Shaping the Future of Post-Trade: Innovation Driven by Market Demand

In the second of a two-part series, Michael Wilshere, commercial head of FX and rates trade processing at OSTTRA discusses the changing shape of post-trade and how market demand is shaping future innovation on OSTTRA MarkitWire and beyond.

like many parts of the financial services ecosystem, the early mechanics of post-trade were characterised by siloed services, manual processes and clunky technology. Faxed trade records and couriered derivatives confirmations were commonplace. Today, however, the post-trade landscape looks very different, driven by the push and pull of regulatory change and client demand.

OSTTRA has played a key role in driving transformation and helping firms adapt. Its offerings span multiple asset classes and steps in the post-trade lifecycle – from trade capture and confirmation, through portfolio reconciliation and margin management, to risk and capital optimisation. At the heart of the firm’s network is the OSTTRA MarkitWire trade processing platform, which has been evolving continuously for more than 25 years to streamline and automate rates and equity derivatives trade workflows.

Michael Wilshere outlines some of the key innovations that are shaping the future of post-trade processing.

Key Trends in OTC Derivatives and Demand for Post-Trade Services

If we look at the more established markets, customers in the UK, europe and the US are still balancing regulatory compliance with the drive for frictionless trade, especially given current market volatility arising from elections, macroeconomics and trade policies. They’re looking to providers like us to resolve breaks, disputes or connectivity issues.

We’re addressing this by introducing functionality in the cleared and non-cleared spaces. For example, packaged trade functionality in clearing ensures all trade legs are processed (cleared or rejected) simultaneously. And, in the non-cleared space, we are focusing on matching accuracies, such as where breaks occur in date conventions or where there are different accounting conventions on the trade.

In emerging markets, we’re seeing different trends. Clients there are looking to move into the centralised networks we provide to benefit from our products, workflows and functionality. Additionally,they require nuanced local market solutions,such as moving their paper workflows to electronic templates. We’ve introduced currency support in the Middle East – Saudi Arabia and the United Arab Emirates – and, this year, we’re working with customers in Latin America to introduce inflation-based swaps in Chile.Advocating for the move from manual to electronic processes remains a key theme for this segment.

More broadly, we’re partnering with upstream venues, downstream clearing houses and regulatory jurisdictions to ensure customers benefit from efficient end-to-end workflows.

Impacting Regulatory Initiatives

The Ibor transition and Basel benchmark reform have driven much of the activity over the past six or seven years. this has brought new risk-free rates into the post-trade landscape.

OSTTRA: Connecting Clearing, Optimising Portfolios and Unlocking Data Value

Currently, we have connections to 12 central clearing counterparties, and we’re looking to enhance that through packaged clearing, which is being rolled out in conjunction with industry partners. We’re also speaking to newer clearing houses to bring them into the network, giving clients more optionality. We signed a memorandum of understanding a few months ago with Muqassa in Saudi Arabia – our first clearing house in the Middle East – offering access and workflow solutions across emerging markets.

Further downstream, within our lifecycle events, we have a reconciliation tool called OSTTRA triResolve.When customers look at reconciliations, they are always referring back to the principal trade confirmation or trade match. That’s available through our trade processing services, within rates, on OSTTRA MarkitWire, so we have connected the reconciliation process to the platform. We’ve completed this with more than 150 customers – there’s a lot of demand – and we’ll continue to look for ways to make post-trade markets more efficient.

Maximising Value in Post-Trade

I’d agree that post-trade services are sometimes viewed as an unavoidable cost to the bottom line, but there are examples where I think we are providing a new narrative. A prime example is OSTTRA’s initiative in uncleared portfolio optimisation, specifically concerning FX processing and cross-currency swaps. Here, we’re leveraging multiple products within OSTTRA by connecting OSTTRA MarkitWire to downstream services for mark-to-market valuations and settlement processes. We’re taking clients on a journey from a ‘collateralised to market’ methodology to a more advanced ‘settled to market’ one. This approach will significantly enhance counterparty risk mitigation but will also help eliminate ‘in transit’ collateral costs. Work is under way to help define the mechanics,the rule book and the first set of client use cases.

this is an example of where we are introducing a new workflow and maximising value within the trade lifecycle, rather than it being an ‘unavoidable cost’. The journey effectively mimics some of the margin efficiencies typically seen at clearing houses but, critically, these benefits are achieved within the non-cleared space.

Data for Decision-Making

One of the more established offerings is the Material Economic Terms service. This provides US swaps dealers with files detailing the economic terms of a trade, which they are required to disclose to their counterparties. OSTTRA MarkitWire manages the template and legal confirmation, which we feed back via swap-dealer systems and their own websites, ensuring dealers meet these transparency obligations.