Standards and Protocols - The SA Way

by Nuala Keogan, Peresys

In 2000, the South African Reserve Bank published a lengthy report on financial regulation in South Africa and a key component of that report was the assessment of the financial markets regime in SA, and how it had changed over the previous two decades and how it could potentially change in the coming decade. The report is notable in that certain changes predicted have happened and so it makes its veracity more compelling when looking at the next 10 years or so, especially if you are a participant or service provider to the SA financial markets.

Having worked in the South African financial market for the past 12 years and having seen many regulatory changes and the impacts of forces we cannot control, such as global market dynamics, international competition, easing of financial controls and the creation of new markets, I feel that we must constantly re-assess our business strategies and their accompanying IT strategies.

Globally, the explosion in the international financial industry over the last 20 or 30 years has been driven by a strong amalgamation of economic growth, technology and financial innovation, a very powerful combination and one that has not left us untouched, for the better.

With increasing offshore participation in our major markets from bonds and equities to Foreign exchange and OTC (Over the Counter Derivatives) and our increasing offshore presence coupled with the existence of several major international banks in the local markets means South Africa has had to increase its awareness of and participation in the international regulatory scene. Ensuring we position ourselves to gain greater local adhesion to international trading standards means broader acceptance of South Africa as a transparent and competitive force in the global financial markets.

The benefits of this includes greater access to larger international pools of liquidity, stronger participation in global markets and a more collaborative internal effort to bring South Africa to the forefront of emerging markets and ultimately a key player globally.

The framework that exists and enables local businesses to participate more freely in the global market has its own unique opportunities for financial institutions and exploiting these are key to the success of those businesses.

Questions such as how to increase efficiency, reduce error rates, create standardization of transactions, derive superior value from internal information plague businesses globally, and form part of the never-ending cycle to create superior derived value from the internal information that is contained within that organizations systems.

In our markets, increased awareness of the fundamental concepts of the management of risk and its associated emphasis on effective management control systems, are becoming increasingly mandatory and accepted in a world of growing complexity. The need to manage these complexities both internally and externally is mounting and not only from regulators but also from clients who are demanding better service and value. For businesses, the myriad concepts, standards, and systems that exist to help them handle the issues they are facing are daunting and create even more difficult business decisions that will influence many parts of the business, in the long term. However, there is an upside to all of this.

According to an IBM white paper on business transformation, technological developments such as the increasing use of open standards and the industry acceptance of these standards have made it possible for financial institutions to move to new business models. These flexible business and technology models can be the building blocks for a progressive transformation journey. The size of the opportunity in terms of business value is very significant and for some, if the complexity and inflexibility of their operating models continue then the issue becomes one of survival, not a good place to be.

So, what is the picture for South Africa and how capable are we of counteracting the downside of these forces and harnessing them for business growth?

Our business environment continues to grow more complex and variable at a rate that makes businesses, as South Africans say, not knowing if they are Arthur or Martha.

Trying to manage the current process limitations, introduce new technologies, and manage your customer requirements creates increasing reprioritization of projects and issues within the business. Obviously, the trick is to use your business drivers to push your technology requirements but we all know how difficult this can be.

Businesses are very silo based and far from integrated or using open standards, there is little standardization either in approach or adoption, with multiple agendas operating internally and innumerable solutions available externally. Everyone knows something needs to be done but who will do it and how will it be done continues to form the basis of many internal discussions and meetings with various market forums trying to bring together the multiple participants to discuss what needs to be done and try to create consensus. This of course is not a South African dilemma but rather a global one, which we can share in.

Standards do create ability to smooth workflows, reduce errors, build business continuity, and save costs but to get there is not a straight path, there are many issues and hurdles to be overcome and managed. Diversity in approach within institutions creates dilemmas and opens the door to keeping the status quo alive, if it is not broke then do not fix it or doing the more straightforward linear projects that only affect a small component of the business.

By trying to revise workflows, using standards for greater efficiencies and the setting of ambitious transformation deadlines means institutions need constant revision of projects and resources to meet various deadlines. Everyone wants the efficiencies but the problem lies in trying to meet the mix of demands, timescales, and expectations.

Some of the issues can be hidden costs that can limit transformation; the scope of change can be daunting and immeasurable and can inevitability create a potential game of constant catch up for the business.

Perhaps the key is to be more realistic and have progressive change that drives towards a structural business design based upon open standards, enabling the re-use of business components and services at the application, function, and infrastructure levels.

A holistic approach to the business infrastructure is very important when making IT decisions especially when they not only affect your internal processes but how you communicate with and manage your products, services, and clients. The risks are high but change is inevitable, it is just how you manage the change and understand that its impact is the difference between success and failure.

The standards arguments will go on and as providers of solutions, we will continue to be a part of those discussions and no matter what area of the market you participate in, it will influence your business for the near future.

This is very positive, considering traditionally we dealt with proprietary technologies and platforms from suppliers that rarely gave us much choice regarding standards or communications or protocols and created integration nightmares within our businesses.

The global financial industry backs the creation of standards, the ongoing improvement of those standards and actively participates in the forums that create them, for the advantage of all. Industry participants recognize the benefit of these standards and protocols and their eventual adoption and although daunting to do so, offer us greater opportunities than we have had before.

In the coming months, we will discuss the standards that exist in different asset classes, such as FIX (Financial Information Exchange Protocol) and FPML (Financial Products Mark Up Language) and standards for data types, such as RIXML (Research Information Exchange Markup Language) for broker research and XBRL (Extensible Business Reporting Language) for equity fundamental data.

What do they mean for the markets in general and what will they mean for businesses in South African and how can we benefit from them?

About the author:
Nuala Keogan works for Peresys, a South African based software vendor and has worked for the last 12 years in the fixed income, foreign exchange and OTC derivatives markets in South Africa, in a variety of roles.
Most recently, she has been involved in a South African first: an OTC Derivatives Booking and Matching Platform for the Bond Exchange of South Africa using the FIX Protocol.