From prophets to ‘parasites’
How post-trade vendors went from problem-solvers to ‘rent-seekers’
Today’s financial markets are stuffed to the gills with would-be innovators and disruptors – many of them former bankers with a new passion for moving fast, breaking things and shaving every other day.
There’s a lesson for them all in the sad tale of the vendors that exist to knit the post-trade derivatives market together – messaging, middleware and reconciliation services.
Once, not that long ago, these firms were all trailblazing, rule-breaking, high-fiving problem-solvers. Now, they are part of the furniture. When trying to cut costs in recent years, banks have trained their sights on these services, among others – conversations and relationships have become strained, with banks said to be complaining about what they see as “excessive tolls”. An executive at one new-tech upstart describes the firms collectively as “rent-seeking parasites”.
When that description is put to two former post-trade vendors, their first reaction is to laugh. Both of them remember the good old days, when firms like these were at the cutting edge.
The first says: “I get how that goes. People are asked to solve problems at a certain point of a market’s development and then become the rent-seeking parasite over time – eventually customers resent paying money for it, because the problem has already been solved.”
It’s a poignant reflection not just because he worked at one of these firms, but also because he’s currently trying to build a new one.
“I’m trying to ensure that doesn’t become us – how do you ensure you don’t become a parasite?” he asks.
The second ex-post-trade vendor has some general advice. He thinks the parasites term ignores all the good, synergistic growth that post-trade services have been able to unlock, but adds: “I do think it’s fair to ask ‘What have you done for me lately?’ of any tech provider; and if that provider is not innovating, is not continually trying to drive costs down, then the criticism may be warranted.”
If today’s innovators find themselves in this situation, it will mean they have succeeded: they moved fast, they found something to fix, and people liked their solution.
But lasting success requires stronger foundations, which could be a challenge for some of today’s narrower start-ups – fixing one thing and then collecting a toll won’t be enough to keep your clients happy for long.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Our take
Hedge funds must race the clock to check their dealer-rule status
Working out whether a firm is caught by SEC registration requirement could take months
Filling gaps in market data with optimal transport
Julius Baer quant proposes novel way to generate accurate prices for illiquid maturities
Why Europe still awaits a private credit CLO
Tricky questions face managers that plan to launch the structure on the continent
The signs of tacit collusion in the dividend play trade
Game theory and real-world data point to a different understanding of how arbitrage in markets works
Decades of history says you can beat high inflation with quality
Factors such as momentum and value generally outperform the market irrespective of inflation, but new research suggests quality stocks are best when prices are rising rapidly
Esma faces tough task in implementing Emir 3.0
EU regulator must contend with tight timeframes and increasing workload without additional resources
Quants are using language models to map what causes what
GPT-4 does a surprisingly good job of separating causation from correlation
China stock sell-off will test securities firms’ risk managers
Regulatory measures to support stock market could add to risks facing securities sector