Michael Hughes is Head of Capital Markets Business Consulting, Capgemini.
What was the highlight of 2024?
The way that the industry came together to successfully implement the move to shorten the securities settlement cycle to T+1 in North America was noteworthy.
The final few months in the lead up to the May 28th go-live weekend was particularly impressive as firms accelerated their adoption of proposed industry best practices. For example, immediately after the go-live, DTCC, which played a central role in coordinating the industry’s readiness, reported that over 94% of transactions were affirmed by 9:00 PM ET on the trade date, up from 73% at the end of January. While this indicated an improvement in operational efficiency, more importantly, perhaps for the long-term, instant capital efficiency benefits were felt across the industry as clearing fund requirements decreased materially. Critically, this was all achieved without a widely feared spike in settlement fails rates.
Despite the measurable progress, there is still much more left to do. We continue to see a need for many firms to increase automation levels to support this change sustainably. Furthermore, there were some unresolved issues including details surrounding FX timings and the treatment of multi-asset instruments like ETFs. Overall, as the accelerated settlement lens moves eastwards towards the UK and Europe in 2027, the 2024 North American experience gives us plenty of reasons to be optimistic.
What surprised you in 2024?
Given the levels of investment that we have seen from industry players, the fact that generative AI would continue to grow in scale across capital markets in 2024 came to no one’s surprise. However, the accelerated rate at which it has increased influence across all parts of financial institutions, outside of dedicated Gen AI programs and centers of excellence, has been eye-catching. Moreover, in many instances these advances have been driven at a grassroots level, with employees increasingly embracing the technology for themselves and employers reacting to this trend.
Across the community, adoption of these tools has become increasingly widespread. Firms have been able to successfully drive internal productivity increases at scale, which in turn, emboldened them to further explore opportunities to leverage the technology in client-facing scenarios. We see this continuing to grow through 2025, with increased use of advanced Gen AI analytics likely to support research, investment decisions and portfolio management with the wider aim of enhancing revenue generation.
What trends are getting underway that people may not know about but will be important?
The capital markets post-trade service provider landscape has been a dynamic environment in recent years, with a regular flow of new acquisitions, consolidations, partnerships, investments and product launches. Central Financial Market Infrastructures (FMIs) and large-scale traditional service providers are increasingly collaborating with FinTechs and their client community to create industry solutions.
This is heartening to see as these firms are likely to play an increasingly important role in helping financial institutions to reduce their cost bases. The cost of post-trade processing has remained stubbornly high over the last 15 years, despite significant attempts by firms to increase efficiencies through independent automation programs and growing their offshore components.
A fundamental shift towards industry collaboration and cost mutualization will help avoid duplication, concentrate expertise, drive common industry standards and ultimately remove cost from the ecosystem.
With their broad networks of clients and ability to impact the whole trade lifecycle from front-to-back, FMIs are well placed to play a leading role in driving this effort going forward.
