This post is part of our Advisor series, featuring some of the most noteworthy names in Canadian finance. Not only have these individuals made exceptional contributions to the finance industry in Canada, but they’ve also taken a seat on Mako Fintech’s Advisory Board, helping to shape our impact with wealth professionals automating their business processes.
Coordinating participation with almost every major financial institution in Canada is no easy task, and yet somebody did it. CanDeal is a joint collaboration between Canada’s major banks and financial services companies, dedicated to delivering compliant, interoperable solutions to drive higher-performing workflows with market participants. Elevating market standards, while driving innovation is what CanDeal is focused on today, but the organization didn’t start there.
Initially, CanDeal set out to make OTC bond trading faster and more efficient; however, they ended up successfully ushering in a new era of electronic trading and related benefits in Canada. “The goal was to understand the needs of the Canadian marketplace and its participants and do what we could to support Canadians in delivering solutions for Canada,” says Jayson Horner, President, CEO, and Co-Founder of The CanDeal Group. Over a decade later, Jayson is still steady on the reigns, shaping the organization’s evolving influence and mandate.
In this interview with Mako’s VP of Marketing Chandal Nolasco da Silva, Jayson shared his thoughts on leading technological transformation in a critically important industry, Canada’s position in the global marketplace, and staying motivated from one challenge to the next.
Mako: Tell me how you got started in the financial sector?
Horner: I knew very little about it at the time. A cousin of mine worked in what was known back then as the Personnel Department at Merrill Lynch Royal Securities. I was in between successes at school and thought I might as well get a full-time job, aside from some part-time work I was already doing. I wound up working at Merrill at a time when the industry was starting to boom, and there were plenty of opportunities. There was a lot to learn at Merrill, and a number of external industry courses to take. Shortly after arriving, I found out how interesting the industry was and how much was happening, so I just gravitated towards wanting to know more about it. I started in the operations area which was known as “the cage” in those days, worked my way through the organization, and found myself out on the trading floor. That’s where things got interesting for me.
Mako: Fast forward to CanDeal, which is fundamentally a testament of collaboration amongst Canada’s top financial institutions, how does an initiative this large form in the first place?
Horner: We initially came together as a group of three banks. We were “blue-skying” in a workshop on where we thought the industry was going, how it was changing, and what some of the challenges were going to be.
When I joined TD from the dealer arm of Canada Trust Financial called CT Securities, we were already very involved in some leading-edge technology. In particular, the self-serve brokerage businesses and the technology that had started to evolve somewhere between 1997 and 2000. A lot of cool technologies were being built for retail investors, like day trading platforms and the emergence of algo-trading. It was all pretty interesting. Anyway, as we were in this workshop of three, we were looking at the institutional space, which was very much still telephonically-based, except for the foreign exchange market. It was one of the first over-the-counter markets starting to gravitate towards some form of electronic execution. Although it was mainly single-dealer-to-client, as opposed to a multi-dealer platform environment.
From a Canadian perspective, what we introduced in the initial workshop was what we could see in the US: over-the-counter bond platforms developing on a multi-dealer basis and the creation of multi-dealer FX platforms. Our view was that as significant participants in the Canadian market we should accept the fact that the market in Canada would evolve in that direction, even though it was entrenched as a telephonic environment. So we explored the idea of getting together and thinking about what we might do in that space to test the waters in Canada and test the appetite of institutional buy-side customers. That’s how it got started. From there, the technology evolved pretty quickly but the behavioural change and broad acceptance took a little more time.
Mako: How do you combine and coordinate participation across almost every major financial institution in Canada?
Horner: We thought that we’d get everyone interested with the click-and-trade capability, but really what happened were two things:
First, we started building out the infrastructure side of the trade cycle, and how we could streamline workflow processes, not just trade execution itself but post-trade as well. Straight-through processing, as it’s called, was a big part of the success. It meant that when one party did a trade with another, they would both have the same trade life cycle record, eliminating any errors in the institutional bond market. Given the size of the trades, and how quickly the market can move, you don’t want any errors.
