Market Opinion: Through the looking glass

Steve Grob, founder of Vision57, takes a look at the future of capital markets technology.

Despite the billions of dollars spent by capital markets technologists in the past two decades, the return on investment and effort has been questionable at best. It’s surprising therefore that little has changed in how this money has been spent especially when set against the huge advances in design and technology that have occurred over the same period. This article looks at why Capital Markets struggle with adopting new technologies and how this is changing.

Fear is the key

Wholesale change is difficult for cap markets as its protagonists believe that their systems are so complicated and the potential loss from failure (either financial or reputational) are just too high to think radically. Many bank CTOs cite these facts as reasons for not embracing new ideas. It’s ironic therefore that The Pandemic drove these firms to make huge changes in double quick time to support remote working and shattered the notion that they couldn’t move quickly and achieve great results. Another factor in play, though, is that so much discretionary budget has been used up in meeting wave after wave of regulatory imperatives since the GFC which has saddled the industry with unacceptable levels of technical debt. This in turn has made adopting new technologies even harder to do.

No app is an island

Another major challenge is that designers have been blinkered by the idea that what they are doing is building applications. But the truth is that users care about accuracy of data and the ease with which they can manipulate and share data and then move onto the next related task. In short, the user cares about workflows while the devs focus on discrete applications. Thankfully help is at hand as firms like Glue42 are leading the charge in workflow centric design and dissolving the boundaries between applications to create highly compelling workflows.

Nowhere does this problem manifest itself greater than with Order Management Systems which provide a monolithic, heavyweight, application “tunnel” through which traders and their support staff attempt to handle the complete trade life cycle. Inevitably these systems need to feed into other downstream or side stream subsystems and this is where the problems begin. The result is a stovepipe of different in house and 3rd party systems – all built with well-meaning but different UIs.

The low code movement has a big part to play here, not in terms of empowering the “citizen” developer but in making the developers themselves more productive. Velox is a good example of this. They recognised at an early stage that trading is really all about monetising data and if you can free the data from their applications then better outcomes will follow.

Firms like Velox mean that the asset class centric OMS of the past can be replaced by a more thoughtful technology stack composed of platforms, APIs and pre-built or custom workflows that address the different requirements of digital native information workers.

The crypto factor

When Bitcoin first hit the scenes back in 2009, many jumped on the underlying blockchain technology as the real prize. This spawned a plethora of blockchain projects all claiming they would revolutionise the world. A little over ten years on and these projects have all been taken out at night and quietly shot. Instead, crypto assets have steadily become mainstream. It just doesn’t matter anymore whether you as an individual believe that an electronic token has intrinsic value or not. The simple fact is that crypto exchanges earned over $24 billion in trading fees alone last year which was 60 % more than TradFi exchanges managed. Crypto is here to stay and its history is being written by regulators as they grapple to get their heads around something that doesn’t fit the traditional nomenclature of what they are used to. What is more interesting is that the technologies underlying crypto will undergo something of a species jump as it is based on today’s technology not yesterday’s. As digital assets become just another asset class alongside equities, bonds etc., they will drag with them their more efficient technology processes. Real time settlement and fractional ownership are just two such examples. And, guess what, this is exactly what regulators have been batting for with their post GFC focus on getting the best possible trading outcomes for retail investors.

Data is the new standard

Our industry has made many attempts to normalise the terabytes of data it consumes, processes and then regurgitates. Probably FIX is the only standard that has made any world-wide impact for front office and SWIFT, of course, plays its part in settlements. But talk to any Bank CIO and they will tell you that their biggest challenge is defining one master data set and then interpreting those of their counter-parties. Again help is at hand from firms like Rapid Addition that offer sophisticated but easy to deploy message management platforms that can take this problem away.

Looking ahead

Capital markets is at a crossroads. The economic model today insists that participants lower their cost base and increase automation. Add to this the wave of new tech that crypto will bring with it as it continues to enter the mainstream and the race is on for those firms to tackle the challenges above.

Thankfully the answers are out there for those prepared to look.

©Markets Media Europe 2022
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