New study of post-trade ecosystem shows pain of legacy systems

Research of 300 post-trade experts including custodians and brokers shows that legacy technology and regulation prevent financial institutions from capturing growth opportunities.

A third of post-trade firms are operating with legacy platforms more than a decade old, with budgets being dominated by maintenance and upgrades over investments in replacements and transitions, new research has found.

Nasdaq published the results of a survey of over 300 decision makers from exchange groups, custodians, brokers, and other service providers.

The results showed that 78% of investment budgets are dominated by maintaining and upgrading legacy technology, while more than a third are planning a major system overhaul in the next five years.

Nasdaq added that the need to undertake significant projects is particularly prevalent in the post-trade space where 47% of clearing firms expect to trigger an upgrade in platforms, while in settlements, 44% of firms see a transition as imminent.

This comes at the same time as they look to remove time from their processing and increase their settlement efficiency, meaning an inevitable ‘distraction effect’ at a critical time.

Roland Chai, executive vice president and head of marketplace technology at Nasdaq said: “Over decades technology debt has built up amongst infrastructure providers across financial markets. With more than a third of firms planning a major system overhaul over the next five years, alongside responding to an unprecedented wave of regulation, the need for refreshing core technology is a challenge that is core to most industry participants. As the backbone of the industry and global economy, operators must differentiate themselves and remain relevant for the next generation of investors.”

In addition, the study found the reach of mandatory regulatory change was the central concern for 64% of respondents. As the global securities industry continues to contend with the impact of the Shareholder Rights Directive II and Central Securities Depositories Regulation, project teams are now faced with the added complexities of the transition to T+1 settlement cycles in North America in May 2024.

In parallel, The UK Securities Financing Transactions Regulation has forced the securities finance firms to rationalise and accelerate their data reporting capabilities – as will the Securities Lending Transparency: Rule 10c-1 in the USA.

Nasdaq highlighted that considered in the context of multiple local market regulations centred on client asset segregation, client monies and other areas, the regulatory agenda is increasingly requiring significant, enterprise-wide change across the entire trade cycle.

“Across our client base there is an increasing recognition of the need to undertake major change programs, having adopted a patchwork approach for decades” said Magnus Haglind, senior vice president and head of products, marketplace technology at Nasdaq. “The need to respond to regulatory change is also seen as a significant factor, which increasingly demands re-engineering entire platforms, rather than tactical initiatives. This underscores the importance of modernisation initiatives across infrastructure operators, where growth should form a key part of legacy upgrades.”