So this streamlined the mid-office and back-office processes such that by the time the trade got to settlement it was all electronic. It eliminated risks associated with keypunch errors or manual entry, to ultimately get from the point of the trade to the settlement. Straight-through processing was efficient and important (it would update systems internally as well as eventually feed into CDS), and a sticking point for users.
“...from a compliance perspective, there was the idea that the trade could flow electronically from portfolio management or order management systems into trading platforms without having to change hands and risk errors.”
Where we really started to get momentum was coming out of the 2008-2009 financial crisis. The level of certainty associated with a trade, and appetite to address risk and compliance concerns coming out of that time, started to lend itself to electronic trading. Again you had instantaneous trading records and you could move risk management and compliance closer to the point of the trade by having an electronic record. At the same time, the pre and post-trade processes were continuing to evolve - so again from a compliance perspective, there was the idea that the trade could flow electronically from portfolio management or order management systems into trading platforms without having to change hands and risk errors. Those ancillary components that electronic trading delivers (aside from the trade execution itself), were a big part of the reason why it took hold and appealed to both the buy-side and the sell-side.
Mako: Being an early facilitator of electronification of the marketplace, how did CanDeal set about to “prove itself” as a trusted and viable online trading marketplace in those early days?
Horner: We did a number of things. First and foremost having a stable environment was pretty important, so we made sure that we had that figured out - having the right battle-tested technology was important. The other thing we did from a human element perspective was to bring in client-facing people who had marketplace experience, as opposed to technology experience. It was a lot easier for that part of our team to learn the technology than it was to learn the intricacies of the bond market and what the relationships are like between dealers and their customers. We approached marketplace participants by building comfort and trust with them and saying “we get your business, we’ve sat in your chair on the buy-side or the sell-side and we get what it’s all about.” We listened a lot because we knew that we weren’t going to think of every good idea - clients that had some degree of experience on the platform were going to be able to help steer us to develop new functionalities and protocols or workflows that would be beneficial. That was, in fact, how it played out. That helped us earn a foothold in the early days to build confidence and trust over time.
Mako: Aside from the initial electronification of the Canadian dollar debt securities and derivatives marketplace, what other important accomplishments has CanDeal achieved?
Horner: I don’t think we’ve realized how dependent we are on foreign-based entities. I think that we took it for granted that we would be ok with these foreign dependencies in place. This pandemic reinforced with us that complacency and comfort levels need to be questioned.
We’ve always looked at creating solutions that were made for Canada, and as we’ve evolved the platform and our business, we’ve taken steps to be less dependent and more independent from a Canadian perspective. Outside the markets business, we created a new division within the organization called CanDeal Solutions (CanDeal Innovations now). The goal was to understand the needs of the Canadian marketplace and its participants and do what we could to support Canadians in delivering solutions for Canada. I’m even more of an advocate now given the last 18 months of experience. So I think it is important for Canada to recognize that we do need to invest domestically and build our own competencies. One of the messages we’ve been delivering to stakeholders is that we do need to continue to reinvest and ensure the long-term viability of our marketplace, by mitigating foreign dependencies where we can.
“We were quite proud to have been a part of helping the marketplace and the economy stabilize itself.”
One of the least publicized things we’ve done was when we were called upon by some key market stakeholders last year. Two very large asset managers were selected by the Bank of Canada to manage the multi-billion dollar bond purchase programs on behalf of the central bank and we built out the supporting technology for the Provincial and Corporate bond programs. The programs were put in place in April/May of last year to create liquidity in what were very volatile and uncertain circumstances in the marketplace as a result of COVID. The fact that businesses were starting to suffer, with a need for capital and borrowing, meant that the need to keep markets efficient and liquid was pretty key. The Bank of Canada took action on short notice, and we responded in a fairly condensed period of time. Scattered about in locations across the GTA, working nights and weekends, we pulled together the technology platforms to allow the asset managers to execute these programs, and allow dealers and customers to participate in the Bank of Canada bond purchase programs. That was something we did to help out in a crisis scenario. We were quite proud to have been a part of helping the marketplace and the economy stabilize itself.
Mako: With nearly every player in finance talking more and more about digital transformation, has CanDeal’s mandate changed since it first began?
