Shaping the future of securities markets through APIs by Kiran Shetty, CEO and Regional Head, SWIFT India and South Asia

Dramatic shifts in financial markets and the emergence of new technologies such as robotic process automation, cloud-based data solution, advanced analytics, distributed ledger, and others are driving transformation in the global securities industry. A key technology that has the potential to disrupt and bring significant structural changes to the securities market are Application Program Interfaces (APIs).

So, what are the key factors behind the adoption of APIs by securities services providers? The availability of a highly active community of developers that helps drive continuous innovation and improvement in capabilities to implement API solutions is one of the major drivers. In addition, the flexibility offered by APIs can ease implementation and enable customization as products evolve and client demands change. Further, APIs are currently used across nearly all sectors of financial services, including personal and commercial banking, wealth and asset management, insurance, and many more. With the talent and core capabilities already in place, API solutions only need to be extended to the securities industry.

APIs are also capable of meeting the complex data exchange requirements between the buy-side and custodian banks, as well as between market infrastructures and their members. They enable more seamless integration between the service provider and client regardless of the underlying technology infrastructure. In the post-trade industry, innovation in asset design has led to a proliferation of complex asset types requiring a solution that is flexible to handle changes without any manual intervention or processes involved. API solutions can support required levels of flexibility while maintaining high levels of straight-through-processing. Cost reduction through the post-trade value chain coupled with inefficiencies in certain segments of post-trade are other important factors for the industry to implement API solutions. Compared with existing post-trade solutions, APIs lower the barrier to adoption as the investment required for implementation is low. With custodian banks expanding service offerings such as data management, analytics and insight, portfolio risk analytics, etc. that require more ways of interfacing than currently in use, APIs can support firms as they grow the range of services.

APIs can help in delivering greater value to the securities market

With interest in APIs growing rapidly in the post-trade area, there is growing recognition of their potential to deliver value to the securities industry from the perspective of:

Efficiency and cost savings – Current levels of automation and straight-through-processing (STP) in inter-firm communication vary considerably by activity type and asset class. The flexibility offered by API solutions makes automation of these communications easier, improving efficiency and reducing the need for oversight teams to handle breaks and exceptions. APIs can make client data available in a flexible way, enabling reporting solutions that are easy to both implement and modify.

Real-time visibility – API-based solutions provide information on an as-needed basis. This real-time visibility is valuable in settlement with clients having access to relevant information throughout the day. This helps in managing intra-day risk, improves cash and collateral management, and improves the execution of value-added programs such as securities lending. It will also potentially allow the market to move towards shorter settlement timelines, given their capabilities to facilitate real-time, on demand information exchanges.

Value added services – With securities providers expanding product portfolios, APIs make access to trade specific data such as daily volume share and corporate actions easier. Beyond the data-based offerings, APIs also enable new processes in areas such as NAV distribution, transaction screening, KYC utilities, and other services that rely on the integration of operating models across the securities market.

Aggregation and benchmarks – Using a common API infrastructure for supporting the adoption of the technology APIs will create and make available operational benchmarks such as adherence to service level agreements and track failed settlements to help institutions compare performance with their peers.

Barriers to API adoption in the current scenario

Despite the perceived benefits, adoption of API technology in securities markets remains under-utilised. Lack of standards, interoperability issues, and strict security and resiliency standards are key barriers responsible for slow adoption of API solutions. In addition, there is little consistency in the readiness of players in the post-trade world to adopt APIs. Asset managers vary widely in terms of their technical sophistication and openness to engaging with vendors via API solutions. Many players have adopted a wait and see approach and have delayed investment in APIs until there is more clarity.

One of the most effective ways to overcome these challenges is by mutualizing the components of API solutions. This will reduce aggregate investment required to implement APIs, thus freeing resources for other business priorities. Other activities that can boost adoption of APIs include curating API standards to support interoperability while maintaining flexibility, pursuing networked APIs rather than point-to-point solutions, and meeting high security and resiliency standards.

By deploying APIs, the financial industry is aiming to become more open, faster and always available. However, without the adoption of common standards, the proliferation of APIs is likely to lead to inefficient and ineffective fragmentation. ISO 20022 is widely recognised as the standard of the future. It is an open standard, not controlled by a single interest and is open to anyone in the industry who wants to participate. It is free for anyone to implement in any business or software environment, or on any network. ISO 20022 can be used with the latest technology as well as adapt to new technologies such as APIs. By working in tandem, ISO 20022 and APIs have the potential to offer significant benefits to the entire banking and financial services ecosystem including securities market players, payment service providers, fintechs, and many others.