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What is the question?

Many people watch the movement of stock market indices, and perhaps also interest rate changes, and possibly even foreign exchange movements: but who considers with much frequency or depth how a corporate issuer paying its dividend or interest rate coupon figures out how much to send to each beneficiary, or how it gets paid out and finds its way to their individual accounts in some far-off country? For those who do not particularly think about what is behind a light switch such that a room is well lit at night, or ask themselves about how clean water arrives at their tap, both hot and cold, they are also not likely to consider how stocks and bonds are looked after when their savings are invested in them. Most of the time, all of this infrastructure works without further consideration.

How the programme developed in its first five years

From the outset of this third-party monitoring programme in 2012, Thomas Murray rapidly found itself accumulating what is possibly the world’s most detailed and best data and qualitative information set on one of the world’s least well-known cogs in the workings of the global financial system, transfer agents. Like any machine, when a single cog breaks down, so does a large part of the mechanism.

Transfer agents fall below the bar of what the global authorities consider to be a market infrastructure institution like a national payment system or central securities depository, and are for the most part outside the perimeter of national regulatory authorities as well. And yet, as is true for most of them, their critical functions involve receiving and making payments for public funds, and maintaining share ownership registries for those funds. These are not small matters.

We are no longer in an age of brokers trading shares in a splendid baroque room in Amsterdam, under a willow tree in lower Manhattan, or in the coffee houses of London. We are no longer in an age of imposing 19th century bourgeois edifices lining Europe’s most important boulevards, underscoring the central position of finance - of stocks and bonds - for national economies as a keystone of Victorian social progress. And we are no longer in an age of outbound transfer of European thinking and law about securities finance to nearly every corner of the world – almost no matter what the political structure in place, the idea of marketable securities seems to have won the day. And it carries on, often in unlikely circumstances where the “soil” would have seemed too shallow for this “plant” to take root.

We are in an age where the price discovery of securities is being led by algorithmic computer programs. Most likely, we have been in this age for longer than we realized; certainly, it has been coming on for decades. The Computer Assisted Trading (“CAT”) software developed in Toronto is generally recognized as having been the first such electronic trading system established in a central, regulated marketplace. It was introduced in the now distant year of 1977, a full 40 years ago.

After a multitude of articles on the policy objectives of MiFID II, the new obligations of the buy- and sell-side on research and trade reporting, and the new requirements for transparency in fixed-income markets, Thomas Murray finds itself in the position of having to see how trading begins to adapt as the Directive comes into effect at the start of the year. Specialising in post-trade infrastructures and services, its business lines are not in the immediate lines of fire of this reform – its clients are, but in other of their activities.

The authorities with whom we have spoken caution that the new shape of the EU capital markets will not take form immediately, judging from how long it took to see with any certainty recurring patterns in trading after the implementation of Regulation NMS in the US and MiFID I in the EU. We have been advised to expect a period of 12-18 months in which time the order flows and ways of execution will have settled under this new regime, assuming that this adaptation is not unduly thrown off course by world events, unforeseen technological changes, and of course economic and financial changes that would alter significantly today’s outlook on trading and investment conditions. This truly is a complex mix of variability, one which does not give even the keenest of observers a clear view ahead.

Given the centrality of regulation to the firm’s information and monitoring services, the changing nature of financial markets these past twenty years and longer, the continuous adaptation of participants to new IT and evolving economies and geopolitics, Thomas Murray has always kept a sharp eye on risk affecting our clients and how its own services have enabled them to assess their appetite for it. When nothing is stable for long, the nature of risk is never fixed, either.

Risk outlook is the central point of the firm’s monitoring and assessment work. As a result of this its first topic at the inception of the business was on defining risks involved in establishing proper bank custody services for US institutional money outflows, and determining appropriate and adequate responses, all as per United States SEC regulation.

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