Podcast by FTF News
Seeing the ESG Requirement as a Data Challenge
Financial services firms that want to meet investor requirements for Environmental, Social, and Governance (ESG) compliance will find that it boils down to a data challenge that would be helped by greater transparency, says Todd Moyer, president and chief operating officer (COO) for Confluence, in a new FTF Exchange podcast
“An area of focus for Confluence, and I think for the industry in general, is really ESG. We see ESG a data challenge at the core,” Moyer says. “Here at Confluence we’re really focused on … making it easy to combine ESG metrics and other kinds of risk and performance indicators to streamline the integration of this into the investment and risk management process.”
This approach to the ESG requirement could be seen as the culmination of Confluence’s growth strategy over the past three years.
In November of last year, Confluence, backed by Clearlake Capital and TA Associates, acquired Compliance Solutions Strategies (CSS), a cloud-based regulatory technology solutions vendor. In addition, Confluence acquired Investment Metrics, a provider of investment data, performance, analytics, and research software solutions. And in 2019, Confluence acquired StatPro Group, a provider of cloud-based portfolio analytics, asset data services and data management tools.
Moyer provides insight into those acquisitions and the overall strategy of building, partnering, and acquiring in order to grow the company.
“We’ve hit the ground running, relative to integrating the businesses,” Moyer says. “We closed those acquisitions at the end of December and we’re already actively in conversations with the market for ways to accelerate and continue to grow the joint platforms.”
In the podcast, he also covers:
- What a Regulatory Book of Record (RBOR) is and how it is related to data management;
- The importance of advancing what is offered for portfolio analytics;
- The company’s move into the asset owner and asset allocator market spaces;
- How Confluence plans to stay ahead of fast-moving dynamics in the securities markets;
- And how clients are requiring vendors to provide APIs, open architectures, open-sourced software, and cloud & cloud-native technologies.
Could the T+1 Move Drive Up Op Risks?
The industry push to shorten the U.S. securities settlement cycle from trade date plus two days (T+2) to trade date plus one day (T+1) will end batch processing, drive operational costs down, but may cause an uptick in operational risk, says Brian Collings, CEO of Torstone Technology, in this installment of the FTF Exchange podcast series
The T+1 move will be “quite significant” for most securities trading organizations, Collings says. “I think, in a phrase, that batch processing is dead. So I think everything really needs to move to real time, event driven just to ensure all those normal checks and balances are done in time,” he says. “One of the things that we believe is that the middle office is going to play a much more active role in reducing settlement failures.”
The shorter settlement cycle, led by the Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC) has recommended that American financial services firms and markets migrate to T+1 during the first or second quarter of 2024.
While that effort will drive down costs, there may be trade-offs, Collings says.
“I think it will certainly drive down costs. I think the capital costs for sure will get driven down and I think the exposure to market risk you’ve got a smaller window that will come down,” he says. “But I think operational risk has the potential to increase with such tight deadlines, and cost of failures if you don’t get those processes right and in place in time. So I’m not sure the IT costs will come down but I think, overall, cost to a business that should be coming down.”
The podcast conversation also covered:
What Collings has learned during Torstone’s first decade in business;
The impacts of digital assets such as tokenized securities upon operations;
Torstone’s partnership with Digivault, a digital asset custody provider;
Torstone’s move into middle-office operations;
And Torstone’s product directions for 2022 and beyond?
CompatibL’s Direct Line Between R&D & Product Development
CompatibL Technologies, a cutting-edge trading and risk management solutions vendor, has established a direct line between product development and its research and development efforts, says Alexander Sokol, founder, executive chairman, and head of quant research at CompatibL.
CompatibL, which won the FTF Award last year for Best Cloud-Native Computing Initiative, bases everything it does, including product development. upon engineering and quant expertise, says Sokol, who is featured in this edition of the FTF Exchange podcast series.
“At CompatibL, this line could not be more direct. This is what we prefer and this what we worked very hard to achieve,” Sokol says. “So, for us, research is what directly leads to the product. Research is also often the reason people work with us — why we get clients. I’m very proud of our quantitative research program that’s produced multiple innovations and models and numerical methods including settlement risk … I’m continuing to work very actively with our research team as well as external collaborators on things like machine learning, models for credit risk, especially pandemic era credit risk, which is especially difficult. This is something that’s … central, and I believe that this is something that defines us.”
One of the ways CompatibL maintains its direct line between R&D and product development is through the use of the same analytical platform — “the CompatibL platform — for both research and commercial software,” Sokol says. This is marked difference from companies that conduct R&D on separate, different platforms and then hand over the software to engineers who then create the production software. “That’s not how we do it at CompatibL.”
Human Contact Is Essential for Clients & Staff
While Adenza was actually fully prepared to work in a virtual world, the importance of human contact cannot be denied, says Richard Bentley, chief product and engineering officer for Adenza, who is the focus of this FTF Exchange podcast. Adenza was created from the merger of Calypso Technology and AxiomSL in July 2021.
