27 Sep 2019 — The development of ‘Securities services’ as an industry is intertwined with the emergence of securities into the public eye.
Although there is no clear definition of securities services, it is generally set to include a wide range of offerings which, in turn, can be classified under Securities Services.
• Clearing & Settlement
• Fund Services
• Asset Servicing
• Investor and Regulatory Reporting
• Securities Lending and Prime services
Firms involved in securities services and processing functions play a critical role for institutional & retail clients across multiple asset classes and geographies.
In the current traditional securities services market, there are but only a few major players commanding a major chunk of the market share. After much consolidation activity over the last decade, the industry is now concentrated in the hands of a very few players, such as Bank of New York Mellon, State Street, and Citi in the U.S. and BNP Paribas, HSBC, and Societe Generale in Europe.
The emergence and promise of blockchain has altered the guidelines for the functioning of the industry. Digital assets have taken the world by storm and this necessitates the creation of an entirely new class of securities services providers exclusively for digital assets.
The Value Chain
Post-trade securities transaction processing is often described as a ‘value chain’. It can be described more precisely, however, as an ‘extraction of a value chain’, in which a string of intermediaries charge investors for checking and storing information about securities transactions while adding data of their own to the record, and then passing it on to the next link in the chain.’
Generally, the intermediaries include fund managers, brokers, custodians, cash correspondents, central securities depositories (CSDs), clearing brokers, central counter-party clearing houses (CCPs), trade repositories, fund accountants, fund distributors, and transfer agents.
All the parties extract value by standing between the buyers of securities and the sellers, especially across borders. Each link in the chain requires the intermediary to compare data and rectify discrepancies.
Propine’s chain of functions
1. Notary Services, Depositary and Custody
2. Entitlement Check
4. Asset Servicing and Corporate Actions
5. Investor and Regulatory Reporting
Propine is not just a comprehensive securities services provider, but an innovator by creating solutions ahead of its time.
Current limitations for the industry
1. Public and Private Blockchains
3. Operational complications
1) Public and Private Blockchains
The first is the distinction that has emerged between public and private blockchains. A Bitcoin-style public network is completely open. Anyone can join it, without permission, and see the entire contents of the ledger. A private network conversely allows only approved participants to join and restricts access to the ledger to authorized or “permissioned” participants only.
There is a widespread expectation among custodian banks, their clients, and regulators that any active blockchain networks in the securities industry will have to be permissioned. This is because public blockchains would be problematic if they were applied in an unmodified way to securities services. The most obvious problem is that private information about asset ownership and financial transactions would be visible to all members of the network.
Regulations have been the biggest challenge to any securities services organization due to the fact that financial institutions are usually internationally focused and this would require the consent of multiple domestic regulators to function under a regulatory cover. Services companies not acting under the regulatory frameworks are susceptible to lawsuits and fail to inspire an environment of trust and safety.
3) Operational Complications
As a result of all the challenges mentioned above, the operational challenges are immense, and it requires a high degree of education that needs to be imparted by the services organisation as the client might not be fully aware or adept at handling such a move. This pain point has the potential to drive away a new client looking for services.
Propine’s Unique Benefits.
1) Support to both Private and Public Blockchains
Propine’s basket of offerings are equipped to handle and service both public and private blockchains with the capability to provide solutions required by the businesses.
2) Regulatory Innovator
The people who build solutions for today are problem-solvers, the people who build solutions that stand the test of time are innovators. As regulation is one of the most important aspects of any securities services organisation and the largest risk in this fledgling blockchain industry, Propine works closely with several governmental and quasi-governmental bodies to achieve regulatory balance in an ever-changing landscape. These partnerships ensure a high degree of trust, legitimacy and peace of mind to our clients across the globe.
What does the future hold?
The broad spectrum of institutions involves financial firms, investment managers, family offices, investment advisers, retirement plans, endowments, foundations, to name a few. With a host of services affecting each part of the value chain, Propine is a comprehensive securities solutions are aimed at building solutions for the future.
Originally published at www.medium.com