証券決済革命

日本の証券決済制度改革は2000年頃に本格化した。15年の歳月を経てDVPは実現し、STPは幅広く普及した。そして、今まさにその最終ステージに差し掛かり「証券決済革命」の時代を迎えている。

日本の証券決済制度改革の経緯において、以下の4点は重要なマイルストーンであった。

  1. RTGSと照合システムの構築、STPの普及(2001年)
  2. 証券保管振替機構の拡充と株式会社化(2002年)
  3. CCPの設立とDVP決済の進展(2002-3年、2007年)
  4. 株券の電子化(2009年)

現在の日本における「証券決済革命」の残された課題は、以下の5点に集約される。

  1. 国債、株式等の決済期間短縮化への取り組み
  2. 清算機関(CCP)の機能拡充、利用拡大、連携・統合への取り組み
  3. 証券決済機関(CSD)の機能拡充
  4. 市場参加者におけるSTPの加速
  5. クロスボーダー証券決済の円滑化

証券決済システム高度化の経緯

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セレントは、こうした日本の証券決済革命の動向を基軸に、金融業界のレガシー&エコシステムマイグレーション、イノベーション、そしてエマージングテクノロジーの可能性をレポートしている。

本証券決済革命シリーズにご期待下さい。

From the Celent Innovation Forum, Tokyo

At Celent we have been focusing on financial services technology since our inception. Now of course all eyes are focused on fintech, which we might inversely call the use of technology to disrupt (traditional) financial services. Investment in fintech startups is significant, and the financial markets involved are huge – US$218 trillion annually in the capital markets alone. Celent recently held our latest fintech event in Tokyo to a full house, an indication of the intense interest in fintech in the Japanese market. The day consisted of two Celent presentations on fintech in the retail and institutional securities industries, followed by a discussion panel. Celent senior analyst John Dwyer presented on blockchain technology and its potential use across capital markets. Smart contracts powered by this technology could conceivably replace existing means of executing market transactions, and by enabling direct ownership might displace custodians and other intermediaries. As if this weren’t food for thought enough, governments including the US and UK are taking a serious look at putting the dollar and the pound on blockchains. Talk about fundamental disruption! Senior analyst Will Trout provided an analysis of how automated advice (robo advisory) is reshaping the wealth management industry. After the financial crisis many individuals quite naturally want to manage their assets themselves, but also require investment advice. Robo advisory, which perfectly suits the self-service, mobile lifestyle, is an answer to this dilemma. SoftBank, Nomura Asset Management and The Bank of Tokyo-Mitsubishi UFJ joined the panel discussion, bringing their respective views on cognitive computing; the potential of fintech to lure Japan’s famously reticent retail segment to participate in the markets; and how to mobilize a large organization for innovation. A fundamental question about fintech is who will ultimately derive value from these innovations: fintech startups; technology giants like Alibaba and Google; or the incumbent financial institutions? Due partly to the regulatory stance, in Japan more than in most markets financial institutions may be in the best position to end up in the winner’s box. Only time will tell, for Japan and for markets across the globe, but you can rely on Celent to continue to provide our clients with insights in the rapidly developing world of fintech.

