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As artificial intelligence disrupts every industry imaginable at an unprecedented rate, perhaps no industry is being more closely watched for the long term ramifications of AI than the global financial markets. While digital transformation has historically been slower to reach corners of Wall Street than in other industries that adopt new technologies more rapidly, there are a number of factors at play that could see 2024 as a pivotal year for digital transformation as the world’s largest financial institutions.
A financial industry protocol that calls for transactions to settle two days after commencement date, often dubbed T+2 for short, is facing an unprecedented overhaul this year. A new “T+1” framework will require transactions to settle in just one day once the rule takes effect on May 28, 2024. This has sent financial institutions scrambling to build the necessary processes and infrastructure to comply with the new rule. It is within this realm that technology could play a starring role in enabling a transition to T+1 which might otherwise prove too laborious when using many of the current manual and outdated processes employed by firms.
An AI-driven tech platform, called Saphyre, has risen in recent years to fill that gap and has already been adopted by some of the largest institutions on Wall Street. Saphyre’s CEO, Gabino Roche Jr, has shared insights to better understand how Wall Street may face one of its biggest tests of digital transformation yet and the role of Saphyre and AI in facilitating that.
When did you first recognize the opportunity in financial institutions for a platform like Saphyre?
Gabino Roche: The lightbulb moment occurred during my tenure at the New York Stock Exchange, where I witnessed trade messages deviating from the FIX protocol, a fundamental industry standard. It became apparent that error handling was necessary. This issue continued to haunt me during my time at JP Morgan, where I observed inconsistencies from external firms in their data without satisfactory explanations.
The turning point arrived when JP Morgan invited me to join Clariant, a consortium aimed at establishing a KYC utility for the industry. Here, the data from various banks couldn’t be seamlessly mapped due to disparities. This glaring inconsistency presented a remarkable opportunity. In finance, the information’s variation across different firms for the same client accounts was perplexing, as I had assumed that the industry operated uniformly based on JP Morgan’s data model — since that’s where I came from.
However, this diversity in data partly stemmed from banks acquiring others and the limitations of their legacy systems, as well as mostly leaving it to technologists to map the data without the full context and understanding that finance operation managers would. The technology constraints of the past decades had created data silos that could now be unified through modern cloud technology.
Now, with some of the world’s largest financial institutions on the Saphyre platform, what has helped you to win the trust of these prominent names?
GR: Winning the trust of these financial institutions has been a journey marked by several key factors. First and foremost, the ability to demonstrate that our product works seamlessly, out-of-the-box where they could “drive the car today” was absolutely pivotal. In an industry accustomed to lengthy waiting times for instituting technology solutions for their operation teams, the immediate usability of our platform stood out amongst those claiming everything under the sun, along with a six- to 12-month implementation period, at minimum.
Additionally, the concern of security was addressed comprehensively. Saphyre undergoes an annual security penetration test, consistently receiving A ratings due to our vigilance in staying ahead of evolving security threats. This coupled in offering multiple authentication methods to ensure the right individuals access sensitive information. Passing rigorous information security reviews conducted by all of the major banks, the top 15, further cemented trust.
But the crucial catalyst was simply client demand and their referrals to others. Financial institutions are motivated to adopt our platform because it enhances the overall user experience and saves considerable time, thanks to our patented AI technology.
The ongoing dialogue with our clients allows us to continually enhance our security measures, making the platform even more robust. Ultimately, the convergence of these factors builds trust and our partnership with the industry’s giants.
What lessons have you learned along the way in building the Saphyre organization?
GR: The core mission of Saphyre is to create market infrastructure for the financial industry, and in pursuit of this mission, we’ve learned invaluable lessons. The most profound lesson has been the importance of constantly questioning the status quo. We refuse to accept the “we’ve always done it this way” mentality. This is where we see issues around data integrity when you allow data not to be truly understood, and it could be bastardized. But by consistently challenging why things are done the way they are and seeking better ways to capture and communicate data, we’ve become disruptors in the industry.
Our approach is rooted in democratizing data, ensuring its integrity, and making it interoperable.
