Midori Miyasaka, Business Analyst at Nomura Research Institute, recently presented a piece of proprietary research on global communication platforms for Japanese market participants at TSAM Europe in London. Following the event, we sat down with Midori-san to discuss some of the highlights and compelling points from her presentation.
Q: What are the top three things you found most interesting from your discussions with participants at the event?
A: I had the opportunity to meet with a wide-variety of market participants and technology firms at this year’s TSAM conference. The event was very global in nature and there were many interesting topics discussed both formally and informally. Several attendees were curious about the unique infrastructure of the marketplace in Japan and we received a lot of questions about the Japanese pension fund, one of the biggest asset groups in the world
Throughout the course of the conference, it was evident that risk and data management are the dominant industry topics and remain top of mind for the buy-side. There was a strong interest amongst delegates on the exhibition floor seeking risk and performance analysis systems. I was surprised that not many businesses were offering or presenting those solutions at their booths, as the topic was discussed at the event.
It was also great to meet with so many companies from across the globe. Delegates flew in from all over Europe and North America. But surprisingly, NRI was the only Asia-based firm at the conference.
Q: Why did you choose global communication platforms for Japanese clients as your presentation topic?
A: Throughout our discussions with Japanese fund administrators and custodians, we’ve heard many individuals express that their firm is in need of a global solution to navigate the complexities of regional infrastructure. Given our strong presence in Japan, supporting almost 90 percent of market participants in asset management, we felt that we could provide a good analysis to the TSAM audience. Data operations outside local Japanese transactions are much different, as it is sourced from multiple channels, causing various operational challenges. Using NRI’s technology, Japanese fund clients are able to enter data into their system, which is developed to allow the information to connect to all related parties, providing everyone connected with the benefit of straight through processing (STP). We are working to offer STP capabilities to firms engaged in cross-border trading and operations.
Q: What current operational challenges exist for implementing a global communications platform?
A: The biggest operational challenge is finding a process that eliminates the high risk for human error in cross-border communications. For example, due to time differences and language barriers, firms might experience issues in collecting data for disclosure and regulatory reports, centralizing information transmitted by fax or phone and gathering subscription and redemption information.
In the typical multiple platform environment, there are several manual and time-consuming steps required to receive and cross-reference transactions, causing inevitable data loss and inaccuracies. Implementing a solution to automate these interactions should be a number one priority.
Q: Why do these challenges persist?
A: The current regulatory requirements are not clear and it is difficult to keep up with ongoing interpretations of these rules. Additionally, Japanese distributors are dealing with fund centers all over the world, usually with completely different platforms in each location. If a particular Japanese investment manager is dealing with five jurisdictions, then it has to build five separate solutions, one-by-one. This is extremely costly, as the firm must analyze the gap between the fund, the information it needs and what is available, while continuing to translate and define the data.
Q: How have the ever-changing regulatory requirements increased firms’ need for a comprehensive platform?
A: No matter where the firm is based, client reports should be standardized and easy to understand, since more transparency will lead to greater benefits for investors. Requirements for more transparent reports are coming in 2014 and it will be up to the Japanese market participants to decide how this will be done. Until those regulations have been finalized, participants outside of Japan may find it very difficult to access crucial information about what progress is being made unless they have access to a regionally calibrated platform.
Q: What are they key benefits of a global communication platform? How did the client in your case study benefit from this workflow?
A: Implementing a global communication platform from a specialized IT solutions firm provides a huge cost benefit. The fund is able to focus on its core business and avoid spending unnecessary time and resource on building a solution from scratch. As with the client case study I presented at TSAM, funds can increase straight through processing (STP) rates, reduce operational error, increase efficiency and eliminate volume sensitivity, all while lowering costs. As the industry continues to be pressured to do more with less, it will become increasingly important to leverage technology solutions in order to reduce operational burden.