API: a core component of securities services
API (application programming interface) is becoming a core component of the future of Securities Services. Some in the industry will welcome that fact. Others will not. We must accept it and adapt.
Do we have to change? If we want to keep up with our competition, traditional and disruptors, the answer is yes. Do we have to learn to love API? If we want to continue to satisfy customer needs and enhance the industry’s product offering, the answer is yes. Do we know what we must do? If we have been paying due attention to the changes taking place on an almost daily basis, the answer is also yes.
In-house and outsourced services
One issue that every provider will need to address is the question of just who does what in the changing landscape. Doing it yourself is one option. Enlisting the help of a partner is another. But APIs are changing the current landscape.
From messaging to API
Large custodians’ clients have been using SWIFT or SWIFT format to send settlement instruction orders for decades. But once instructions have been issued, clients have traditionally been wholly reliant upon bank staff to keep them apprised of the status of the settlement.
With the rise of the Internet, providers have started to offer Graphic User Interfaces (GUI) through the web for their transactional and reporting services. Simultaneously, some have also offered web services, a specific form of API that is only available via the World Wide Web. Internet users are now used to browsing websites that incorporate web services.
Typically, a website that is showing a weather report or forecast is presenting information retrieved from a specialised weather server through a web service. In effect, clients are using APIs via Internet without even knowing it.
API is more generic than a web service, as it can be accessed via various types of transport.
The usual keywords associated with information security also apply to APIs. Authentication, integrity, and confidentiality are more related to its transport than to the API itself. The two main issues are availability, as it creates a dependency on a third party and raises the issue of business continuity, especially for essential services, and scalability, whether the provider can respond within the client’s agreed timeframe.
Instructing & Reporting
In the brave new world of APIs, clients can send their instructions, track their status and retrieve various data for reporting, and they are able to do it directly from their own information system.
Being capable of integrating external functionalities or external data at the heart of an information system opens a broader field of opportunities, especially because most APIs are designed to provide a response upon request in real time or near real time. Client information systems can be extended with the functionalities offered by the API of their providers. To illustrate this concept, an arbitrage trading program is used to systematically buy and sell when the price difference between two correlated goods is changing. Such a program would rely on APIs to retrieve the price of the two goods, to send the purchase order to one market and the sale order to a second market, and to track their execution status.
Inasmuch as APIs can be used to extend the scope of functions of the information system, they can be used to enrich data, adding detailed information, zooming out or classifying. With data, difficulties come from codification. Although the International Standards Organization (ISO) has set widely-adopted standards, there are many fields in which there are no widely-used standards. As an illustration, most securities can be identified by an International Securities Identification Number (ISIN), but there is no official codification for listed derivatives contracts, every exchange, quote vendor or clearer uses their own codification.
When there is no widely adopted standard, transcoding systems or correspondence tables must be maintained. These could also become services accessible through APIs.
Knock on effect
Clients will increasingly team up with their service providers to develop a strong API capability. These providers in turn will partner with their own suppliers, for instance local custodians, so that they can deliver more of the APIs that clients need.
Simple or Sophisticated
On a more practical level, an API can be designed either as an elementary service or as a broader service that enables selected data to be retrieved from an extensive set, or as a high added-value service integrating various internal and external services. Most clients would want an added-value brick to simplify their operations, but larger clients or more secretive clients would require simpler bricks to assemble and enhance information by themselves, possibly with other suppliers. Smaller clients would prefer full business process outsourcing rather than having to manage an information system.
Putting this firmly into a broader international context, APIs will enable providers to offer an end-to-end seamless service. Such a seamless service would increase the benefits for the clients, especially when service providers agree and use common standards and interoperability rather than proprietary “open standards”.
Coûts et avantages
Il est vrai qu’utiliser une API nécessite un investissement afin de s’adapter aux normes de données utilisées par le fournisseur de l’API, de se connecter à l’API et d’utiliser les résultats fournis par l’API. L’avantage consiste en une nouvelle fonctionnalité ou un nouvel ensemble de données disponibles dans le système d’information. À l’évidence, il s’agit d’une étape vers la digitalisation et d’un bond considérable en matière d’agilité et d’efficacité.
Les API permettront aux prestataires d’offrir un service intégré de bout en bout.
L’impératif de disponibilité lié aux API pourrait modifier radicalement le système d’information des fournisseurs, et cette intégration plus étroite avec leurs clients pourrait renforcer leur fidélisation. La nécessité d’une plus grande transparence et d’une meilleure efficacité a fait naître le défi auquel les prestataires de service et leurs clients sont confrontés. Aujourd’hui, pour y répondre, il est nécessaire de se tourner vers la technologie et vers des partenariats mutuellement bénéfiques. À cet égard, les API sont un outil puissant.