セレント・イノベーションフォーラム:ブロックチェーン2.0

11日のイノベーションフォーラムで講演するため、初めて東京を訪れるのを楽しみにしています。 私のプレゼンテーションで取り上げるトピックをご紹介します。 フィンテックのトレンド 私の講演では、多様な投資家からフィンテックへの資本の流入状況をはじめ、現在の進展状況について解説した上で、中期的にディスラプションがどのように進むか大局的な展望を導き出します。私の専門分野はキャピタルマーケッツなので、B2CではなくB2Bを中心に話を進める予定です。B2B市場はB2Cに比べるとより複雑で、規制が強く、市場規模がはるかに大きいため、イノベーションやディスラプションのレベルは画一的ではなく、また競争も激しいものとなるでしょう。 ブロックチェーン2.0/ 分散型帳簿 後半では、目下注目度が急上昇しているブロックチェーン2.0と分散型帳簿について話します。この分野は変化が速く、いや、速すぎるため、どのテクノロジーをブロックチェーン2.0や分散型帳簿と呼ぶかについてさえ、意見の相違がみられるほどです。このテクノロジーはまだ比較的初期段階にあり、状況が刻々と変化していますので、その中から参加者の皆様に有用なテクノロジーについて紹介したいと思っています。 分散型コンセンサス 分散化とは、トランザクションまたは資産を第三者が承認あるいは保管するにあたり、中央集権的なオーソリティ(権威、中央機関)に依存しなくても済むプロセスです。コンピューター科学の分野では分散型コンセンサスというコンセプトは以前からありましたが、資本市場ではそうではありませんでした。中央機関である証券取引所などを経由してコンセンサスを得る中央集権的アプローチではなく、複数の独立した機関またはノードがトランザクションの正当性を投票で決めることから、分散型コンセンサスと呼ばれています。 許可制の是非 目下の最大の議論は、ブロックチェーンや分散型帳簿を「許可制」にすべきか否かという問題です。許可制にすると、帳簿へのアクセスが管理・規制されます。許可制にしない場合は、(少なくとも理論上は)だれでも帳簿上でトランザクションを行い、帳簿上のトランザクションを閲覧し、トランザクションの正当性を判断するノードになることも可能になります。 スマートコントラクト 最後に、比較的新しいイノベーションであるスマートコントラクトについて話します。スマートコントラクトはビットコインをきっかけに普及したもので、二者間の契約をコードで作成し、それによって金融トランザクションにおけるデータ主体の項目、つまり金額、証拠金計算、金融デリバティブの担保情報といったコンポーネントを自動的に決済したり実行したりすることを可能にするものです。 See you in Tokyo!

Innovation and Legacy Modernization in Japan

As a regional unit, Celent Asia covers all of the industries under Celent’s purview: Banking, Insurance, and Securities & Investments. So it can be a bit of a challenge when we put on a Celent conference in Asia to find topics that resonate across all these verticals. Our recent (and sold out) Insight and Innovation Day in Tokyo hit the target by examining two interrelated themes of vital import to many financial firms today: strategies for innovation, and legacy renewal to support these strategies. The event was anchored by not one but two surveys Celent carried out this spring in Japan. A survey of 1,000+ Japanese consumers initiated by Celent’s CEO Craig Weber suggested that highly digital consumers are the best targets for innovative financial services. The challenge, as this survey revealed (and contrary to popular belief outside Japan), is that digitally savvy consumers are still just a tiny minority in Japan. This implies that financial institutions in Japan must not only innovate, but also educate and lead their customers into the digital financial future. The second survey, organized by Celent Senior Analyst Eiichiro Yanagawa, looked at legacy modernization trends at more than 60 banks, insurers and investment firms in Japan. Core system replacement is in full swing, with a majority of firms either planning or in the midst of their legacy transformation initiatives. Significantly, survey respondents indicated that the primary driver for replacing the core is to improve customer service and satisfaction. Which increasingly will require digital support for the customer experience. In a word, innovation. These surveys were modeled on the Celent reports Targeting Innovation: How Your Customers Might Respond and Tracking the Progress in Core Systems Replacement (Global Life and Global P&C editions). We’ll be publishing our analyses of the Japan surveys shortly. This is what our team does best and, I believe, uniquely: apply our global experience to the markets here in Asia to help firms deliver value.

On the cusp: regional integration in Asia

It’s 2015, the mid-point of the decade and a good time to start looking at major trends in Asian financial services over the next five to ten years. One of the major themes will be regional integration, which is another way of saying the development of cross-border markets. There are at least two important threads here: the ongoing internationalization of China’s currency, and the development of the ASEAN Economic Community (AEC) in Southeast Asia. RMB internalization is really about the loosening of China’s capital controls and its full-fledged integration into the world economy. And everyone seems to want a piece of this action, including near neighbors such as Singapore who are vying with Hong Kong to be the world’s financial gateway to China. The AEC is well on its way to becoming a reality in 2015, with far-reaching trade agreements designed to facilitate cross-border expansion of dozens of services industries, including financial sectors. While AEC is not grabbing global headlines the way China does, we see increasing interest in Southeast Asia among our FSI and technology vendor clients. From Celent’s point of view, both trends will open significant opportunities across financial services. In banking, common payments platforms and cross-border clearing. In capital markets, cross-border trading platforms for listed and even OTC products. In insurance, the continued development of regional markets. Financial institutions will be challenged to create new business models and technology strategies to extract the opportunities offered by regional integration. It’s the mid-point of the decade, and the beginning of something very big.