“So, I’ve mentioned technical readiness for the pandemic and the remote working situation,” Bentley says. “As a global, distributed software company we were well used to working in that way with colleagues in different geographies and across time zones … But I think by now we’ve all become appreciative that the ability to work at home is not just about the quality of your IT — you need space, you need privacy, you need quiet. And for some people it’s just not possible to find those things at home. And, for that reason, we did work hard to provide people who needed it with continuing access to the office subject to restrictions, of course.”
Bentley adds that benefits “professionally and personally from everyday human contact really can’t be overstated.” This has been particularly true for new members of staff and those in junior positions who often benefit from mentoring.
“What’s a quick question and a casual 10-minute conversation over a coffee in the office suddenly becomes a Zoom meeting that has to be scheduled in the calendar,” Bentley says. “So, it’s much less likely to happen than it would with people together in the same office. What that means is that people can become disconnected in this situation and that’s why regular communication becomes so much more important.”
To support that human contact, Adenza has introduced video calls for all employees, less formal virtual coffee meetups, and remote social events – all facilitated by advances in technology that were essential during the pandemic lockdowns.
“Even with the technology, you simply can’t recreate the creativity and energy of a group meeting,” says Bentley, noting the spontaneity of staff members bouncing ideas off of each other.
The podcast also covers:
How the pandemic impacted on-cloud and on-premise support of customers;
How the pandemic changed Adenza’s customer relationships, including the onboarding of new customers;
The long-term changes for Adenza;
The long-term consequences of the pandemic upon the securities industry;
And how Adenza will react to the profound changes underway across global markets.
Clients Want Firms to Get Rid of Silos
Are financial services firms more willing now to de-silo their operations than ever before?
That question was posed to Roland Brandli, strategic product manager for SmartStream Air & TLM Aurora, during a podcast that is part of the FTF Exchange series. The TLM Aurora Trade Process Control (TPC) offering won the FTF Award for Best New Post-Trade Solution.
“Definitely, de-silo is the only way to go,” Brandli says. “Apart from regulators gradually pushing into that direction, I think the biggest change is we are now in the middle of a process of transferring to instant. So, up until now, this has been always something we have talked about in the industry. But, fundamentally, the last two years and the pandemic have changed something and that is — all customers have become digital … The customer’s expectation has changed.”
Generally speaking, customers expect to have instantaneous results.
“But you can only achieve that if you de-silo. You cannot achieve that if have to you go through X amount of silos, X amount of processes, where people have to have … X amount of manual touchpoints,” Brandli says. “Apart from where we want to go it is being driven by the customers’ expectations.”
The podcast also covers:
How working remotely compels firm to view their post-trade operations in a new light;
The typical first steps and time-frame for adopting and implementing TPC;
The TPC integration layer for in-house and third-party applications, utilities, and services;
And TPC applied to regulatory compliance operations.
Clearwater’s Case for a Common ESG Metrics
Institutional investment management firms are under pressure to provide hefty amounts of ESG-related information about their funds and portfolios to clients who have environmental, social, and governance concerns. Clearwater Analytics wants to do something about that issue and other related industry challenges.
While the concept of ESG-compliant funds is easy to grasp, many investment managers are struggling to gather that ESG data in part because there is a lack of useful metrics, says Steve Doire, who is the strategic client and platform advisor for Clearwater Analytics. Diore is the focus of a recent FTF Focus podcast.
While there are many suppliers of ESG data, there is a lack of consistency in the metric, among other concerns, Diore says.
“What we’re trying to do is come up with some kind of common set of ESG metrics. It’s probably not going to make everyone happy but it will be a way to look across managers and portfolios if we can accomplish it. We’ve got a team looking at this and right now we’re in this phase where we’re actually interviewing our institutional asset managers and talking to them about just this,” Diore says. “There’s no answer right now and I think you realize this when you see this out in the market.”
Clearwater officials are also reaching out to third-party providers who are also taking on this issue. The ultimate solution from the company, which may come over the next two years, may be a combination of a third-party offering and support from Clearwater.
“I wish it was solved yesterday,” Diore says.
Clearwater, which won Best Client Reporting Solution for the 2021 FTF Technology Innovation Awards, has been gathering the major takeaways from two major survey efforts: an industry-wide insurance investment outsourcing report [ https://bit.ly/3mVDaLG ], and an internal survey that drew 1,000-plus respondents.
According to Diore, the top takeaways via the research are:
“Many asset owners, and likewise their managers, are going into new asset classes. Everyone’s hurting for yield and they’re looking in every corner for … yield and return. ” This includes private asset classes;
“There’s a need to aggregate this information. So, if you’re investing in multiple asset classes … and you’ve got multiple portfolio management systems, you need all the data aggregated – that’s important right? Often there’s multiple systems and then it’s just brute force Excel pulling things together.”
“There’s a heightened demand for transparency for new asset classes.”
The podcast also covers how data scientists at Clearwater are exploring ways to leverage the information that becomes apparent via the analysis of $6 trillion worth of activity that the vendor oversees and facilitates. Clearwater provides a software-as-a-solution, also known as SaaS, for investment data aggregation, reconciliation, accounting, and reporting.