Redefining CCP Technology

As proven during the most volatile days of the pandemic, CCPs (Central Counterparty Clearinghouses) are vital to the stability and success of global financial markets. At this year’s virtual Technology of the Future (ToF) conference, Anna Theorin and Louise Ramstedt, the leadership team behind Nasdaq’s suite of CCP products, offered a timely assessment of the key trends influencing the industry and shared how Nasdaq’s continued investment in technology is fueling the next generation of CCPs.

In today’s demanding CCP landscape, the main trends shaping the industry can be divided into three categories: regulatory requirements, evolving client demands, and technology, where there is a long overdue shift from monolithic, legacy systems to modular solutions better fit to serve dynamic and rapidly changing markets.

While the burden of regulatory requirements on CCPs might seem heavy, they are also a major contributor to the strong position of confidence that CCPs have in the industry and the wider society. Regulations are expected to continue being a critical enforcer, requiring CCPs to have flexible technology solutions in place that allow them to cope with ever-changing requirements. In the client demand category, clear trends are that CCPs and their members are seeking new, modern ways to interact, and a move towards standardization to improve access to data and enable more cost-effective analysis. Standardization will also allow for what Theorin referred to as cross-functionalization, enabling collection of information across different vendors and systems to improve decision-making, and allow for efficiency wins such as cross-asset margins in order to utilize collateral in a more efficient way. In the technology category, a growing interest in cloud transformation stands out as a prominent trend, as a means to support much needed technology upgrades and to become more resilient and efficient. Furthermore, many see a move to the cloud as an opportunity for their organization to focus on developing the core CCP business rather than spending resources on maintaining and scaling hardware and infrastructure.  

It is against this backdrop of rapidly shifting industry expectations and client needs that Nasdaq’s investment strategy is based, most notably in continued build-out of the Nasdaq Financial Framework (NFF). NFF offers industry-defining capabilities in messaging, data centricity and modularity, and provides commonality across Nasdaq’s market technology product portfolio in operations, data access, security and user experience. NFF “allows each product domain to specialize in providing best practices and standardized flows, facilitating end-to-end solutions,” said Theorin. The NFF architecture separates interoperable business applications and caters for product and client-specific extensions, all using a set of shared services for security, reference data, scheduling, workflows and data services. This allows Nasdaq to provide robust and functionality-rich solutions that can reduce time for testing, limit the impact and cost of upgrades, and ultimately shorten time to market.

Further to this, Ramstedt stressed the important role of APIs to support well-functioning ecosystems, and how Nasdaq is standardizing its use of APIs, selecting those that are easy to maintain, adopt and consume. Both internally, for communication between business modules within the clearing solution, as well as externally, for efficient communication with trading venues, clearing members, CSDs and banks. 

In addition, Nasdaq continues to invest in flexible deployment options, which include on premise, full cloud and hybrid solutions. Today, while most of Nasdaq’s clients’ solutions are on premise and self-managed, Nasdaq sees a significant advantage in having increased flexibility in determining which business functions and processes remain on premise or in the cloud, allowing clients to dictate the strategy and terms of a move to the cloud. For the foreseeable future, cloud transformation will continue to redefine operations and enable organizations to become more flexible and agile while improving client services, for example by serving clients with test environments to run portfolio what-if scenarios on demand, using live data.

Equally important is Nasdaq’s investment in its data platform with three primary areas of focus. First, the data should be easily accessible via a user interface, traditional reporting or an API. Second, to optimize data utilization, the data must be consolidated and presented in the right format for the user to ensure maximum customer benefit. And third, machine learning is integral to identifying certain events or patterns to predict future events or outcomes.

The fourth main area of investments presented in the session was the ongoing optimization of business capabilities. Ramstedt highlighted the benefits and efficiency gains of running a multi-asset clearing or risk system in terms of consolidation of user interfaces and APIs, both for the CCP and its members, as well as of data, and cross-margin abilities enabling better utilization of collateral. CCP risk and collateral management is a dynamic, and in some instances debated area. Nasdaq has invested in further developing several areas in its CCP risk management tool to help CCPs manage the growing demands and complexity in this domain. The ability to monitor risk and collateral in real time improves the basis for decision-making. Further to this, it includes a range of sophisticated risk management workflows, and the selection of margin methods available in the system supports multiple asset classes and instruments. Ramstedt stressed the possibility, used by several Nasdaq clients, to implement the risk module stand-alone to achieve the benefits of cross-asset risk management across multiple legacy clearing systems.

Nasdaq supports more than 20 CCPs globally with core technology solutions. With change being a constant in the world’s financial markets and the important systemic role of CCPs, it stood clear that the focus for Theorin and Ramstedt is on supporting the “CCP of the Future”. In summary, this boils down to:

• Providing a robust platform with standardized interfaces that streamlines onboarding of new members, business modules and external connections.
• Providing flexible deployment options so that CCPs can choose to host their core technology on premise, in the cloud or with a hybrid setup.
• Making data easily accessible to support informed decision-making, efficiency gains and transparency.
• Providing robust and sophisticated CCP risk management tools.

If you are a Market Technology customer, please click here to request access to the full ToF presentation and learn more about the Nasdaq CCP Technology and specific use cases.

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