Investment Operations

Report: Securities Servicing Industry Ripe for APIs

Clearstream Digital Assets

Joint SWIFT and BCG report finds growing momentum for API technology as firms seek more efficiency and new service offerings

new report published today by SWIFT and the Boston Consulting Group found that API interest is rapidly growing in the post-trade area. Over the course of 2018 alone, awareness of APIs among asset managers increased 26 percentage points to 72%, according to a BCG survey. The growing commercial interest is driving more pilot schemes and use cases, particularly between asset managers and their custodians.

Analysts say APIs are well suited to help the securities servicing industry which has to contend with numerous and diverse asset types, complex information exchanges and increasing fee pressure. The report lays out four areas in which APIs can benefit the industry:

  • Efficiency and cost savings through automated data exchange
  • Real-time visibility of information such as settlement status and intraday risk
  • Value-added services such as enriched data and analytics
  • Operational benchmarks to help servicers compare performance with their peers

Adoption of APIs in the security servicing industry has been slower than in other areas of financial services in part because it has lacked a regulatory catalyst, the report says. Additionally, there is little consistency in players’ readiness to adopt APIs. Asset managers vary widely in their technical sophistication and openness to engaging with providers via API solutions. Some 56% of respondents in the BCG survey perceive maturity of post-trade APIs to be “experimental” while just 21% say it is “high” or “medium”.

“APIs have the potential to be a powerful enabler of innovation in the post trade industry, just as they have been in payments and other areas of banking,” said Juliette Kennel, Head of Securities and FX for SWIFT. “Interest in the technology is rising and the green shoots of experimentation are promising. But to really stimulate and accelerate broader API adoption, we need to eliminate uncertainty on standards and improve understanding about the technology’s maturity,” she concluded.

The report sets out four calls to action for the industry:

  • Mutualise common API infrastructure. Foundational pieces of API solutions, such as identity management, authentication, security, and network connectivity management should be agreed at an industry level between firms, rather than by individual firms.
  • Curate API standards to support interoperability. Proliferation of multiple standards threatens to diminish the efficiency gains that APIs can deliver. The industry needs a single API standard that works across providers.
  • Support networked APIs rather than point-to-point solutions. Firms stand to benefit from networked APIs. For example, a single call to check the status of settlement from a broker-dealer can be routed to multiple custodians simultaneously. A networked solution will also support convergence both of data definitions and of other API characteristics.
  • Meet strict security and resiliency standards. To gain traction, any API solution will need to meet a high bar in data protection and have high levels of resiliency.

“Wholesale banking is becoming more digital, and APIs have been one of the key technologies underpinning that transformation,” said Sumitra Karthikeyan, Global Head of Securities Servicing for BCG. “APIs are now starting to break into the securities servicing industry, emerging as a leading technology executives turn to as they seek to transition to digital-first firms. While familiar challenges from the past such as interoperability and security are headwinds to adoption, we believe they will be overcome and expect increasing adoption going forward,” added Karthikeyan.