Fast-forwarding capital markets
In today’s business environment, investment firms need to be able to make quicker decisions, remove latency and eliminate manual tasks. flow’s Janet Du Chenne reports on how BNY Mellon’s technological transformation has enabled it to help clients achieve this
When the Covid-19 pandemic triggered stock market volatility in March,1 senior leaders in financial institutions braced themselves for what was to be a pivotal moment in their careers.
Rohan Singh, Global Head, Asset Owners and Head of BNY Mellon’s Asset Servicing business in Asia Pacific, recalls an “avalanche of volume”. Sharing his experience with fellow capital market luminaries during a webinar hosted by The Asset magazine on 24 June 2020,2 he revealed that the business had seen more than US$3trn in payments in the last two weeks of March, [while] market volatility spikes were hitting 1.3–1.4 standard deviations and foreign exchange (FX) trade volumes were 50,000 a day, more than double the 2019 average.
This came just as Singh’s team was making the adjustment to full-time homeworking; BNY Mellon transitioned approximately 95% of its employees to working from home at the start of the pandemic. Despite varying WiFi and connectivity, the workforce was successfully mobilised to work remotely and clients were serviced with minimal business interruption.
BNY Mellon is one of the world’s largest global custodian banks, providing custody and/or administration to US$37.3trn of the world’s investment assets on behalf of institutional investors such as pension funds and asset management companies, so adapting to the crisis was no mean feat. As a result of its unique position, the company has oversight of data on transaction flows relating to those assets as they pass through its processing and securities settlement engine, which helped with the massive task of handling those payment volumes.
Heightened volatility in capital markets highlighted the company’s fundamental role as the engine through which those transactions can flow, and it ensured they did so as seamlessly and efficiently as possible. Business continuity therefore became BNY Mellon’s most important priority at the start of the pandemic, to help settle their clients’ securities trades on time and provide the related asset services, such as tax processing, at a time of uncertainty. The company demonstrated operational resilience, said Singh during the webinar, who added that “we feel very heartened that we got through that period as we set ourselves up for the new normal”.
Covid-19 accelerates transformation
The speed and efficiency with which BNY Mellon adapted to the crisis laid the groundwork for the fundamental role it will play in keeping capital markets functioning as that new normal emerges. For this 236-year-old financial institution, Covid-19 also accelerated a digital transformation journey that was already under way. It has sought to build a digital DNA into all of its products and advance its data agenda in order to deliver data-driven insights and seamless user experiences on a par with the most optimal consumer experience, as well as create innovative new capabilities. All of this helps its asset manager and asset owner clients to grow revenue, reduce expenses and minimise risk.
Anand Rengarajan, Head of Deutsche Bank Securities Services Asia, noted during The Asset webinar that the entire industry faced a “paradigm shift where we have all worked on various digital initiatives that have been necessary from an efficiency and regulatory perspective – and that journey has helped us overcome the current situation successfully”.
In the case of BNY Mellon, digital initiatives that have been advanced in response to the crisis include the move from wet signatures to digital ones. Partnering digitally with Deutsche Bank (which offers local custody in various markets globally), BNY Mellon quickly implemented a system enabling asset management clients to sign off on documents digitally rather than physically. Singapore-based Eastspring Investments, the Asian asset management business of Prudential plc, embraced this capability. During the webinar, Jeroen Buwalda, the asset manager’s Chief Operating Officer, praised the “great collaboration across the industry with banks such as Deutsche Bank and BNY Mellon”.
"Accelerating technology-led transformation is a crusade not to be undertaken alone"
Commenting on the deployment of digital signatures, Michaela Ludbrook, Deutsche Bank’s Global Head of Securities Services, agrees that the pandemic stimulated plans the business wanted to accelerate, rather than inhibiting them. “With the crisis precipitating homeworking across various locations around the world, we have employed digital tools such as electronic signatures, transparency around flows, data reporting and lifecycle transparency to help our clients and our clients’ clients in the 30-plus markets we operate in,” she says.
