Broadridge
AST talks to Robin Kneale and Robert Harris of Broadridge about their attitude to the post-trade space, and the silver lining to regulation
Can you describe your career up till now, and current role as head of strategy?
Robin Kneale: I’ve been in financial service supply for about 30 years. I joined a consultancy, long since gone, in London when I finished at Oxford, came up through the development path—business management, project management—that route. Before Broadridge, I was working for what is now a part of SunGard. I’ve been at Broadridge for 15 years as head of strategy and product management for the international processing business outside of North America.
We work with other strategy groups and report to Tom Carey, seeing what we should be doing in the future, and places we’d like to be involved in. I’m based in London, and there’s a reasonable amount of travel involved. It is important to be face-to-face when you’re talking about things that can be quite conceptual.
Could you provide a rundown of Broadridge’s approach to the post-trade space?
Kneale: We have a two-pronged approach. To start from the top, the intention is to provide a global capability for all the major asset classes. The capability is global; a broker should be able to come to do their deals in their trading system and pass them to Broadridge for matching and settlement; and it shouldn’t matter which market those trades were executed on or whether they need to be settled domestically or internationally, we would have the capability to process them.
In terms of assets, we have a very long history of processing in the equities and fixed income space, and we’ve recently extended our platforms to cover foreign exchange, money market, exchange-traded derivatives and some of the most frequently encountered OTC derivatives. The intention here is that you should be able—in the back office at least—to have a consolidated processing platform. We have to understand the nuances of different markets in able to offer this consolidation to the client, along with the operational controls that they need.
What do you need to consider in post-trade processing that can be overlooked in pre-trade and trade? Which cycle is most complex?
Kneale: It’s a little bit of a generalisation, but the important thing in the back office is that you need complete accuracy; all the details of the trade. You need much greater richness in your reference data, a lot more information, an ability to get at that information, and connections with the outside world that allow you to receive data and to reconcile. Accuracy ensures matching and settlement. Front- and back-office processing are very different kinds of animals and I wouldn’t claim one is more difficult than the other, just different.
With the advent of central counterparty interoperability in Europe, would you agree that competition in the European post-trading environment is finally starting to kick off?
Kneale: I think it’s early days to say that, and it is very difficult to know. We’ve had a number of initiatives driven by the European Commission in the past that aim to stimulate competition, but in practice, because the costs of doing business have increased, they have tended to consolidate the players in the market, and that has perhaps resulted in less competition.
How are you extending multi-asset capabilities of Broadridge’s solutions?
Kneale: Within the international business, we’re focusing most specifically on exchange-traded derivatives. What we have now is a capability that we believe is competitive with other exchange-traded derivatives systems in the post-trade space, but with the added benefit of being a strong, single solution across multi-asset operations. We’ve also strengthened our capabilities around FX and money markets. The acquisition of City Networks two years ago brought with it matching and reconciliation capabilities, and advanced messaging in this space, and we have interfaced and integrated these capabilities.
The other main thing for Broadridge on the global front is our acquisition of Paladyne on the buy side, offering a multi-asset buy-side platform. Through a combination of acquisitions, we’re increasing the number of people who are experts in treasury and derivatives, and also increasing the capabilities of our solution range.
How have you expanded your BPaaS (Business Processing as a Service) solutions beyond traditional securities processing?
Kneale: The focus is still on securities processing as that’s our absolute core competence. We are extending beyond that to obvious functions such as reconciliations. However, as soon as they are live, clients often want a single competence centre for reconciliation more generally, so that very quickly broadens out into other asset classes. Clients are saying that if we take their back-office duties for securities, they are still left with these functions on platforms that are not the Broadridge platform, so we are being asked to provide BPaaS based on those platforms too, the combination of what we term platform and non-platform BPaaS services, which provides a compelling offering.
What are the biggest market challenges you’re seeing this year?
Kneale: The state of many areas of the economy today gives our clients difficulties; both in terms of profitability and predictability. This climate means that a lot of tier 1 players are reviewing their operating models, which make for long conversations before they come to a conclusion. That is of course potentially very good for us, but they’re long conversations, and it is big effort to be involved in them, which we are.
What is your career history and current role at Broadridge?
Robert Harris: I’ve been with Broadridge since the acquisition of City Networks. City Networks had a very strong profile and client base within treasury, and I had more of a securities background, so I joined that particular company to expand their presence in the securities market. Currently, I’m in charge of both managing the reconciliation and matching products, and developing the strategy of where we think the solution should be going. Prior to Broadridge, I was at SunGard for a couple of years, where I focused on global custody, and before that I had a sales role in a different industry vertical.
Which one regulation is giving your clients the most concern?
Harris: Generally, we’ve always looked quite hard at ways that regulation would help our solution. Regulation, even going back to Basel II, has contained certain elements that we thought our solution could potentially solve, so there’s always been a link. Currently, one of the main concerns is the US Dodd-Frank Act, where we are getting involved more directly, and Europe of course has the European Market Infrastructure Regulation, with the requirement there being to provide transparency to the central depository about all trades taking place. I think it’s an honourable thing, because there’s too much going on without people being able to see the risk and exposure of any one particular organisation.
In comparison to previous regulations, Dodd-Frank is reasonably well understood. Large organisations typically already have a team that is dedicated to its comprehension, although I suspect that some may be challenged by the short deadline. But I still think there will be a number of smaller organisations that will be caught out and I assume they’re going to have to find some more manual, time consuming workaround in order to meet regulatory deadlines.
In the past, we were quite surprised at just how unprepared some firms were in terms of regulatory change, but maybe in light of what we were talking about, the regulation had a less direct relevance to our solution. This time we’re finding the people we’re talking to about our solutions are in the know, and you could argue that this is because these regulations coming in are at the level of our products and where we pitch them.
Similarly in an earlier period, I think that some institutions may have done the minimum possible in order to comply. That, we think, may be changing. Due to the well-known cases in the press, we’re noticing a transition in that shareholders and trading partners actually probe a lot deeper in how an organisation controls its business. It’s now become much more of a marketing or self promotion activity where actually, just doing the minimum doesn’t make you stand out.
Do you create solutions off of the back of regulation?
Harris: Until recently, we haven’t built reconciliation and matching solutions specifically in light of legislation, but our solutions are very well positioned to help firms meet some of their Dodd-Frank obligations. I think that the controls around regulation are now at a much more granular level; understanding every transaction that goes through—whereas in the past they were much more high-level, capital adequacy controls. Now, we’re seeing a demand that every trade is conducted in a standardised way. It probably goes along with the advances in technology. With the volumes in trades, 10 years ago it would be far less achievable to have this very detailed data warehouse in place.
In 2010, Tom Carey said that Broadridge “continued to witness unprecedented demand in Asia”. Are you still seeing expansion in the region?
Harris: We’re still growing. Europe and America have been more mature markets when it comes to our reconciliation and matching solutions. We have been present in Asia for many years and there are still many new opportunities opening up. We have a very good name there, from our City Networks days and now from Broadridge, and we have a good local presence in many of the markets. I’ve spent quite a bit of time in Indonesia, and in Australia we’ve gained our first client in Asia for solutions that are entering the market and coming to Australia first. It can be harder to break into some markets where we’re up against established local providers that have been in the market for a very long time, although we have had some strategically important sales in Japan recently.
Two years ago, our reconciliation and matching solutions were only in English and Latin languages, and now the content and all the screens can be translated into double-byte characters. We’ve broken down the local presence, the cultural barrier, and now the growth is starting to increase.
Do you think there is over-regulation, or is it a necessary reaction to the crises in the last five years?
Harris: I’d be very brave to say that there was! I think that was the thinking two years ago, but the evidence is that it could have been more effective. I would say no, there hasn’t been over-regulation. The self regulation that people were talking of clearly didn’t comprehensively work, and with the central depositories, central counterparties around derivatives, we’re not seeing the reactionary responses that we might have seen a while back. In my opinion, the granular type of control, where we have a very transparent view of all activities going on, where they can be monitored—if necessary—by the right kinds of organisations—is the way to go, rather than trying to put in some high level controls.
Are you looking at developing any new services in response to regulation, and what current services are you expanding on?
Harris: One area we are looking at is again around Dodd-Frank—how we can help financial institutions to easily connect to all of these reporting houses where they may wish to do business. They won’t want to restrict how they do business based on the overhead of the multiple connections. So connectivity is a barrier that we can help with, by not imposing restrictions. If they want to deal with a certain market in a certain way, which by implication means that they have to satisfy local markets and reporting requirements, then we have solutions for that.
