Preceding the core of the debate, however, panellists discussed whether the term emerging markets still had relevance, particularly when it comes to operational matters. As CharlBruyns, head of investor services at Standard Bank Group put it to Club@Sibos ahead of the event: “A market might be seen as an emerging market because of its fundamentals, but not from the perspective of capability or operations. There are many lenses that you can use.”
Chris Hamilton, chief executive of BankservAfrica and session moderator, took a similar position. Introducing the session, he noted that the level of technological sophistication is no indication of the distinction between major and emerging markets. He cited as an example the largest issue of crypto assets to date being related to Venezuelan petro dollars.
The session focused on teasing out the differences in the approach to financial market infrastructures. Sebastien Kraenzlin, head of banking operations, Swiss National Bank, stressed that for a ‘classic’ developed market like Switzerland, a crucial factor was efficient interconnection between the different elements of the infrastructure, for example, payments and securities.
He drew a distinction between the core infrastructure, accessible at a wholesale level and the outer layer where the interface between banks and their customers is found. In the case of the former, he suggested, experimentation, particularly with distributed ledger technology (DLT) is well under way. However, in the outer layer Switzerland was perhaps “a little behind the curve” with no sense of urgency to move to a widespread mobile payment infrastructure.
By contrast, Brazil with a large unbanked population and heavy use of cash is working through the central bank to foster uptake of electronic payments, said Breno Lobo, advisor, Banco Central do Brasil. There, the focus is on constructing an instant payments ecosystem.
Russia meanwhile, provides a good example of success in such an endeavour. Maria Krasonova, deputy chair of the Executive Board of the National Securities Depository (NSD) pointed out that from being in a similar position to Brazil, Russia’s cashless economy programme has resulted in 68% of adults holding bank accounts and more than 50% of payments being mobile. The challenge, however, is the “last mile.”
Perhaps one distinction that still holds, Hamilton observed, was the fact that emerging markets are able to take a more systematic approach to infrastructural reform. An example of such opportunities was provided by Walter Verbeke, global head of business model and innovation, Euroclear. “All markets are developing,” he said, but some are making greater use of their new capabilities. The Brazilian CSD, for example, has moved to offer depository services beyond securities to include mortgages and other documentation beyond the financial system. “The day is coming when the S in CSD could stand for a lot of other stuff,” he said.
The term ‘emerging market’ suggests an economy in transition from one state to another. Organisations such as MSCI, S&P and FTSE Russell create investable indices used by professional investors for investment analysis, performance measurement, asset allocation, hedging and the creation of a wide range of index derivatives, funds, ETFs and structured products. A global custodian looking for service providers in a region may though be drawn to operational criteria that are not reflected in the indices.
Discussing the issue with Club@Sibos, Margaret Harwood Jones, global head of securities services at Standard Chartered, makes a similar distinction between investment and operational services. At the same time, the nuances and boundaries between emerging and frontier markets are becoming a little less prevalent from a post-trade perspective, she says: “We are observing an increased trend in advocacy for more alignment of local practices with global standards at securities market infrastructures [SMI] such as central securities depository and stock exchanges. More mature SMIs also leverage their expertise and create joint ventures or partnerships to further develop newer securities markets (for example, Korea Exchange and Cambodia Exchange).”
From an operational efficiency perspective, there are grounds for optimism in some of the emerging and frontier markets, whether long-established or with little or nothing in the way of legacy. Harwood-Jones points to West African markets such as Ghana and Nigeria that are very actively looking at DLT proofs of concept in the securities space.