What is the new black?
Fashion experts are always talking about the new black. Every six months, the latest trends are presented. Again, it will be discussed, what is the new black? If a fashion designer does not have the new black in the collection, the company is in deep trouble. But what is the new black in the financial industry and how about time to market for a financial infrastructure company like a CSD? In this interview, the CEO of VP SECURITIES shares his thoughts and vision for the future CSD.
The broad range of products and services in the financial industry are not replaced every six months. However, just as fashion there are trends and an eager to predict next year’s killer product. And the pace of new launches accelerates sharply. In financial infrastructure, a company traditionally has been able to plan years ahead when considering new services. But, that is so last year to paraphrase the fashion experts.
Add to this that 23 CSDs have chosen to join ECB's pan-European platform for securities settlement, which will bring competition to the market for CSD services. In this perspective, how do you see the future for the financial infrastructure?
“The old fashion CSD is a phenomenon of the past. This is because national rules are replaced with European regulation. When CSDR, Central Securities Depository Regulation, is implemented, it will be the end of national monopolies and the trailblazing wind of liberalisation will sweep through the European CSD landscape. Driven by T2S, national standards has been replaced with harmonised processes across Europe. Where changes in infrastructure previously followed the major macroeconomic cycles that may change every fifth to seventh year, the speed of change is on a very different level in a liberalised market. VP SECURITIES (VP) is well positioned for the competitive market as agile and quick to respond to customer requests, and we're going to see some rather dramatic changes in CSD services in Europe. In the short term - one to two years – there will be established new CSDs, and some CDSs will specialise in selected areas such as funds or Eurobonds," says CEO Niels Olsen, VP SECURITIES.
How will this specialisation affect the banks?
“For customers, it can be a challenge, if they are to use one CSD for Eurobonds and another CSD for equities. Today, most banks are connected to one or only a few CSDs. Connecting to a CSD and maintaining the communications network to that CSD is not an insignificant cost. Banks are looking for simplification but will probably not put all eggs in one basket, but they will on the other hand neither pay for connection to all European CSDs. The banks, our customers, want access to the best and most efficient CSD services. VP excellences in segregated accounts for optimal protection of the end-investor. But we are not particularly strong in collateral management.”
“Therefore, my expectation is that the customers will put pressure on the CSDs in an effort to get the CSDs to work together to deliver the right mix of services to the customer and the end-investor, and we are prepared to collaborate with other CSDs if that is what the customer wants. VP will also establish links to other CSDs and by that fulfil the banks’ desire for simplification hence they can gain access to several CSD services and markets through a single point of communication with VP," says Niels Olsen.
Establishing competing infrastructure is relatively expensive, so whom will enter the CSD market?
“It will only be major financial players whom will be able to create a specialised CSD which handles a selected segment of securities. In the short term, supply will increase, and we will see new constellations of cooperation. The strength of the new specialised services and the constellations will eventually lead to a consolidation among CSDs," predicts Niels Olsen.
What will the benefits be for the banks?
“Partnerships is all about creating value - both for the customer and the customer's customer. New and specialised CSDs will increase supply and the competition between CSDs will lead to new innovative solutions that we do not even know of yet. In addition, customers will prosper from new solutions and fierce competition.”
"T2S and CSDR will lead to radical changes in the market, and customers will experience the benefits of harmonisation, standardisation, simplification, cost reduction and access to T2S. It will simply be easier to be a customer in a CSD, and it will release resources at our customers to improve their competitiveness and to develop new products to their customers," says Niels Olsen.
VP is today a part of Europe with access to T2S. The other Nordic CSDs are not part of the T2S community. Will lack of T2S lead to difficulties for the Swedish and Norwegian financial sector?
“VP has close ties to the North, and in 2017 we will be ready to provide CSD services in Swedish kronor, SEK. Hence, VP is positioned as the natural link between the T2S and the Nordic, and VP will develop services based on the best of both worlds together with banks and mortgage banks.”
"But it does not mean that VP will develop all the new services in the old fashion proprietary manor and deliver within a timeframe of two to three years. We must reduce time to market and deliver new services quickly and efficiently, and partnerships with both banks and other CSDs is the key to the fast-paced business environment."
We started in the fashion industry and we will finish off in the same lingo. CSDs must learn to speed up to support their customers – banks and custodians – in their pursuit of constantly pushing new and innovative products to their customers. If the customer’s customer want new services every six months, then the CSD must speed up and deliver. Just like the fashion industry. Does this lead to the fact that time-to-market is the new black?
“The pace is not a trend. It is simply the new normal if you want to be a significant player in the market for CSD services. If you cannot provide a comprehensive collection, you must find partners who can contribute to the solutions wanted by the customers – and the customer’s customer. Therefore, partnership is the new black,” says Niels Olsen, CEO at VP SECURITIES.