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Securities is a large market for SWIFT

March, 2018

CFO Insights on Financial Services

SWIFT India recently tied up with Marketplace Technologies, a fully owned subsidiary of the Bombay Stock Exchange and the tie-up will act as the service bureau for securities markets. In an interview to CFO Insights, Kiran Shetty, CEO & Regional Head, India & Sub-Continent, SWIFT India talks about SWIFT’s plans to play a larger role in India’s capital markets.

How do you see technology transforming financial services in India?

Digitization is creating tremendous opportunities for economies across the globe, and India is an example of a country that not only understands this opportunity, but has embraced it. Digitization has the power to transform India into a true technology leader in the years to come. Morgan Stanley forecasts India's GDP to reach $6 trillion in 2027 because of its digitization drive. That would make India the third-largest economy in the world, behind the U.S. and China, which recorded $18.5 trillion and $11.2 trillion in GDP, respectively, last year.

Looking at the technology transformation that has happened in the Indian financial services industry over the past few years – internet banking, mobile banking, financial inclusion, move to cashless with payments products, you will find that almost all of it has been in the retail payments space.

We see in the coming years a lot of technology thrust on wholesale payments and digitization of trade and supply chain. That business by inherently being paper-based and PDF intensive will see many innovations enabling the digital push. The government’s commitment towards Digital India and improving the Ease of doing business will see the trade sector making rapid strides towards complete digitization.

How is SWIFT planning to leverage Blockchain technology going forward?

Since the emergence of Blockchain and distributed ledger technologies (DLTs), the question of how this technology can be deployed in a business environment has captivated the industry. The search for implementations and use cases is now a key focus of R&D and innovation teams in major financial institutions, and is top of mind for executives seeking to determine future strategies for their transaction businesses and other data-driven operations. As a financial industry cooperative, SWIFT’s focus is on building technical, operational and business capabilities with a view to evolving our platform such that DLT-based services could be offered to our 11,000+ members, when the technology matures, and firm business use cases emerge. Such DLT-based services could be provided by SWIFT, our community or third parties. In this context, we will continue to work with the financial industry to guarantee end-to-end automation and backward compatibility with legacy processes.

As part of the SWIFT gpi service (Global payments initiative is about improving speed, transparency and end to end tracking of cross border payments), SWIFT undertook a proof of concept for real-time Nostro reconciliation using a SWIFT-developed distributed ledger technology (DLT) with 33 global transaction banks. Preliminary results of the PoC show that the SWIFT-developed DLT application can deliver the business functionalities and data richness required to support real-time liquidity monitoring and reconciliation.  DLT provides real-time visibility to both the account owner and its servicer on the available and forecasted liquidity on the Nostro account and supports payment reconciliation and investigations by providing an enriched data model based on ISO 20022. SWIFT’s DLT demonstrated progress in DLT technology and helped identify issues that still need to be addressed to achieve industry-wide adoption. Specific challenges include the need to develop unique value propositions in response to the different levels of sophistication, automation and past investments of banks. In addition, it is crucial that integration with legacy back office applications and co-existence with existing processes is considered.

It is still early days for the latest generation of Blockchain technology, and it will take time before it is mature and scalable enough for mission critical applications, but SWIFT will continue to test applicable use-cases in payments and trade finance on the technology.

Is SWIFT looking to build sustainable competitive advantage through acquisitions or by building internal capabilities?

SWIFT is committed to building best in class secure & standard messaging system for digitizing financial ecosystem in India in the areas of Trade Finance, Payments & Cash Management and Treasury. In this endeavor we will not only be building significant internal capabilities but will be open for partnerships.

SWIFT India has tied up with Marketplace Technologies, a fully owned subsidiary of the Bombay Stock Exchange and the tie-up will act as the service bureau for securities markets? Tell us about the tie-up.

Marketplace Technologies Pvt. Ltd., will be our new Service Bureau for Securities markets in India. It is a group company of BSE (Bombay Stock Exchange), the second largest and the oldest stock exchange in India. It is a strategically important initiative for securities market in India. We endeavour to connect various Securities Participants through this Service Bureau in a cost effective and secure manner. Thus, expeditiously increasing our securities footprint in India. Service Bureau becomes a unique alternative for clients who want to connect with SWIFT with cost or technology constraints. Through this Service Bureau we bring the unique advantage of introducing SWIFT’s standards and global best practices to the entire spectrum of Securities Market. Through this initiative we intend to bring various market participants to one standards and harmonization in line with global best practices. This will have long term benefits as markets and automation grow. Both SWIFT and Marketplace are committed to bring participants on the SWIFT platform and bring operational efficiencies through automation and standardization.

How are you looking to connect the market participants to the exchange in a secure and standardized way?

India is a strategic initiative for SWIFT and SWIFT has invested to create a dedicated infrastructure catering to India’s domestic traffic. A first of its kind in and for India. Securities is a large market for SWIFT globally and accounts for a considerable amount of message flows. We see huge potential in Securities market in terms of bringing message standardization and adaptability. This dovetails in to stated aim of regulators to bring uniform standards across market segments viz. Fixed Income, Trade reporting, subscription redemption et al. This initiative will enhance us to reach out to large securities market participants. This market covers Asset Management Companies (AMCs), Insurance companies, Broker/Dealers network, Exchanges and custodians along with Banks. This covers many Domestic Financial Institutions (DFIs) representing considerable size and volume. Thus, providing to connect to large part of domestic Investments traffic

How do you see adoption of global messaging standards bringing operational efficiency in Indian securities market?

Currently participants in Indian capital market face serious operational challenges of multiple counterparts and supporting different proprietary file formats for communication. Global messaging standards will help eliminating the burden of implementing and maintaining multiple proprietary standards and local market practices. With a single standard, reconciliation can be automated using workflow techniques and rules-based systems.

How can SWIFT play a larger role in India’s capital markets?

Development of common platform and standards will have significant impact on way the Indian securities market deals with messaging and communications. Automation has potential to bring about significant gain in terms reducing costs, operational risk and operational inefficiencies. SWIFT provides a complete and proven solution to automate and standardize communication between capital market participants and market infrastructures like Stock Exchanges, Clearing House and Depositories.

Opinions expressed in the article are the author’s own.

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