Digital signatures are just one part of a transformational journey that began at BNY Mellon some years ago and gathered momentum with a series of investments into digital technologies and new digital products (and data solutions) to help drive business wins with clients. Between March and June 2020, BNY Mellon migrated more than 100 clients to its digital solutions, and it is aiming to accelerate its digital plans for all asset servicing clients.
In July, BNY Mellon announced that it had collaborated with Deutsche Bank Securities Services on an application programming interface-based (API) solution that automated time-sensitive FX custody-related processes and dramatically improved confirmation times for restricted emerging-market currency trades.3 The API solution, which leverages existing bots between the two companies for instantaneous communication to help eliminate market frictions, can also bring
trade remediation closer to the time of execution. The resulting benefits also include reduced price slippage for clients between the FX leg of a transaction and the equity or fixed-income security trade. The solution has enabled BNY Mellon to achieve a significant reduction in turnaround time for an FX-related process, from 48 hours to just 8–10 seconds.
The solution is already live in South Korea for the won, with the Indonesian rupiah and the Indian rupee targeted next. Subsequently, it will be progressively rolled out to a broad range of restricted currencies that are linked to investors’ underlying equity or fixed-income transactions.
Making the connection
BNY Mellon’s bot-to-bot interfaces with partners such as Deutsche Bank were conceived back in 2018 to further automate securities processing and settlement and remove manual steps in the process. The connectivity was first conceived to settle securities transactions in the Hong Kong market on behalf of asset traders in the region.4 The connectivity has since expanded to include other markets in Asia.
Roman Regelman, BNY Mellon’s CEO of Asset Servicing and Head of Digital, introduced the launch of OMNISM, an interconnected global network that brings together digital-driven solutions and tools across the investment process, in a thought leadership piece.5 He described it as “a great example of what the future can look like” and explained that clients can access this network in a streamlined, frictionless, fully integrated ecosystem that includes BNY Mellon’s partners and parts of the company beyond asset servicing.
He also pointed out that “OMNI helps our clients power their growth through distribution, data and analytics; increase efficiency and resiliency; and drive agility so that clients use optimal technology and can act nimbly in an ever-changing landscape.”
Digitising the company
The digital habit has gained traction in the past two years. Todd Gibbons, who became the permanent CEO of BNY Mellon in March 2020 (he had served as interim CEO since September 2019), has noted that “there has been an acceleration this year in the adoption of digital solutions by our clients, who continue to review opportunities to automate”.
The increasing use of these digital solutions during the pandemic has accelerated digital transformation of asset services at BNY Mellon, driving the recent expansion of Regelman’s Head of Digital role to include Asset Servicing, a business that was already at a critical point in its evolution. He has made it his mission to digitise every aspect of the company, to make it even more relevant to its clients – “removing unnecessary complexity and processes to become more nimble and able to rethink how we help our clients deliver and maximise value”.6
Regelman identified three digital horizons as part of this strategy:
- Core digitalisation: streamlining existing operations by re-engineering processes and deploying technologies while increasing the breadth and speed of incoming information to drive decision-making;
- End-to-end client reimagination: rethinking client journeys end-to-end from the client perspective to reduce complexity and create seamless digital experiences, using agile development techniques to rapidly prototype and implement changes; and
- Digital business development: creating new opportunities by building innovative digital products and services and establishing an open ecosystem of solutions combining external and BNY Mellon capabilities.
The goal of combining the company data with client data was achieved in April 2019 when BNY Mellon integrated its data insights, accounting and servicing tools into Aladdin, BlackRock’s investment and operating platform for investment managers.7 These insights offered near real-time trade lifecycle information and more precise intra-day projections of net cash positions to enhance front office decision-making and closer data integration and shared workflows in Aladdin, substantially improving operational efficiency and processing rates.
Doing more with data, front to back
This front to back unification of data has been central to the company’s digitalisation journey. In a related initiative, it has connected platforms and open ecosystems with a range of fintech firms and order management systems to provide new data solutions for asset managers and owners.
