DLT and tokenization were hot agenda topics, but many CSDs were equally interested in talking about what they need to do first to make way for emerging technologies while simultaneously tending to and improving existing operations.
CSDs from across the world recently gathered in Prague, Czechia, for the 2023 World Forum of Central Securities Depositories. The conference was centered around the key themes of international cooperation, distributed ledger technology (DLT), settlement efficiency, risk management and a global vision for the future of post-trade.
I was glad to represent Nasdaq at the conference and hear from other industry experts, regulatory authorities and our valued clients. Also onsite was Barnaby Nelson from the ValueExchange, a research company with whom Nasdaq recently executed a post-trade survey. Together we took the opportunity to present the early high-level findings from the survey, and it’s interesting to see how the findings align well with the conference takeaways. Below is a consolidated view of my and ValueExchange’s reflections.
Technology in the spotlight, operations front of mind
The future is already here for financial marketplace infrastructure in many ways. Blockchain, tokenization, smart contracts and AI/Machine Learning are certain to play a big role in upcoming years. And for their part, CSDs are well-aware of emerging technologies and their advantages, efficiencies and business opportunities. The practical impact of these new tools was a common thread throughout the WFC. DLT, in particular, was an overarching theme, with discussions about pilot programs, use cases and barriers to adoption.
However, while there was much talk about what’s next for CSDs, attendees were just as interested (if not more) in what they need to do now to position themselves for the future. Outside of the main sessions, the business drivers most top of mind for CSDs were resilience, regulatory compliance and improvement of existing systems. There’s a general agreement that while new technologies have clear upside, CSDs need to balance innovation with running secure and stable operations.
This sentiment aligned closely with responses to the recent survey on FMI transformation from ValueExchange and Nasdaq. We found that 19% of CSD legacy systems face end of life in 2023/24, more than any other FMI group. Accordingly, 78% of FMI budgets are dedicated to incremental change and legacy replacement, while just 1% of industry spend goes toward blockchain and digital assets. The upcoming transitions for many CSDs will require them to run growth and resilience programs parallel to one another—i.e., making stepwise improvements that also build for the future and ensure that growth capabilities are embedded into the transition program.
Near-term priorities and opportunities
Each CSD’s transformation journey will be unique, given its own local needs and regulatory jurisdiction. But a few prevailing strategic initiatives were in discussion at WFC that could help organizations make progress toward both sets of goals: increased operational resilience and business growth.
- International standards: There was very strong support for greater cooperation among global CSDs at the conference. Attendees saw standardization as a building block to the future and greater harmonization, which aligned with the survey: 58% of respondents planned to deploy ISO 20022 in the next two to three years.
- Data distribution: The sense was that CSDs know they’re sitting on a vast amount of golden source data but don’t necessarily have the bandwidth or capability to commercialize it. As market participants increasingly demand better data and greater access to it, CSDs need to respond. This, too, is in line with our survey: 67% of FMIs plan to introduce new data products and analytics by 2026.
- Change management: Large-scale transformation requires dedicated planning. In essence, CSDs need a change management strategy to implement their principal strategy of modernization. That means aligning business, technology, people and culture. CSDs need the right talent, incentives and progress measurements to successfully navigate the change journey.
Looking ahead
There is wide opportunity in the future for CSDs. But before they realize growth they need to overcome inertia, meet near-term objectives and keep building momentum for positive, incremental change. WFC was a valuable experience to hear first-hand from CSDs and regulators across continents. We look forward to sharing more insights into our survey findings after the summer, and if you are interested in additional insights, reach out to us for a discussion.
