[ N E T W O R K M A N A G E M E N T ]
ing agents accommodate these emerging needs ? Institutional volumes in this area remain pretty moderate for the moment , but there is broad agreement that it is heading in one direction . “ It ’ s an interesting one in terms of timeline ,” says Buzza . “ Putting cryptocurrency aside , for us another focus right now is digitally native securities : securities issued directly within a pure digital environment .”
Northern Trust has built its own tokenisation platform and has the capability to issue , custody , and lifecycle-manage tokens , but , says Buzza , “ If I put my network management hat on , we generally access the markets in our network by Swift and that works pretty well . New assets generally are in digital ecosystems , and they don ’ t interact by Swift . Banks and network management functions need to work out how we ’ re going to access these marketplaces as well as risk manage these processes and connections . “ One of the things we ’ ve done here is create a digital asset interface , which has the ability to talk to multiple blockchain languages , ingest data through the digital asset interface , and then that data is converted downstream into ISO 20022 and 15022 format messages , so they can be absorbed by our accounting and SMAC systems .”
Co-existence of traditional and digital Despite moderate volumes , Buzza suggests that waiting to address this particular challenge is not an option . “ If you wait two or three years , no matter how much effort , resource or spend you put against it , you ’ re probably not going to catch up ,” he says . “ If I think of my group of network managers , they are digitally conversant .”
A period of co-existence between traditional and digital assets is almost inevitable , but Buzza insists that can ’ t apply at a network level . “ From my standpoint , they ’ re just assets ,” he insists . “ If I bought a share in a blue chip stock 50 years ago , a clearing bank would have issued me a share certificate ; that was then dematerialised , and now it ’ s being digitised . It is just the next evolution of asset issuance as far as we are concerned .”
That said , where the network management function still needs to evolve is in understanding technically how things will work in a digital environment . Instant settlement within a digital environment is wholly different to a T + 1 or T + 2 environment within a traditional CSD settlement stack . “ We talk to our sub-custodians constantly around product suite capabilities and this goes back to the future-proofing component of the network management function ,” says Buzza . “ Where we are talking to major providers , we discuss their existing capability , but more and more now we ’ re talking about what capabilities are they going to be looking to provide in three , five , seven years ’ time . So there will need to be agent bank capability within the digital asset space . One of the things that we do now in our due diligence process is to ask about their investment in digital capability ? What are they planning for in the future ?” State Street ’ s Hickey makes a similar point . “ The increasing operating cost over the years coupled with increasing regulatory requirements have posed challenges to custodians ,” he says . “ Custodians need to be strategic in selecting their network sub-custodians that have the right products , technology and commitment to invest for the long-term .” To end on an unambiguously positive note , one welcome result of lockdowns for network teams has been the change in signature protocols . “ Signing documents digitally is just now completely accepted ,” says one manager . “ Before I was running around the office like a chicken without a head , trying to find signatures on documents . So that has really , really made my life a lot easier .”
8 Securities Review Q3 2023