In May this year, BNY Mellon deployed natural language processing artificial intelligence to provide enhanced data and analytics services for its buy-side clients. It collaborated with fintech firm Arria NLG, a provider of natural language generation, to integrate the technology into its Eagle Performance and Data Management solutions suite.8
“Our asset management clients were previously using multiple technology vendors and multiple order management systems for their trades,” explained Singh during the webinar. As custodian, BNY Mellon explored how to use digital tools to connect with asset managers’ infrastructure to empower portfolio managers at those firms with real-time insights that enabled better decisionmaking. “Making our clients more efficient is critical to our success,” he added.
BNY Mellon is creating an open ecosystem by collaborating with industry participants as the company looks to transform its core processes and deliver new services. Since announcing a strategic alliance with BlackRock, the company has also partnered with Bloomberg to unify its front to back data integration capabilities, leveraging the transaction information flowing through its asset servicing and processing engine to deliver actionable insights to clients.9
The integration of firm-wide custody data at BNY Mellon and connectivity with investment managers’ platforms has also helped reduce latency in the front office by “demonstrating dashboard widgets that give the portfolio manager advanced time to be able to execute decisions on a transaction that their risk system is signalling,” said Singh. “We want to connect to everything and anything we can, improve their workflow experience and remove steps from the reconciliation process.”
In fund accounting, Singh said the company is deploying bots to remove some of the reconciliation work in the process. It is working with machine learning to predict error rates in derivative trade models, which require a lot of manual interfacing before they can be uploaded into trade blotters. “These are some of the ways we are making ourselves more efficient, and our client base as well,” he concluded.
It is also using robotic process automation (RPA) to help clients eliminate other manual tasks. For example, Prudential’s Asian asset manager Eastspring has managed to automate or outsource over 80% of its processes across the front, middle and back office to companies such as BNY Mellon. “This leaves me with around 3,000 manual tasks,” said Buwalda during the webinar. “Using RPA, I can remove another 1,000 of those. The best way to test new technology is to work very closely with our service providers, our brokers and the regulators to co-create new solutions.”
Writing in his blog on BNY Mellon’s website in August,10 Regelman asserted that “if Covid-19 reinforced anything, it is the critical need to digitise every process and interaction. It happened in custody years ago, and it happened in accounting. We see digitisation transforming administration today. Going forward, we’ll see just about every part of what was once in the realm of bespoke client service become automated.”
Advancing the digital crusade, post Covid-19
With Covid-19 helping to accelerate BNY Mellon’s digital transformation, the company announced a partnership with Microsoft in June 2020. It will use Microsoft’s flagship Azure platform for three new Data and Analytics Solutions offerings on distribution analytics, environment, social and governance data analytics, and a new cloud-based data vault.11
Commenting on the initiative during the company’s second quarter earnings call, Gibbons said the company “could see some meaningful growth driven by the data and the digital and data analytics
that we’re offering…If you look at our pipeline, if you look at the growth rates that we’ve demonstrated, we are seeing a little bit of organic growth for the first time in a while.”
Custodians such as Deutsche Bank have also driven home the importance of real-time data that can be leveraged by custody providers. As the bank’s Rengarajan said during the webinar, “firms needed to move away from a singular dashboard focus of their securities data towards one where that data is used to generate meaningful post-trade insights for clients and enable them to improve their operational processes.”
Singh agreed, adding that simply having a data warehouse is no longer enough, and that using that data to generate meaningful
insights will be a differentiator when it comes to fast-forwarding capital markets.
“Partnerships and collaboration are important for all of this, and accelerating technology-led transformation is a crusade not to be undertaken alone,” he noted.
1 See https://bit.ly/34Cp6Om at forbes.com
2 See Accelerating technology-led transformation in Asia at flow.db.com
3 See https://bit.ly/31u4hCQ at db.com
4 See BNY Mellon and Deutsche Bank launch chatbots to deliver faster status information flow at corporates.db.com
5 See https://bny.mn/31rKML7 at bnymellon.com
6 See https://bny.mn/2FZIJ8U at bnymellon.com
7 See https://bny.mn/34AyBNV at bnymellon.com
8 See https://prn.to/34yH0kZ at prnewswire.co.uk
9 See https://bny.mn/2ElggKm at bnymellon.com
10 See endnote 5
11 See https://bny.mn/2D54hjq at bnymellon.com
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