With income streams moving to fresh and varied players, capital markets need to look beyond traditional positions to change business models and remain competitive.
FREMONT, CA: Every year, the major players on worldwide capital markets–investment banks, asset managers, and stock exchanges–produce higher profits jointly. The sector is in the midst of an "ideal storm" in which profits and margins are pushed down with tighter regulation, and shifted social expectations. A financial technology revolution has driven an explosion of fresh entrants that are shaking up the industry.
Business and technology are integral in the competitive world of today. Better technology leads to quicker execution of company and greater effectiveness of operations. Which in turn, leads to both top-line and bottom-line client retention and development. This applies more than any other to capital markets company. Competitive edge is obtained directly from the efficient use of technology in the capital markets company. In this sector, prices alter every second or at times, even quicker in many asset classes. The spotlight is more on the legislation on the front of the debt markets and the need to create an active corporate bond market. There will be a need for improved technology infrastructure as the amounts of corporate bonds and securitization increase.
Fund selectors will now need to be cautious about how tech-focused funds are benchmarked. This will not only influence how tech funds are compared, but will also shake up sector-specific stock classifications within those funds. Customers will also need to be conscious of these modifications as the output of stocks in the index is likely to affect them. Overall, when discussing 'tech,' the IT sector has become less cyclical and redefined what investors are talking about. As a consequence of modifications, this industry is also more defensive than it was.
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To sum up, technology on the capital markets is at a very critical juncture where the capital markets are evolving, and so is the technology that shapes this business' future. Global player presence of global investment banks will make it imperative for local players to scale up the technology to maintain pace with the evolving needs.