Beyond HFT

Last week I attended the Tokyo Financial Information Summit, put on by Interactive Media. The event was interesting from a number of perspectives. This event focuses on the capital markets; attendees are usually domestic sell side and buy side firms and vendors, including global firms active in Japan. This year there was good representation from around Asia ex-Japan as well; possibly attracted by the new volatility in Japan’s stock market. The new activity in the market was set off by the government’s Abenomics policies aimed at reinvigorating the Japanese economy. But I suspect the fact that Japan’s stock market is traded on an increasingly low latency and fragmented market structure gives some extra juice to the engine. Speaking of high frequency trading, Celent’s presentation at the event pointed out that HFT volumes have fallen from their peak (at the time of the financial crisis) and that HFT revenues have fallen drastically from this peak. In response to this trend, as well as the severe cost pressures in the post-GFC period, cutting-edge firms seeking to maintain profitable trading operations are removing themselves from the low latency arms race. Instead, firms are seeking to maximize the potential of their existing low-latency infrastructures by investing in real-time analytics and other new capabilities to support smarter trading. HFT is not dead, but firms are moving beyond pure horsepower to more nuanced strategies. Interestingly, this theme was echoed by the buy and sell side participants in a panel at the event moderated by my colleague, Celent Senior Analyst Eiichiro Yanagawa. Even though HFT levels in Japan, at around 25 – 35% of trading, have probably not reached their peak, firms are already pulling out of the ultra-low latency arms race–or deciding not to enter it in the first place. The message was that for many firms it is not advisable to enter a race where they are already outgunned. Instead they should focus on smarter trading that may leverage the exchanges’ low latency environment, but rely on the specific capabilities and strategies of a firm and its traders. Looking at this discussion in a global context, it seems interesting and not a little ironic that just as regulators are preparing to strike against HFT, the industry has in some sense already started to move beyond it.

Quotes from the Innovation Roundtable

They said it couldn’t be done, but we held the latest installment in Celent’s series of innovation roundtables in Tokyo recently. Our innovation roundtables put the focus squarely on interactive discussion among the participants. This is a relatively untried model in Japan, where events typically take the form of conventional conferences with presentations. We’re glad we tried it though, because we got a very interesting line-up of firms. Participants included the whole spectrum: banks, capital markets firms, and insurers; Japanese and foreign firms; traditional mega-institutions and alternative new entrants. The discussion was lively; below are some quick notes I took of some of the more interesting comments made, to capture a bit of the flavor of the day. Why Innovate? “Innovation is not the goal, it is a method and a tactic.” “We need to innovate because it has become difficult to differentiate us from our competitors.” “In today’s environment, innovation is necessary if you want to stay profitable.” Paths to Innovation “Incremental innovation is an axymoron. You can’t innovate by increments; innovation requires a big bang change.” “It might be possible to rearrange existing elements to create something new.” “When to innovate? If our clients think a new service is interesting, we try and create it for them and see if it succeeds.” “Innovation needs to be business driven.” “Financial institutions need to have an innovation division; an incubation unit that accumulates ideas from throughout the company.” IT and Innovation “IT is not the impetus for innovation, but because IT inevitably evolves, that creates need for innovation.” “Legacy is a barrier: it is hard to throw things away.” Cultural Challenges “We need to justify ROI on any investment each fiscal year. It is hard to show this on an innovation project.” “If you think about it, financial institutions don’t even have R&D departments.” Quote of the Day “Changing company culture is really about changing oneself. I personally enjoy innovation and change. Innovative culture is about getting a bunch of people together who enjoy change.”

