How Technologies Can Benefit the Capital Markets
Challenges of the pandemic accelerated the capital market's commitment to digital transformation, highlighting how technology infrastructures can benefit them.
FREMONT, CA: Technology has never been more intertwined with the capital markets as it is now. COVID-19 expedited the digital and cloud transformation of financial institutions (FIs) and market infrastructures (MIs) that had previously started. Businesses that had already moved their applications, infrastructure, and delivery processes to the cloud may quickly move to the work from home (WFH) concept. Despite this, legacy systems and regulations continue to be a problem. Like most people, senior executives in the capital markets hope to return to normalcy, but they understand that their environment will never be the same.
Technology and regulation account for 90 percent of the significant drivers of change in the trading industry. Substantial changes to technology strategy are required as top executives from both business and technology divisions attempt to capitalize on the momentum of digitalization and mobile service rollout while accepting that the rapid rate of regulatory change is certain to continue. The delivery methodology for technology assets, and the corporate mindset, must change.
The current tendency is for financial institutions to focus their technological resources on leveraging core expertise, creating value differentiators, and outsourcing commodity activities to partners or outsourcers. It will take a variety of forms, including:
The buy-side is increasingly asserting control over its technology and purchasing data, technology solutions, and platforms. As the number of entities attempting to supply solutions to the buy-side grows, the sell-side recognizes that it needs to invest more in getting to know its clients to keep them coming back.
As the world becomes more digital, senior management must reconsider the organization's data strategy. Definition of the business's vision of success in the digital world, the effect of integration (or absence thereof) across the front, middle, and back offices, and finding and exploiting data to remain competitive will all be critical to the deployment of essential technologies. Artificial intelligence (AI), APIs, blockchain or distributed ledger technology (DLT), cloud, data management, microservices, and other technologies depend on specific objectives and a desire to change the culture and structure of the organization to support new solutions (like eliminating data silos).
Outsourcing and Insourcing:
Trading desks, data management, foreign exchange, and middle office services are all being outsourced by several asset managers. The purchase and sale sides consider portfolio, pricing analytics, or outsourced services for noncore or nonstrategic customer services. For access to certain technologies and skills, smaller dealers may turn to technological partnerships.