Securities Services Evolution 2023: Embracing Rapid Change in Financial Markets

Arnaldur October 31, 2023

In a transformative year for the financial industry, marked by significant advancements in technology and digital assets, Citi releases its Securities Services Evolution 2023 report, which sheds light on the ongoing evolution of global financial markets. This year’s whitepaper focuses on three key areas driving change across the industry: Financial Market Infrastructure (FMI) transformation, settlement transformation, and the adoption of digital assets and Distributed Ledger Technology (DLT).

FMI Transformation: Navigating Accelerated Innovation and Legacy Transition

Financial Market Infrastructures (FMIs), especially Central Securities Depositories (CSDs), are grappling with the dual challenge of accelerating innovation, particularly in settlements and digital assets, while transitioning away from aging legacy infrastructures. This shift necessitates managing a broader ecosystem and facilitating industry-wide change rather than just individual platform upgrades. Notable initiatives include a consolidation project between Colombia, Peru, and Chile in Latin America, while European markets explore the implications of clearing competition. Divergent strategies are observed, with Asia and Latin America focusing on innovation, and North America and Europe emphasizing common industry platforms and standardized corporate action practices.

Settlement Transformation: A Shift Towards Real-Time Operations

A staggering 89% of surveyed industry professionals anticipate their local settlement cycles shortening to T+0 or T+1 within the next five years. The impending transition, notably in the US, Canada, and potentially Mexico in 2024, promises profound impacts on various operational aspects, such as trade failures, treasury requirements, and regulatory compliance. A clear path toward market readiness has emerged, emphasizing client engagement, internal automation, and strategic resource allocation. Real-time communications and inventory visibility are deemed critical amid increasing dislocation risks across global settlement cycles.

DLT and Digital Assets: Embracing Choice and Flexibility

The adoption of Distributed Ledger Technology (DLT) and digital asset initiatives has surged to 74%, signifying growing momentum despite challenges faced by certain crypto initiatives. The focus has shifted toward DLT and tokenization projects, allowing market participants to leverage technology’s choice and flexibility in operational processes and market rules. Anticipating digitized transactions, industry experts express optimism about digital cash becoming operational within five years, facilitated through Central Bank Digital Currencies (CBDCs) and commercial mechanisms. Regulators, risk, compliance, and finance teams are actively engaged, ensuring continued oversight on market integrity and investor protection.

As the financial landscape continues its rapid evolution, industry players are embracing change, setting the stage for a dynamic future shaped by innovation, real-time operations, and digital asset integration. The Securities Services Evolution 2023 report provides valuable insights into the industry’s trajectory, highlighting the resilience and adaptability of financial markets in the face of unprecedented challenges and opportunities.

View the full report from Citi below.

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