical advice for digitalization teams

Post-trade processing is all about standardization and making sure we do things cost-effectively. So, if it’s not improving your competitive edge, don’t reinvent the wheel. Check if you can buy a solution rather than build it yourself, particularly if it’s standardized. And if it’s not standardized, then try to standardize it. It will be well worth the effort.

Collaboration is a must. Become a regular user of forums, because every organization faces the same post-trade issues. Sharing digitalization obstacles and opportunities can open various avenues to post-trade technology success.

Despite the immense challenges faced by the financial services sector today, digital transformation, particularly in the area of post-trade, provides huge opportunities for growth and expansion, freeing up time and effort so your organization can focus on the revenue-generating activities that really matter.


Consult an expert

We have many more workplace modernization and practical post-trade insights to share. Visit or contact us and learn more about how Luxoft can help streamline your post-trade automation.

For more Banking and Capital Markets insights, see Luxoft on LinkedIn

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