Grygo is chief content officer for FTF
The securities servicing industry, according to a new survey, is reaching a “tipping point” in its embrace of application program interfaces (APIs), which are those key links among software systems that serve as superhighways for data, and are intended to help firms boost efficiency and adopt to new business models.
The new report from SWIFT and the Boston Consulting Group (BCG) finds that “API interest is rapidly growing in the post-trade area,” where it is sorely needed.
“Over the course of 2018 alone, awareness of APIs among asset managers increased 26 percentage points to 72 percent,” say BCG officials. “The growing commercial interest is driving more pilot schemes and use cases, particularly between asset managers and their custodians.”
The BCG analysts argue that 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.”
In fact, the report notes four areas where APIs are a boon to operations:
- 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;
- And operational benchmarks to help service providers compare performance with their peers.
The report also has four calls to action:
- “Mutualize 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.”
- And “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.”
The report suggests that custodians might have adopted APIs faster had there been a regulatory catalyst. But regulators tend to avoid getting down to the dirty details unless they absolutely have to. They prefer that others take on that role.
“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,” according to the report. “Some 56 percent of respondents in the BCG survey perceive maturity of post-trade APIs to be ‘experimental’ while just 21 percent say it is ‘high’ or ‘medium.’ ”
A common complaint among financial services firms is that getting their custodians to change an application or IT system link or even to adopt an API is sometimes a mighty effort, given the bureaucracies and security rules that govern the service providers.
The fact that service providers might be taking a new stance toward APIs will be welcome news to clients that are already sold on the strength of these links.
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