Feeds

Moving capital markets towards their nirvana

Commoditisation of transparency and speed

  • alert
  • submit to reddit

Choosing a cloud hosting partner with confidence

In June 2006 IBM, through the IBM Institute for Value in conjunction with the Economist Intelligence Unit (EIU), published a research paper "The trader is dead; long love the trader".

The purpose was to set out the perceived trends in the Capital Markets business over the next 10 years. The research paper encompassed the views and responses of over 400 senior executives from buy side and sell side firms, large and small, from across the global regions. Additionally, views and opinions were sought from major service providers including exchanges clearing houses and central depositories, trade associations and financial services' regulators.

Transparency is expanding access to markets. This arises through the adoption of electronic means of tracking price and cost of execution, as well as consequential transaction execution. This may be exercised through more extensive and immediate access to data and enables institutions to achieve the so-called "alpha" (the value the portfolio manager seeks to add in the form of excess return) and "beta" (exposure to market investment) investment objectives.

It is anticipated by the majority of those surveyed that greater market transparency and speed of transaction execution will be commoditised in the sense that it will be available to most market participants on an efficient and cost effective basis. In consequence, it will be commoditised in a relatively short period of time.

Future focus will be on the development, enhancement and management of client relationships. This will force a change of emphasis for the major Tier 1 and Tier 2 plus banks whose focus has historically been to generate revenues and profits from transaction flows in asset classes rather than focus on the profitability of client relationships.

"The fundamental task for financial institutions will be to develop a perspective on risk: value will be created either by effectively assuming and managing risk or by mitigation of risk by eliminating it from the systems or managing it for their clients."

However, those surveyed were mindful of the immediate challenges to achieve those goals. From a technology perspective, among the challenges cited were high implementation costs, back and front office disconnect, lack of technology integration, insufficient and delayed access to data and weak vendor management.

The key sources of competitive advantage were deemed to be the depth of client relationship, product innovation, trustworthiness, risk management excellence and low cost provision. All these focus on one or more facets of the client relationship.

The top 10 technology innovations in order of perceived importance most likely to have an impact of strategic development (and, therefore, able to command premium pricing) all directly focus on developments improvement and maintenance of client relationships:

  • Risk measurements systems
  • Client analytics
  • Technology platforms to provide multi-asset class trading capabilities
  • Technology providing client/advisor/consultant electronic connectivity capabilities
  • Software to provide "smarter" trading
  • Service Oriented Architecture
  • Data distribution capabilities
  • Business continuity technology with the emphasis on provision of business resilience
  • Software for smarter asset management
  • Collaboration technologies

The dilemma for the IT industry must be to determine how aggressively it helps the capital markets sector forward to its Nirvana. Too rapid a move towards commoditisation of speed and transparency is likely to see some technology providers experience rapidly increased losses on their investment in technologies which premium price these service attributes.

Technology vendors hold some of the key ingredients to commoditisation of transparency and speed, which the institutions seek, but is there a financial risk to their own livelihoods if they commoditise their "transparency" and "speed" offerings too soon?

Copyright © 2006, IT-Analysis.com

The next step in data security

More from The Register

next story
Phones 4u slips into administration after EE cuts ties with Brit mobe retailer
More than 5,500 jobs could be axed if rescue mission fails
Hey, Scots. Microsoft's Bing thinks you'll vote NO to independence
World's top Google-finding website calls it for the UK
Apple CEO Tim Cook: TV is TERRIBLE and stuck in the 1970s
The iKing thinks telly is far too fiddly and ugly – basically, iTunes
Israeli spies rebel over mass-snooping on innocent Palestinians
'Disciplinary treatment will be sharp and clear' vow spy-chiefs
Huawei ditches new Windows Phone mobe plans, blames poor sales
Giganto mobe firm slams door shut on Microsoft. OH DEAR
Phones 4u website DIES as wounded mobe retailer struggles to stay above water
Founder blames 'ruthless network partners' for implosion
Found inside ISIS terror chap's laptop: CELINE DION tunes
REPORT: Stash of terrorist material found in Syria Dell box
OECD lashes out at tax avoiding globocorps' location-flipping antics
You hear that, Amazon, Google, Microsoft et al?
prev story

Whitepapers

Providing a secure and efficient Helpdesk
A single remote control platform for user support is be key to providing an efficient helpdesk. Retain full control over the way in which screen and keystroke data is transmitted.
Saudi Petroleum chooses Tegile storage solution
A storage solution that addresses company growth and performance for business-critical applications of caseware archive and search along with other key operational systems.
Security and trust: The backbone of doing business over the internet
Explores the current state of website security and the contributions Symantec is making to help organizations protect critical data and build trust with customers.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.