Capital Markets in the Digital Decade

Standing on the edge of a new decade, we’re entering a new era for financial services as technology comes to the fore. AI, automation, cloud and the increasing volume of market data are likely to realize their full potential in the 2020s and radically change how capital markets firms operate and interact.

This decade margins were squeezed more than ever before – catalyzing the rapid development and deployment of automated tools to manage workflow, cut cost and allow traders on desks to focus on higher value tasks. This shift has been working in tandem with new regulation and more rigorous reporting requirements open the floodgates to change.

The year ahead will see these changes accelerate their development to improve performance and cut cost in a challenging environment. How will these shifts impact capital markets? As we enter a new decade, here are five predictions on how capital markets will evolve:

  • Trading behavior will change: The 2020s will see a digital native generation take the helm on trading desks. As technology providers, we need to adapt to this demographic change and the trading behavior that comes with it. The insights we derive from data, platforms and interfaces are likely to change to suit a tech-savvy population with greater demand for flexibility, convenience and speed than previous generations.
  • Collaboration will be commonplace: As cost pressure bites, banks and asset managers are having to adopt more flexible operating models – giving them the option to shed desks, acquire new ones or outsource. To avoid disruption, reducing time to market is vital – collaborating with third parties and using open-source eco-systems is important not just to speed-up transition but streamline market structure for institutions, regulators and venues.
  • The cloud will be normalized: Capital markets firms are already migrating vast swathes of their operations to the cloud. While a distinct trend, this is uncharted territory. Which assets are migrated onto the public and private cloud will be an issue that will define the shape and operations of these businesses – it’s our job to shape best practice and build secure, effective infrastructure.
  • Data will be key: With so much data flooding the market, it’s a rich resource with the potential to transform how we make decisions and trade. Regulation such has MiFID II has been instrumental in flooding the market with new data, but the powerful tools needed to enrich and analyse are still emerging. From price discovery to, improving workflow and executing sophisticated strategies, access to quality data and building the systems powerful enough to process it will be vitally important.
  • Securities lending will move to the front office: As asset managers feel margin pressure mount, they need to find new revenue streams. Securities finance is increasingly becoming an established way of sweating assets in a low margin environment. The introduction of new regulations such as SFTR is also boosting the quality and quantity of data on the market – making the market more sophisticated and accessible, and expediating its shift from relative obscurity to a front office staple.

Change is inevitable. We can never be certain of the future as markets are unpredictable and technology moves quickly. What we can be sure about however is that the foundations have be laid for significant positive change in capital markets.

As technology providers, agility is vital and it’s our job to harness and build on these innovations to streamline operations and market structure to help firms make better decisions, execute increasingly complex trading strategies across asset classes and cut costs. There’s never been a more exciting time to be in financial technology – the next few years will be pivotal for our industry and we’re only just scratching the surface of what’s possible with the innovations at our disposal. Here’s to progress.

Martin Boyd is Head of Capital Markets for FIS

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