Challenges with China’s RMB Internationalization Process

Chinese authorities have been making concerted efforts of late to internationalize its currency (renminbi, RMB) by trying to increase its use in international trade settlement and investment. Their efforts are paying off as international RMB payments and trade settlement have grown rapidly since 2010. The whole process consists of three broad steps beginning with the use of RMB in trade settlement, then investment and then as a global reserve currency. The first step is well underway and has received the most traction of the three – around 10-15% of China’s international trade is settled in RMB at present. China has currency swap agreements with 24 central banks allowing them to directly settle international RMB trade. Use of RMB for investment purposes is still limited due to lack of development of the Chinese capital markets and strict controls imposed by the Chinese authorities. Use of RMB as a global reserve currency is the most ambitious step and likely to take the longest time. At present several central banks have expressed interest for increasing RMB holding as part of their reserve. However, the quantum of holding is small at present and primarily geared towards diversification of foreign assets.

In spite of these developments, there are challenges with China’s efforts to internationalize the RMB. Even though the Chinese currency recently broke into the list of top ten currencies globally, its share is still miniscule (~1%) in total global payments. At a broad level, RMB is mostly used to settle imports, but not exports – roughly a third of imports and less than 5% of exports are settled in RMB at present. Even in imports, invoicing is often done in US dollars while settlement happens in RMB.

A necessary requirement for RMB internationalization is to first make it fully convertible. China is planning to do this first through the offshore markets. Doing the same in the onshore market by opening capital account and liberalizing interest rate regime will be more challenging.

Then there are operational challenges for banks that need to be addressed. New systems and processes will be required to support clearing and settlement of payments in real time by domestic and international players. They also need to support different languages including Chinese, English and other regional ones and to accommodate working hours in different time zones to bring about a truly international system of operations.

These will also require strengthening of China’s anti-money laundering (AML) framework. AML practices in China have been in development for over 15 years, however, the AML regulations were largely inadequate until as late as 2006-07. As a result the internal control systems and company culture at banks in China tend to be inadequate, and they do not go beyond meeting basic regulatory requirements at present.

Given the rapid developments in the RMB internationalization process over the last three years, there has been a lot of enthusiasm and optimism expressed by several players regarding its potential to bring in major changes in the immediate future. However, it is safe to assume from past experiences that China will follow a planned, controlled, and slow but steady path in trying to raise the importance of its currency at a global level. True internationalization of RMB will require fundamental changes on many fronts including regulatory, market infrastructure, political and geopolitical aspects. An intermediate step in realizing the ultimate goal may be to first make RMB a dominant currency at a regional level (ASEAN/Asian). The extent of its adoption at a global level will however be long drawn and closely watched.

Issues with Fund performance in India

The Indian mutual fund industry has a very high number of schemes which has been another cause for concern for regulators. In 2012-13 there were a total of 1,294 schemes, while there were only 403 of them in 2004. A high number of schemes make the job of choosing a suitable scheme for retail investors difficult.  However, offering new schemes has been a marketing tool for many AMCs, and an easier route for garnering more assets. If some of them start launching new schemes frequently, others are forced to follow as they fear otherwise they would be perceived as inactive or not aggressive by investors. The regulator has been asking fund houses to rationalize so many offerings, and offer limited number of them which are truly different from each other. Some success was achieved in this regard in 2008 and 2009 when number of new schemes launched went down significantly. However, that trend was short lived and high numbers of new schemes are again being launched since then. Too many schemes make choosing suitable scheme difficult. It is also interesting to analyze how different funds have performed over the years. One way of doing this is to compare the return given by a particular fund with respect to a benchmark index. If the fund beat the benchmark on a consistent basis, say for 1/3/5 year period, it can be said to have outperformed. The argument of active management of funds and charging of fees for that purpose is justified in such cases. If, on the other hand, a fund fails to beat the benchmark index, then an investor is better served by investing in an index fund (which has lower fees being a passively managed fund) tracking the benchmark index. Since December 2009, S&P and CRISIL periodically publish a scorecard, titled “S&P CRISIL SPIVA”, comparing the performance of Indian mutual funds with appropriate benchmark indices during various time periods. Here we aggregate findings from four such reports published in December (H2) 2009, June (H1) 2011, December (H2) 2011 and June (H1) 2012, and plotted in the figure (each column in the figure indicates the proportion of funds that have failed to beat corresponding benchmark). We have selected two types of equity funds (large cap and diversified) and debt funds. We have also added a 50% (red) line for easier interpretation of what proportion of funds have outperformed; 50% being associated with the probability of two outcomes for a fair coin toss. The following observations can be made:
  • A large proportion of firms has failed to outperform the corresponding benchmark for each year and for each time period considered.
  • Debt funds have done relatively better; they have outperformed the benchmark indices more times compared to other two types of funds on a consistent basis. Except for one case (1 year, H1 2009) they are well below the 50% line.
  • The two types of equity funds on the other hand have performed poorly over time.
  • In a large majority of cases (18 out of 24) over 50% of them have failed to outperform the corresponding benchmark. Large caps have performed worse (11 out of 12 cases above the 50% line) compared to diversified funds (7 out of 12 cases). This implies if an investor was to choose a fund from each of these two categories, a toss of a fair coin on average would yield better result than seeking advice from a fund manager.
mf_performance Amidst several debates and discussion on entry load and distributor incentives, the issue of underperformance of mutual funds is often lost. However, this is one concern that should receive the most attention from all stakeholders. Unless mutual funds start offering better returns and outperforming benchmark indices on a regular basis, it will be difficult to attract investors to this industry regardless of number of schemes, geographic reach or entry load.