That’s the biggest lesson because, again, people are going to say, “I’ve been doing this for 20 years, and this is how we’ve always done it.” But if you always understand the “why,” then you know how to tailor the “how,” through innovation, in your technology offering.
Wall Street will soon be transitioning to T + 1, can you talk about the unique role that tech and AI can play in enabling that transition?
GR: The impending transition to T + 1 in the US and Canadian market, which is creating a global impact, is a defining moment, and technology, especially cloud-based solutions, hold a pivotal role in enabling this shift. Traditional on-premises technology deployments are no longer sufficient to meet the demands of this new era, and that’s just the reality.
In a T + 1 (24 hours to settle trade) world, real-time operations are crucial. Cloud-based technology allows for immediate account synchronization, ensuring that both financial institutions and their clients have access to the same information, facilitating real-time reconciliation on client account data. This is in stark contrast to the previous 48-hour window, where data discrepancies could linger.
Moreover, a user interface that streamlines real-time data resolution becomes essential. Even with existing technology, some firms resort to manual processes, such as phone calls, emails, faxes, and spreadsheets, to reconcile data, causing delays. Cloud-based technology streamlines this process, offering real-time digital resolution.
Artificial intelligence (AI) adds another layer of value. By digitizing data and documents and storing them in the cloud, firms can access the data quickly with the system proactively providing the relevant information, without having to manually search for them. However, to achieve true efficiency, you need technology that is able to provide insights and automate processes. This ability to provide real-time insights, automatic alerts, and streamlined processes is where our platform truly shines.
In summary, the role of technology and AI, like the Saphyre platform, in the T + 1 transition is to enable real-time operations, minimize manual processes, and provide data-driven insights, which are essential for success in this dynamic financial landscape.
What excites you about the future of technology on Wall Street?
GR: The future of technology on Wall Street is incredibly exciting. We’ve long discussed the merits of real-time technology and data memory, and with the transition to T + 1, these concepts are no longer mere ideas, but essential practices.
In the past, there was a perception that established financial institutions were the giants of their industry, operating with cutting-edge solutions. However, the reality was different, with many firms clinging to outdated practices, relying on spreadsheets, Windows 95, and aging mainframes. Now, with regulatory demands and the need to be competitive, these institutions are awakening to the necessity of adopting modern technology.
What excites me is that we are at the forefront of this transformation. By building market infrastructure and serving as an operating system for buy-side, sell-side, and asset servicers such as custodians, we are driving change. The industry is finally embracing real-time technology, data memory, and AI to optimize operations. This shift not only streamlines processes but also offers significant competitive advantages. Firms can guarantee immediate settlement, improve liquidity, reduce costs, and potentially lower fees to gain a larger market share.
In essence, the future of technology on Wall Street is a thrilling journey towards a more efficient, real-time, and data-driven financial landscape.
With the move to T + 1 and the fact that firms likely need to acquire innovative technologies to meet the regulatory obligations, are there any revenue opportunities?
GR: Absolutely. A lot of firms are coming to us because there’s a regulatory obligation to work in a real-time manner to meet the T + 1 needs of the given markets. But for the firms that are working with cutting-edge technologies like Saphyre, there’s a revenue play because you will have a competitive advantage over your peers to work in real-time and argue that you can provide liquidity. For example, helping to provide better FX execution options related to settling T+1 related security trades.
In a time when there was no real market or demand for FX liquidity after 4:00/5:00 p.m. New York time, a sell-side firm can persuade their clients and tell them, “Hey, you can digitally import all your accounts to us, and we will be able to guarantee on-time settlement by T + 1 for all your securities-related trades plus their respective required FX across all your funds.” Banks will be able to argue the point that a client should “custody with us.” Or that they should “broker with us.” And state that, “You should do your FX with us as well as your security trades against us because now we’re working in this real-time environment.”
With automation at their disposal, firms can not only cut operational costs but also move faster and potentially reduce fees to attract more business. The ability to provide real-time services and the advantages that come with automation position these firms as leaders in a rapidly evolving financial landscape.
In essence, the move to T + 1 isn’t just about regulatory compliance, it’s also an opportunity for firms to generate revenue by capitalizing on the competitive advantage of real-time, SaaS platform capabilities like Saphyre’s.
