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Asia clearing and settlement roundtable
18 August 2011
Rewriting the rule book - Asian regulators may apply lessons from the US and Europe when developing their clearing and settlement infrastructure. Or they could go their own way, writes Alastair O'Dell
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Vine: It’s not just clearing and settlement and it is not just about cost – there is a client service element. The clients that have appointed HSBC as their broker outsource provider have done so to enable the rationalisation of operating costs and focus on their core competencies such as research, trading and investor servicing. We are definitely seeing more demand in the pipeline and it isn’t just on clearing and settlement activities, it’s the total package including various standard and bespoke reporting activities and client servicing.
Chair: What is the preferred route: outsourcing locally or offshoring?
Vine: Offshoring is getting more costly. Previously, the industry focused on outsourcing to India but today, because costs are increasing, the focus is on other locations such as Sri Lanka, the Philippines and China. But the question is how long will it be before these are to get to the same stage as India? In that case, it could be cheaper to do it at home.
Nelson: People are a lot savvier about it now. In the nineties and noughties we looked at off-shoring options and thought ‘Fantastic! I can hire 20 people for the cost of one and I’m going to save millions,’ but then five years later those savings failed to materialise and often people have ended up with increased costs. Now there’s a preference to put things back onto a technology platform and a disbelief in business process and knowledge process outsourcing. People setting up a straight through processing (STP) solution want to know it is not going to bite them in five years.
It is about adaptability in Asia at the moment as the pace of change is accelerating. By the time you realise you need to build it, it’s too late because the market will have moved on by the time you’ve built it. This is where international heritage comes in – the richer your international set of solutions, and the closer you are to the ground here, the more able you are to respond to an emerging need. That’s going to be the difference over the next five years.
Grimonpont: The ability to successfully adapt your business model is linked to knowing your clients’ needs and being prepared to deliver the right service at the right time. You need to know what they need before they need it – otherwise you will be too late. There are so many providers from which clients may chose that the risk is that somebody else will be faster than you to deliver what the client needs. So, you need the right model in place to understand your customers better and faster.
Chair: How much effect have dark pools had on exchanges in the region?
Vine: The dark pools certainly bring opportunity. In the US it’s fairly straightforward but the same cannot be said for Europe. In Europe, there are no vertical silos and we are seeing multiple clearing and central counterparty entities aligned to the ever-growing number of alternative trading venues. There are already some dark pools in Asia and the market would not benefit from following Europe’s model.