The world of post-trade securities settlement and custody management of assets and investment vehicles is also entering a hybrid era of complexity that will test technology strategies and determine the big winners and losers.
As we have seen in other industries, digitalisation has the power to transform the way assets are distributed and stored. The analogy to music is an interesting and useful one. Just as with music, there will likely be an extended period of time when market participants must cater for hybrid scenarios. Post-trade systems, processes, networks and infrastructure will somehow need to be like those music centres that are able to play all the formats, from vinyl, tapes and CDs through to digital MPEG files.
Institutions are looking to manage this hybrid phase, either by integrating specialist system components together, which raises the challenges and costs of managing a heterogeneous landscape of applications or by adopting a modern, integrated core system built on a uniform, open, service-oriented architecture that facilitates an orchestrated approach to managing processes that support the different sources and formats of information.
According to recent reports from CryptoCompare, total AUM across all digital asset investment products continues to increase by significant percentages each month and as of October 2021 stands at US$74.7 billion. Likewise, aggregated daily volumes are also growing by similar margins with average daily volumes reaching US$826 million. Compared to conventional/traditional AUM, these digital assets still only account for a relatively small proportion of the total market, but the speed of growth and adoption/acceptance of tokenisation points to a tipping point being reached in the not-too-distant future.
One of the hot topics on industry platforms recently has been the “Internet of Value”. Underlying this concept is the “tokenisation thesis”, which postulates that DLT is a superior mechanism for representing and transacting digital value – providing “always-on”, resilient, global, programmable, multi-asset financial networks with the endgame being the tokenisation of all regulated liabilities.
Indeed, any institution that is currently planning to issue securities or launch investment funds must already be thinking about whether it makes sense to do this through traditional mechanisms, or instead go straight to tokenisation. As another example of the speed of change, the T-REX platform from Tokeny, a Luxembourg company that is 23.5% owned by Euronext, has already quickly clocked up EU€ 8.5 billion in tokenised assets.
As is the case with music, all forms of assets will exist side by side, until eventually, the non-digital assets become extinct, which may be never. Customers are going to need conventional accounts and digital wallets while also investing in and managing portfolios of both digital and non-digital assets, which in turn may potentially also be invested in a mix of digital and non-digital assets.
So while the traditional model is grappling with the post-trade settlement limbo bar heading down from T+2 to T+1, the coming period of hybrid asset models will also need core systems to support and reflect the T+0, “always-on”, DLT-based digital asset post-trade activities in true real-time, with process automation levels and built-in compliance controls that deliver new levels of efficiency and flexibility.
