Capital Markets Look to AI
Artificial intelligence is likely to bring benefits in post-trade processing for capital markets before distributed ledger technology such as blockchain is widely adopted.
Vijay Mayadas, head of strategy and fixed income at Broadridge, told Markets Media that post-trade processing in capital markets generates huge amounts of data so workflows will benefit from intelligent automation and machine learning. He said: “There is huge interest in tackling the 5% of exceptions that cause 95% of settlement failures and costs. We are running a number of pilots and expect adoption sooner than blockchain.”
Mayadas is responsible for strategy, acquisitions, partnerships and growth-related activities at Broadridge including the firm’s blockchain initiatives. He continued that priorities for this year include AI, the use of the cloud to host applications and ensuring that two blockchain projects get up and running.
Broadridge is testing the use of blockchain for proxy services, allowing shareholders to vote, and in the fixed income market with repos. In September last year Broadridge spent $135m in acquiring the technology assets of Inveshare and entered into a development agreement to use these assets to develop blockchain applications for the proxy business. The state of Delaware, where many US companies are registered, is working on legislation that would allow the issuance of digital shares using DLT and smart contracts.
“We will make an announcement on global proxies in a few weeks,” added Mayadas. “The repo pilot has been running with clients for four months.”
In the US the Depository Trust & Clearing Corporation, the post-trade market infrastructure, has partnered with Digital Asset Holdings, which develops DLT for the financial services industry, to develop and test a distributed ledger-based solution to manage the clearing and settlement of US Treasury, agency, and agency mortgage-backed repos. The DTCC is piloting DLT because its real-time information sharing capabilities will allow buyers and sellers to agree trade details much more quickly, lowering risks and costs. Last month the DTCC said the proof of concept had been completed successfully and will move to the second phase involving testing with a stakeholder working group, which is expected to be completed by June this year.
Mayadas said Broadridge’s repo pilot is complementary to the work being done by the DTCC.
In February last year Broadridge, Accenture and PwC also all formed strategic business relationships with Digital Asset. Broadridge provides technology for the Accenture Post-Trade Processing platform which aims to help banks operating in Europe and Asia-Pacific reduce costs.
About 80% of executives at financial institutions believe DLT will be transformative, will significantly impact markets, and expect their organizations to begin using it before 2020 according to a survey this year by management consultancy Bain & Company in collaboration with Broadridge.
“Nonetheless, it is hard to predict exactly when and where DLT applications will reach scale and what kind of impact they will have across markets,” said the study. “It’s unclear how the regulatory environment will evolve in different jurisdictions.”
Mayadas said: “As many financial institutions start to move beyond proof of concept testing on blockchain, and towards implementation, we are now entering a key phase in the route to adoption. With much of the industry expecting a transformative impact by 2020, firms adopting an enterprise wide approach to DLT will be best placed to benefit from the business advantage.”
After successful tests in Europe, the bank expects a fourth quarter rollout.
Firms should first crawl and then walk before they run with AI.
It no longer economical to throw bodies at problems.
As Mark Twain might say, the demise of humans in financial services is greatly exaggerated.
Exchange partners with Lucena Research to develop and validate the new feeds.