How collaborative negotiation is driving transparency in the capital markets
In the connected age, even the simplest of processes are digitised. When booking a taxi via an app, we immediately know the name of our driver, the vehicle registration, how far away they are, who we can share the journey with and how much it will cost. Instant data and total transparency is now becoming the norm. Except in the capital markets.
In an industry that deals not with minor taxi fares, but with millions of pounds-worth of trades on a daily basis, trade and relationship documentation is still negotiated via legacy, non-transparent and non-collaborative processes – e-mail and Microsoft Word – so there is zero transparency, accessibility or control. But change is coming to these regulated industries and cloud-based, collaborative document negotiation provides the means to bring the capital markets up to speed.
So why must the capital markets embrace this change? Is the market ready to move to a collaborative environment and how will it improve the document negotiation process?
DATA ACCESSIBILITY IS VITAL
Financial institutions are demanding access to data that resides within opaque systems, particularly following the 2008 crisis, which highlighted the dangers of storing critical commercial data in static documents. When Lehman Brothers went bankrupt, armies of lawyers were needed to trawl through endless pdf agreements to understand who owed what to whom and work out the net result. To avoid similar situations, the capital markets must continue to move to machine-readable documents where they can access data instantly and understand their negotiations at the press of a button.
As the industry looks to introduce new waves of stringent regulatory requirements to reduce systematic risk, the ability to access data within documents and injesting it into downstream operational systems is critical to ensure regulatory compliance.
MARKET IS READY FOR DIGITISATION
Digitisation in capital markets documentation is slow, but there are positive signs. Data points are being extracted from legacy documentation using a combination of optical character recognition and manual processes. Distributed ledgers can be used to update the necessary organisations and systems. While these developments do not extend digitisation to the negotiation of capital markets documentation, they do indicate a readiness to explore collaborative negotiation in an all-digital environment.
COLLABORATIVE NEGOTIATION OFFERS CONTROL AND EFFICIENCY
To fulfil the needs of capital market participants, a cloud-based collaborative environment must provide the ability to negotiate documents digitally, between multiple institutions, using familiar tools. As well as offering ultimate security, it must allow access to existing industry applications, be adaptable to integrate with new ones, data mining and information management capabilities.
Such an environment brings control and visibility to document management, preventing critical commercial data being trapped in systems that can’t make information accessible. It removes bottlenecks where agreements are “with legal”, and situations where documents are bouncing around on e-mail with no visibility over where they are and who is working on them. Instead participants access a highly secure, centrally available, single version of the truth.
Collaborative negotiation, where institutions are connected through a cloud-based platform agnostic of document type and participant, brings speed, efficiency and economies of scale. For instance, processing an ISDA [international derivatives transaction] can be significantly accelerated, with negotiation times reduced by several weeks or months, and the need for numerous inbound and outbound tasks removed for all parties.
The time has come for the capital markets to close the document management loop and negotiate all documents within a digital environment, where the data they contain is readily accessible to those who need it. An imminent step-change will make cloud-based collaborative negotiation central to capital markets operations, bringing increased transparency, efficiency, and control to trade and relationship documentation.
To discover how SmartDX is helping all the G15 investment banks and some of the world’s largest commodity companies streamline trade and relationship documentation please visit www.smartcommunications.com/smartdx
For more information on repapering or negotiating documents online visit https://www.smartcommunications.com/uncleared-margin-compliance-in-nutshell-find-out-how-repaper-implement-csas-modern-way/