The technology innovation wildcard opening new frontiers in capital markets
The way financial institutions have responded to regulation, cost reduction and technology drivers has prepared the way for a step change in capital markets.
The capital markets landscape is evolving rapidly.
We’re seeing seismic changes, within firms at an individual level, as well as in the way firms are interacting with each other. And the coronavirus pandemic has driven a well-documented shift in the way we work.
Financial institutions have proved highly resilient in the face of this change, adapting rapidly and efficiently to remote working practices that were previously unthinkable in a highly regulated environment. This is largely due to internal changes within these organisations over the past three to four years in response to a range of drivers – regulation, cost reduction and technology.
Using regulation to drive digitisation
We often hear about the unintended consequences of regulation, mostly focusing on the negative impacts. In the early days of Markets in Financial Instruments Directive (MiFID) II implementation, the more astute banks quickly noticed opportunities for using regulatory budget to drive digitisation in their front office.
Rather than seeing digitisation as a threat to the traditional sales workforce and model, these firms saw it as an opportunity to augment their teams. By introducing digital assistants, such as chatbots, they freed up their highly skilled workforce to focus on adding value-add activities and on building and strengthening client relationships. This had truly unintended, and unexpectedly positive, consequences. It meant sales and trading teams were prepared for an effective transition to homeworking during 2020’s lockdown and were ready to respond to the increased Request For Quote (RFQ) volumes experienced during the early, volatile weeks and months of the pandemic.
Saving money with innovation
Cost reduction is also driving the demand for automation and digitisation across the financial services industry. New and exciting opportunities are opening up for institutions to digitise and automate their products, services and workflows. Again, when looking at automating legacy processes and reducing operational overheads, the most far-sighted and innovative organisations aren’t just focusing on immediate cost savings; they’re looking ahead to the changes that are coming down the line in financial markets. They’re thinking about how digital assets will need to grow and how infrastructure must change. And they’re working out how the changes they’re making now can futureproof their businesses in the digital markets that are coming down the line.
Recognising technology as a driver of change
Technology is an evermore vital resource, with firms increasingly aware that they need to accelerate their adoption of key technologies so they can maintain pace and leadership in a highly competitive environment. The emergence of new technology paradigms – the cloud, Distributed Ledger Technology (DLT) and Artificial Intelligence (AI) and Machine Learning (ML), are driving innovation across the industry. Big data is coming into its own, both underpinning and driving these key technologies across a wide range of use cases spanning trade pricing and execution, through post-trade processing and settlement, to research and asset management.
Aggregation as a technology wildcard
However, it’s the aggregation of new technologies that’s introducing the strongest opportunities for real step change and paradigm shifts in capital markets.
For example, cloud adoption, on its own merits, has advantages, but it’s combining it with big data, data modelling and AI and ML that really catapults it to the next level, opening up opportunities that even the wealthiest institutions couldn’t have afforded to exploit before.
In our recent paper on Digital Innovation in Capital Markets, we spoke with Michael Cooper, managing director of Aoraki Advisory. He’s a strong believer that the evolution of capital markets hasn’t been left to chance, commenting: “I think of it as being very much an initiative between the legislature, regulators and market participants. In fact, policy makers have driven much of the innovation and evolution in financial services and capital markets. The journey around electronification, digitisation, and building capacity and capability into financial markets has taken over 20 years.”
Even if the route has been planned, we don’t yet know the destination. Technology innovation is the wildcard that opens up new frontiers in capital markets. At BT Radianz, we don’t know exactly what the future holds, but we can see the direction of travel. Our aim is to support the journey of all our market participants, and all those who provide them with the vital services they’ll need along the road to their digital future.
Download our whitepaper, Digital Innovation in Capital Markets, to find out more about how you can play the technology wildcard in your business. If you’d like to know more, please reach out to your account manager.