Southeast Asian Firms Look to Automate Post-Trade Processes

Southeast Asian firms are increasingly looking to expand and pursue cross-border strategies, driving them to ensure their post-trade automation systems are in line with global standards of best practice.

Hasan Rauf, executive director and head of business development for Asia-Pacific at the Depository Trust & Clearing Corp. (DTCC), says there is an increasing awareness that firms can no longer afford to rely on manual processes to address growing operational complexities and risk concerns. This becomes even more urgent with cross-border trading, as a failure to settle trades on time will expose firms to risk, he adds. 

As Asia is a fragmented market with countries at different stages of maturity and development, the DTCC takes a unique approach to solving the needs of clients. 

“When considering emerging markets in Southeast Asia, such as Thailand, Vietnam, and Myanmar, we find [firms] are continuing to evolve and strive for the same level of maturity as advanced economies, driven by pro-growth policies, a gradual rise of the middle class, and an influx of foreign capital,” Rauf says.

In March, Bangkok Bank’s asset management arm, Bangkok Capital Asset Management (BCAP), became the first Thai domestic investment manager to try improving its post-trade processes by going live with the DTCC’s central trade manager (CTM) platform. 

The CTM is a global platform for the central matching of cross-border and domestic transactions. It allows users to automate previously manual processes and handle increased volumes and added funds without tapping internal resources. 

BCAP users can enrich trades with standing settlement instructions (SSIs) when they use CTM in conjunction with Alert, the global database that maintains and communicates SSIs.  

CTM delivers straight-through processing (STP) and offers connectivity from trade execution to settlement, using direct connections to multiple order management systems via FIX and other protocols, flexible central trade matching and connection via the Swift network to custodian banks for the purposes of settlement instruction. 

Using CTM, the asset manager is able to further automate its post-trade process with almost 2,000 counterparties in 52 countries. 

The DTCC aims to enhance STP as well as to enable firms to have “minimal touch” processing for transactions. “Additionally, our integrated suite of products will allow us to offer holistic solutions that drive out the inefficiencies in the post-trade processing lifecycle,” Rauf says. 

Rauf tells WatersTechnology that operationally, asset managers in emerging markets face challenges compared with counterparties in more developed markets. “Many firms face obstacles around the service costs when comparing lower-cost labor with automated solutions, timezone differences that delay trade settlement, and domestically listed securities that may not conform to international standards, such as ISIN, and best practices,” he says.

This makes it difficult to attract foreign investors, no matter how attractive the securities may be. 

Rauf says that by using STP and sharing global best practices, firms will benefit from faster processing times and less human intervention, as well as a reduction in labor-intensive manual processes. This means they would also be able to focus their resources on value-added initiatives that contribute to operational efficiency. 

“As firms embrace diversification in their investment strategies and commence tapping into other international markets, they initially adopt two support infrastructures. One is to manage their domestic flow and the other is for their growing international flow. In time, this becomes unfeasible as the cost and risk associated with maintaining two infrastructures increase,” he says, adding that firms will then look to centralize operations to cater to both workflows. As a result, Hasan says, the DTCC has noted an increase in the number of firms aggressively seeking technology to support that strategy. 

“To a large extent, it echoes the realities of the current environment in emerging markets. These include the need to improve revenue, to stay relevant, to mitigate risks—existing and new—and to compete effectively with regional and global markets,” he says. 
 
As levels of automation vary across these markets—from semi-automated front-end and back-end platforms to manual processing environments that rely on fax and email communications—Hasan says the DTCC is focused on educating firms on the importance of automation and achieving STP. 

“Traditionally, firms from emerging markets have maintained their position in the equities and fixed income asset class. As firms develop a level of sophistication and international exposure, they are beginning to embrace the over-the-counter domain,” he says. Interaction between global firms and other markets would require those firms to consider multiple jurisdictions and regulatory requirements.