Innovation Takes Time, and Then it Happens
By Jennifer Peve, DTCC Managing Director, Business Innovation
There is a general expectation across the global financial services industry that once an innovative technology has been announced and the hype reaches an all-time high, rapid implementation and wide-spread adoption immediately begin. For those who have engaged in financial technology endeavors, we know this isn’t how it works. Responsibly implementing a new technology takes time, and then innovation happens.
The financial services industry has been using technology to improve financial transaction processing for decades. These efforts primarily focused on delivering upon the same objective: to mitigate risk, reduce costs and improve efficiency. This approach is one that we have seen throughout many stages of the financial industry. For example, in the late 1960s the industry moved from paper or physical securities to electronic holdings. This marked the advent of DTCC’s central securities depository subsidiary, DTC, which today provides custody and asset servicing for securities issues from more than 130 countries. Early dematerialization efforts eliminated existing physical certificates as well as ended the issuance of the majority of new certificates in the U.S. These initial steps — somewhat radical at the time — helped to lower costs, mitigate risk and bring greater efficiency to the industry. Complete dematerialization of physical securities, however, is the next step and will require full-scale and committed adoption of new business practices and technology platforms.
The industry also has experience in shifting gears and embracing electronic or digital activity. Around the time that securities markets created DTCC, the concept of Electronic Communication Network systems were introduced and resulted in the first digital trading systems. This evolved into electronic stock markets and online trading but not before iterative steps towards this innovation occurred. For example, floor trading was enhanced by phone trading, and the internet introduced a wave of enhancements that transitioned floor trading to electronic for certain markets. New business models emerged as brokers offered user-friendly platforms, faster trading, lower costs and other features, which created a new ecosystem of providers in the space. Similar evolutions have occurred in other markets including Commodities, Financial Futures, OTC Foreign Exchange, and certain OTC Derivatives.
At its core, innovation focuses on improving how processes and tasks are completed, in an effort to make our jobs better and faster and to do so at a lower cost. For the financial services industry, a critical element to these efforts is ensuring that as innovation occurs, the safety, security and soundness of the markets are maintained.
DTCC is currently in the next stage of its modernization efforts including a focus on digitalization. DLT infrastructure and the digitalization of assets has the potential to help facilitate more efficient and truly digital processing, which would result in a more integrated, peer-to-peer data synchronization network that enables the automation of post-trade activities leveraging both natively issued and re-represented digital assets. The financial services industry — including DTCC — is off to a solid start; however, it will take time and close coordination to ensure innovative technologies are efficiently and effectively implemented.