Horner: Yes - we changed in the sense that originally we thought it was all about the trade. Shortly after we realized that we’re doing more than just making trading occur faster or more efficiently. We do see that we have raised certain standards in Canada for over-the-counter trading in terms of risk management, compliance, and transparency. Other initiatives that are coming out of CanDeal Innovations are very similarly focused in the sense that they are raising the bar (risk management, compliance and accessibility), in an effort to keep Canada more globally competitive on a broader scale. We do play on a global stage and it’s important when you think about inflows of capital to Canada - the more efficient you can make it, the more accessible you can make it... and the more you can understand what it is that’s required for foreign investors to feel comfortable in Canada. So we’ve accomplished some of that and we continue to strive to keep the marketplace more competitive in terms of what we can do to add to that.
Mako: CanDeal was partly formed because Canada was lagging behind the US in terms of electronic trading platforms. Do you think Canada is falling behind the rest of the world in terms of digitalizing financial infrastructure and the regulation needed to support it?
Horner: We probably have. At the same time, what’s interesting about Canada is that because of our size and because of our structure, it doesn’t take that long to get caught up and even pass. It’s unfortunate that [Canada] tends to be more reactive than proactive, and I think that’s caused us to fall behind. We were underinvested in terms of technology and that proved itself in the 2008-09 crisis and it certainly has proved true during this pandemic.
“...what’s interesting about Canada is that because of our size and because of our structure, it doesn’t take that long to get caught up and even pass.”
From a regulatory point of view, there are always arguments about regulatory burden. The regulators create rules and there might also be questions as to whether or not the regulators themselves have the budget and capacity to provide the oversight required to ensure that the rules they’ve written are being followed and understood. That’s a problem, and that regulatory issue exists in many jurisdictions. Canada tends to be more reactionary. Regulators in Canada tend to look at what’s happening in other jurisdictions outside of Canada before they act, and that’s sometimes unfortunate. But it can also be a good stance depending on how substantive the change may be to observe any unintended consequences that could occur.
It’s a bit of a mix-bag, but on balance, I do think as a country we’re underinvested and it goes beyond financial technology. There have been some lessons learned over the last 12 to 18 months, and we need to recover and regroup such that we are in a position to focus on new innovation infrastructure and other ways to protect ourselves.
Mako: Are there any international organizations like CanDeal that you look to for inspiration on the global stage?
Horner: In our early days, we had a strong partnership with another global electronic trading platform based in the US. The market there was ahead of us in terms of evolving electronically. Through that relationship, we learned and we shared experiences.
We sometimes watch other markets because as I just said, we tend to lag a little bit here in Canada, so we do look at other trading or trading-related solutions and the way that they’ve evolved in terms of ideas. We’ll continue to do that. We have a certain initiative right now where we’re sharing information with a foreign jurisdiction that’s focused on the institutional Know Your Client and AML space, so we’re working with them to understand their experience and comparing notes as we build out capabilities in that area of the market.
Mako: Surely, there are many competing challenges with the mandate that CanDeal has set out to achieve today. As an organizational leader, how do you stay motivated to continuously navigate these inherent challenges?
Horner: The challenges are also opportunities and learning experiences. I found that to keep your head in the game and be competitive, it’s important to be challenged. We typically rise to those occasions.
Mako: Where do you think the industry is headed from a technological innovation point of view?
Horner: At this point in time there is still lots to do. There are a lot of cool technologies evolving, while a lot of aspects of the business are in need of modernization. Becoming more efficient and optimizing the way that people and processes work is where we’re headed now. That’s not just in Canada, we see it elsewhere. So there’s still a lot of growth and innovation opportunities in the space.
Mako: Any last thoughts on CanDeal’s focus in terms of emerging technologies?
Horner: While we do have a global customer base, we also have a focus on making solutions that are specific and customized to the Canadian marketplace and its participants. Canada can sometimes get overlooked by larger participants. The markets in the US, Europe and Asia are bigger, and often third-party service providers tend to build services for larger, foreign markets. While that sometimes works, it may not be the optimal way to do things for Canada. So staying true to our roots has helped us in that regard. While we are certainly attentive to the needs of our global customer base, our DNA first and foremost is to ensure the needs of the domestic marketplaces are taken care of, and so we focus on new technologies through that lens.