A few short weeks ago, I had the opportunity to take part in the World Forum of CSDs in Hong Kong with over delegates representing CSDs across the globe. It was a great opportunity to meet representatives from different markets, compare challenges faced and also share similarities among those challenges. Through three intense days, there were many lessons learned and opinions voiced on what would bring CSDs into the next generation. Different from past years, these discussions did not hinge on regulatory initiatives and risk management, but instead on forward-looking issues associated with applicability and usability of new technologies. Such a refreshing and positive approach!
As a preamble to the conference, Nasdaq hosted a networking session where I presented some of our recent initiatives together with clients in the fintech area, e.g. e-voting, mutual funds and issuance and settlement for OTC traded structured products . As a bonus, we had Göran Fors, SEB’s sponsor of the mutual fund initiative as a guest speaker! Not surprisingly, fintech and how new technologies will shape the future of the CSD industry, were key topics throughout the main conference. During the various sessions, I got the feeling that CSDs are finally changing their viewpoint on these new technologies (e.g. blockchain) and considering them as enabler of more efficient processing of existing and new services, instead of a threat to their existence. This is a mentality that badly needed to change in order for progress to occur in an area with deep legacy technology challenges.
AGE OF DIGITAL CSD STRATEGY
I had the pleasure of participating in the digital strategies panel, where I noticed this shift and change in attitude towards technology. When we reached the end of the discussion, I think we all agreed that a digital strategy is just a new approach to what we historically have called business and IT strategy respectively, which used to operate more like a waterfall process, with business feeding technology the requirements. With new technologies at hand, some of them in an early stage, there must be close collaboration between business and IT strategies, and the teams must take an iterative approach together -- almost like an experimentation approach -- in order to conclude the right way forward.
The concept of experimentation was mentioned several times during the conference. I think we should all consider how an experimentation approach might work within our organizations as we must together learn and understand where we can find benefits within new technologies and the processes surrounding them.
Context was another important concept discussed within digital strategy and not necessarily just the overall market context but also the status of the ecosystem where the CSD plays a pivotal role. How mature is the ecosystem(i.e. banks, investors, issuers etc.) in the digital transformation process? The ecosystem plays an important role in how successful CSDs will be in introducing new, digital processes and services. As mentioned above, the core services of a CSD are highly regulated and the requirements for robustness and security are stringent. Hence, another important aspect in defining your digital strategy is to identify an isolated area or service (e.g. an add-on service less regulated) where a certain level of experimentation is more suitable, and that won’t affect the surrounding community in a negative way.
Partnership. Digital strategy. Experimentation. This is the future for CSDs.
I am greatly looking forward to seeing where digital transformation and new technologies have brought the CSD industry at the next WFC in 2019!
If you’re interested in learning more about Nasdaq’s views on transformation and CSD capabilities, you can contact me here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