Use of OTC Derivatives by Asian Corporates

Asia accounts for less than 10% of notional outstanding of the global OTC derivative market. Even within Asia, trading activity is primarily dominated by the four advanced countries Japan, Singapore, Hong Kong and Australia. Most of the OTC products in Asia are plain vanilla in nature, and as a result the OTC markets emerging Asian countries are at a very early stage of development. Corporates in Asia primarily use OTC derivatives to satisfy their need for customization. Foreign Exchange (FX) derivatives are the most popular OTC instruments used by Asian corporates. Many corporates have regional or international operations; they use cross currency swaps as net investment hedges for foreign currency exchange risk of international operations. In addition, corporates engaged in significant imports and exports use forward foreign exchange contracts as cash flow hedges for exposure to foreign currency exchange risks arising from forecasted or committed expenditure. Interest rate instruments are also popular among Asian corporates. Many Asian corporates have issued foreign currency denominated debt and therefore use cross currency interest rate swaps to hedge interest rate risk and cash flow hedges to hedge currency risk arising from issued bonds. In addition, corporates also engage in OTC commodity derivatives.  Commodity derivatives, particularly those involving palm oil and rubber, are in demand from Southeast Asian corporates. Moreover, corporates in the energy and manufacturing sectors use them to hedge against price fluctuations in the underlying commodities. Emerging Asian countries lack necessary infrastructure for onshore OTC commodity derivatives trading. Corporates in those countries therefore have to deal with international exchanges or with international counterparties.  Asian corporates typically engage in OTC derivatives for hedging, and not for trading purposes. Therefore many of them have not set up infrastructure for exchange trading. Small percentage of them is using centrally cleared derivatives at present. However, this is likely to change in the future since regulators are now encouraging and incentivizing central clearing of standardized OTC derivatives as part of the OTC derivative market reform process. While reducing counterparty risk is an obvious benefit of using central clearing, CCP also reduces clearing costs, as without central clearing one has to pay higher margins up front. With requirements of central clearing and other associated reforms, it is argued that the use of OTC derivatives may decline. If that happens, it will be mostly limited to financial institutions’ use of these instruments who engage in them for trading purposes; the need for OTC derivatives for hedging purpose is likely to increase. Non-financial corporates accounted for around 20% of OTC derivative trading in the emerging Asian economies, while they accounted for only 6% in the four advanced countries. This indicates the involvement of real economic actors and trade related activities are higher in the emerging country OTC markets. This is also due to the fact that in advanced countries large dealers and other financial institutions engage in significant trading and market making activities in the OTC space. Corporates’ high share in emerging country OTC market is likely to continue or even increase as the real economic output of the countries grows.  This will be driven by economic growth, growing international operations and trading activity of local firms, liberalization of financial markets and regulatory initiatives facilitating more cross border trading. The developments in the emerging economies will also contribute to the growth of OTC activity in the advanced countries, particularly in Hong Kong and Singapore, as a significant proportion of activity in those markets comes from investors in the neighbouring countries who cannot meet their demand in local markets. However, this process is likely to evolve slowly as regulators in the region are traditionally conservative in nature.