Transformative industry changes are bringing new ways to understand customers and markets

By Tom Price

Data management, cybersecurity, AI and machine learning, blockchain and distributed ledger technology: when SIFMA hosted its 2017 Operations Conference and Exhibition in Florida, technology, regulation and compliance operations dominated the discussions. Over the last few years, questions on the transformative potential of technology together with the culmination of initial experiments, promising proof-of-concept projects, and analysis of early results have driven the financial services industry to go beyond simply asking what emerging technology can do. At OPS 2017, there was a shift to more pressing questions:

  • Which new technology will have successful practical applications?
  • How long until we can implement it?
  • And how do we, as market participants and regulators, manage the new risks that come with advancing the capital markets while maintaining resiliency?

These questions are key, not only for emerging technology but also for important changes taking place right now, such as the Consolidated Audit Trail (CAT).

Consolidated Audit Trail:
CAT continued to be a hot topic of discussion at this year’s gathering. After years of planning, Thesys Technologies LLC was selected in January to build the new system. Participants discussed what the implementation of the CAT would mean for their operations and specifically the significant sunset of OATS by FINRA, which could take several years. As development continues, SIFMA is engaged with Thesys on allocations, equity and listed options orders and executions, and firm-designated IDs. 2018 should be a consequential year for this major industry effort.

Blog-2017 OPS Regulator Panel

SEC’s Gary Goldsholle, Deputy Director of the Trading & Markets Division, confirmed: “After CAT data reliability is verified, we will look to retire duplicative systems like OATS.”

Compliance Operations:
Although the new administration is focused on reducing regulatory complexity across all industries, including capital markets, the breadth and sheer volume of regulation continues to grow. As revealed during the IBM Watson presentation, it is estimated that by 2020 there will be over 300 million pages of regulations related to the financial markets. Industry participants are looking forward to cognitive solutions powered by AI and enhanced machine learning technologies to help manage the load and keep costs under control without sacrificing compliance and surveillance efforts.

With the rapid introduction of new services – such as robo advisors and other automated investing solutions – attracting new and existing clients into the capital markets, the drive to automation has continued to accelerate. This growth, a positive for the industry, has also increased the need for smarter and more effective solutions in areas of client services, surveillance monitoring, Know Your Customer/AML programs and perhaps most importantly, the safeguarding of client and corporate data.

Blog-2017 OPS Leadership Panel

“You can’t be shy about using these new technologies because we need to start evolving our process” – Maggie Serravalli, executive vice president of client experience for Fidelity Investments’ institutional group, on her organization’s small steps toward AI for value-added services.

Regulator Priorities in Operations:
Regulators continue to focus on cyber threats and business continuity planning, with the Fed citing data risk, collection and quality as top priorities. With the implementation of the CAT on the horizon, data management and integrity will remain a high priority going forward. The SEC addressed the topic of access controls for the CAT system and related participant confidentiality issues. The CFTC is focused on cross-border regulation of swaps trading, while at the same time trying to slow down new rulemaking so they may review the existing rule set. Responding to changes in the municipal market, the MSRB confirmed that it is exploring whether their Electronic Municipal Market Access (EMMA) system can be used as a compliance vehicle in addition to being a transparency platform.

Outlook for 2018:
In a joint Q&A session with SIFMA President and CEO Kenneth E. Bentsen, Jr., SIFMA Chairman Timothy C. Scheve shared his perspective of the industry today: “I believe the current outlook is positive in a lot of ways – we are experiencing steady market growth, positive initiatives to curb over-regulation, and an overall healthy economic climate driven by consumer spending.”

Blog-OPS 2017 SIFMA Chairman, SIFMA President & CEO

“Our ultimate goal – to promote a robust financial system that spurs economic growth, job creation and investor opportunity – is unwavering.” – SIFMA Chairman, Timothy C. Scheve

As we look forward to OPS 2018, we anticipate being able to discuss the practical applications of breakthrough solutions in support of our industry’s growth in a safe and sound manner. But it’s not just about enhancing infrastructure, better reporting, and improving the delivery of products and services. As Randy Snook, SIFMA’s Executive Vice President of Business Policies and Practices, observed at this year’s conference, these developments – triggered by the FinTech revolution – are the introduction of new ways that firms can understand their customers, their businesses, and the markets as a whole.

Mark your calendar to join us for OPS 2018: May 7-10
JW Marriott Phoenix Desert Ridge, Arizona

Thomas Price is Managing Director of Operations, Technology and BCP at SIFMA.