June 2023
New WFE feature: The Power of Real-Time Data
How Extensible Clearing, Trading and CSD Platforms are Unlocking Innovation and New Business Models
The financial industry is a world of constant change and innovation, yet its supporting technology has a tendency to lag behind, even if clearing, trading and CSD (central securities depository) platforms serve as the beating heart of secure and efficient exchange. To thrive in this fast-paced environment, these platforms must embrace cutting-edge technologies using real-time data as a foundation in combination with microservices architecture and powerful APIs - the transformative trifecta that has shaken up traditional financial systems and is unlocking exciting new business models.
Clearing, trading and CSD platforms are at the heart of the financial industry. These platforms are responsible for the secure and efficient exchange of securities and financial instruments between buyers and sellers. As the financial industry continues to evolve, these platforms must also adapt to new technologies and business models. One of the most promising technologies for these platforms is microservice architecture, which can be combined with real-time data and powerful APIs (application programming interfaces) to empower the exploration of innovation and the development of fresh business models.
Microservices are a way of developing software applications as a collection of independently deployable, modular services. Each microservice is responsible for a specific business function and can be updated and deployed without affecting other services. This approach enables faster development, easier maintenance and greater scalability than traditional monolithic applications. In the context of clearing, trading and CSD platforms, microservices can help to improve the efficiency and agility of these systems.
Real-time data is another key technology for these platforms. This refers to data that is generated and processed immediately, without delay. The use of this is becoming increasingly important for financial applications as it enables faster and more accurate decision-making. For example, in trading platforms, real-time data can be used to monitor market activity and identify trading opportunities. In clearing and CSD platforms, real-time data can be used to track the movement of securities and ensure compliance with regulations.
Powerful APIs are the third component of this technology trio. APIs are a set of protocols and tools for building software applications. APIs enable different software applications to communicate and exchange data with each other. Powerful APIs can help to unlock the full potential of microservices and real-time data by enabling developers to create new applications and services that integrate with these systems.
Together, microservices, real-time data and powerful APIs can help clearing, trading and CSD platforms to unlock innovation and new business models. Here are a few examples of how this technology trio can be applied in these platforms:
Faster and more accurate clearing and settlement
Microservices enable breaking down the clearing and settlement process into smaller, more manageable components. The settlement of new assets can be introduced without disrupting existing processes. Small services facilitate various aspects of the settlement flow. They allow for extending the flow by adding new validations and incorporating multiple settlement windows. These services can work with calendars from different regions or countries, ensuring 24x7 availability to support settlement across different markets. They also enhance member experience by providing better feedback through a range of protocols and channels.
Furthermore, powerful APIs allow for seamless integration of these components with other systems within the same exchange or even different exchanges, providing transparency to members and granting access to real-time data. This data can be utilised to offer services such as settlement forecasts, allowing members to prepare for upcoming settlements and optimise their processes. These capabilities translate to enhanced operational efficiency, improved risk management, increased transparency and the ability to deliver superior settlement services to members, ultimately driving growth and success.
Improved risk management
Real-time data empowers businesses to proactively monitor market dynamics and identify potential risks, safeguarding the financial market. Leveraging microservices, organisations can swiftly develop and deploy risk management tools that utilise various sophisticated techniques, including value at risk (VaR), historical simulation (HS) and extreme value theory (EVT). By combining these models with real-time data, operators gain valuable insights to accurately assess and forecast portfolio losses, enabling agile and informed decision-making.
Members can harness powerful APIs to simulate portfolios, evaluate risk exposure, optimise collaterals, and gain a comprehensive view of their holdings, while seamless integration with trading platforms further enhances risk visibility and management. Using real-time data and leveraging microservices for risk management enables businesses to stay ahead of market fluctuations, make well-informed decisions and optimise portfolio performance, ultimately driving greater stability, efficiency and profitability in the competitive business landscape.
New trading models
Microservices offer a transformative approach to developing new trading models that employ the power of real-time data. By adopting microservice architecture, traders can explore innovative strategies that enhance their trading experience. Social trading becomes a dynamic network where traders collaborate, exchange insights and collectively adapt to market changes. Predictive trading leverages advanced algorithms to forecast market trends, enabling traders to make decisions based on data-driven insights. Algorithmic trading thrives in a modular environment, allowing for the continuous execution of trades based on predefined rules and criteria. Peer-to-peer trading fosters direct connections between buyers and sellers, enabling decentralised asset exchanges outside traditional centralised platforms. Subscription-based trading empowers traders to access exclusive strategies and insights from experienced professionals, elevating their trading capabilities.
Microservices, with their robust APIs and seamless integration capabilities, provide a solid foundation for developing and deploying these new trading models. By leveraging real-time data, traders gain a comprehensive view of the market, aiding in making decisions and capitalising on emerging opportunities. Automation and efficiency are enhanced through the incorporation of powerful APIs, streamlining trading processes and reducing operational costs. In this rapidly evolving landscape, embracing microservices opens a world of possibilities for traders, enabling them to stay at the forefront of the industry and unlock new avenues for success.
More personalised services
Utilising the potential of microservices, exchanges can revolutionise the way personalised services are provided to investors, members and regulators. These modular components offer the flexibility to introduce new functionalities without disrupting existing services. Imagine a world where tailored services can be offered exclusively to select clients, creating a unique and personalised experience. By leveraging real-time data, exchanges can analyze the effectiveness of these services, tracking customer interest, usage patterns and frequency. This valuable insight enables data-driven decisions on whether to extend these services to a broader audience through subscription models or one-time fees. For instance, a specialised microservice could analyse an investor's trading history and patterns, delivering personalised investment recommendations aligned with their risk profile. Real-time data monitoring empowers continuous adjustments to these recommendations, ensuring they stay relevant and responsive to market dynamics. With powerful APIs at their fingertips, investors can directly access these personalised recommendations, while members benefit from suggestions on collateral management to mitigate risk exposure and gain insights on portfolio composition through historical analysis focused on risk assessment.
The integration of microservices and real-time data ushers in a new era of enhanced services, tailored specifically to individual needs. By leveraging microservices, exchanges can create a dynamic ecosystem that adapts and evolves with the ever-changing market landscape. Through the power of real-time data, investors gain access to personalised insights, empowering them to make informed decisions aligned with their investment objectives. Meanwhile, exchange members receive invaluable suggestions on collateral optimisation, mitigating risk and optimising portfolio performance. By combining historical analysis and risk assessment, these services provide a comprehensive view of the financial instruments, allowing investors and members to navigate the market with confidence. The availability of powerful APIs facilitates seamless integration, ensuring a smooth user experience and efficient access to personalised recommendations. With microservices and real-time data at the core of this transformation, exchanges pave the way for a more personalised, dynamic and data-driven future of financial services.
The financial industry is on the brink of a technological revolution, and clearing, trading and CSD platforms are leading the way. With the help of microservices, real-time data, and powerful APIs, these platforms are transforming the way securities are exchanged and financial instruments are traded. This technology trio is unlocking innovation and new business models that were once thought impossible. From faster and more accurate clearing and settlement to personalised services for investors, these platforms are driving the financial industry into the future. As these platforms continue to evolve and adapt to new technologies, the possibilities for innovation are endless. The power of real-time data is just the beginning, and the future looks bright for the financial industry.
By: Adilson Maria, Senior Developer and Partner, Vermiculus Financial Technology