Trading Up: New Platform Strategies for a Disrupted Market

The good times are back in capital markets, although you wouldn’t know it from the headlines in Europe. The industry is generating around a trillion dollars in net annual revenues and overall profitability is high.

But taking a look behind the numbers reveals a cause for concern, particularly for some of the sell-side players.

The largest players in this space, predominantly in the US, are much more profitable compared to their European rivals and have been able to invest in building in-house risk and trading platforms to differentiate their offerings. But some other banks with full-scale investment banking offerings – mainly in Europe and Asia – are struggling. True to analysts’ concerns, the most recent quarterly results show European investment banks reporting a third consecutive drop in quarterly revenue.

In challenging times like these, short term cost cutting and retrenchment is inevitable. But banks also need to look at longer-term solutions. And that could mean technology transformation. Having to work with monolithic and complex legacy technology stacks, many banks are struggling to contain costs and finding it hard to innovate. