About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

The Post-Trade Challenge for Market Makers

Subscribe to our newsletter

Brian Collings, CEO at Torstone Technology.

Market makers, critical to providing fast liquidity to both retail and institutional financial firms, are facing new challenges in a rapidly changing market. The global economy is becoming increasingly interconnected and borderless, particularly in the emerging digital asset space, and market makers are no different. As volatility and trading volumes increase, firms are needing to manage huge shifts in their operational infrastructure in the post-trade space to remain resilient and competitive.

A consequence of this shift is that we’re seeing developing trends in how market makers are thinking about their post-trade needs – ensuring they are able to keep pace with the huge influx of new customers as we enter a challenging period in global markets when access to liquidity will be more important than ever. As market makers adapt to a new market, so are we – finding innovative new ways to accurately process and report such a high volume of transactions in real-time, all in a blink of an eye.

Volumes on the up

The breakneck pace of change has been a major challenge for market makers over the past decade. Traditionally, capital markets firms were focused on one single corner of the market – whether FX, fixed income or equities – but as investment firms and retail traders increasingly explore new asset classes and trading strategies, modern market makers have spread across multiple asset classes and regions to satisfy demand for single sources of deep and varied liquidity.

A recent added layer of complexity has been the emergence and adoption of cryptocurrencies as an asset class, which has also led market makers to further expand their business operations as trading volumes have ramped up.

Driven by market electronification and an explosion in retail trading participation and volatility, the market’s rapid growth in such a short period of time has put legacy infrastructure under immense strain and in some cases has proven it to be inadequate to deal with such significant volumes.

Faster settlement

Not only are business operations more global and cross asset – they are also having to become faster than ever. As well as dealing with much greater volumes, market makers are also having to contend with regulatory and client demand for faster settlement.

Speed and flexibility are vitally important for market makers and their partners. Notably, over the past two decades, capital markets have seen a drive to increase the speed at which trades are settled. The US is currently undergoing a drive to reduce the settlement cycles from a two-day settlement cycle to T+1.

A reduction in the settlement cycle will likely be a good thing, acting as an accelerator of change by encouraging the creation of capital, reduction of balance sheet risk and providing an opportunity to drive better processing and innovative use of technology for the market.

It does however add a layer of complexity for market makers and their service providers, in preparing their systems and infrastructure for a far shorter settlement time but also in navigating different requirements across jurisdictions. A key consideration for global market makers is therefore how to handle different regulatory requirements in all regions they operate, where specific rules and settlement times could differ.

The opportunity in post-trade

Market makers are adapting to these changes through greater levels of automation, faster settlement, and adopting more interconnected systems, by reducing their legacy architecture.

Cloud-based modular post-trade architecture has proven to be able to handle huge volumes  while giving firms the flexibility to add new assets, regions, and technologies as they adapt to fast changing markets. Legacy systems have become engrained in firm’s architecture but in many cases are posing a risk, as the weight of global demand stretches them beyond capacity.

Modern market makers are some of the most sophisticated firms in capital markets, but they need to think carefully about their post-trade needs. Front office demands, from reducing trading latency to increasing access to liquidity will always be a primary concern, however ensuring their architecture is scalable and built future-proofed should not be overlooked.

Cloud-based SaaS platforms are the answer for market makers, allowing firms to easily bolt on powerful technology to handle highly complex and intensive post-trade processes, while allowing them to focus on their trading technology. In a fast-changing world, cutting operational complexity to contend with uncertain markets is more valuable than ever.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Enhancing Buy-Side Trading Efficiency: Navigating Interoperability and AI in Real Workflows

Enhancing Buy-Side Trading Efficiency: Navigating Interoperability and AI in Real Workflows Emerging capabilities in AI and interoperability are transforming trading workflows, with the promise of heightened levels of collaboration and personalisation resulting in greater efficiency and performance. The potential of these new technologies is encouraging financial firms to modernise their trader desktops and streamline operational...

BLOG

FactSet Releases LLM-Based Knowledge Agent for Junior Bankers

FactSet, a digital platform and enterprise solutions provider, has released the beta version of FactSet Mercury, a knowledge agent based on a large language model (LLM) and designed to power digital workflows and enhance fact-based decision making. The solution optimises company research workflows for junior bankers, offering a single, trusted conversational interface to access key...

EVENT

AI in Capital Markets Summit London

The AI in Capital Markets Summit will explore current and emerging trends in AI, the potential of Generative AI and LLMs and how AI can be applied for efficiencies and business value across a number of use cases, in the front and back office of financial institutions. The agenda will explore the risks and challenges of adopting AI and the foundational technologies and data management capabilities that underpin successful deployment.

GUIDE

Putting the LEI into Practice

Hundreds of thousands of pre-Legal Entity Identifiers (LEIs) have been issued by pre-Local Operating Units (LOUs) in the Global LEI System (GLEIS), and the standard entity identifier has been mandated for use by regulators in both the US and Europe. As more pre-LEIs are issued ahead of the establishment of the global systems’ Central Operating...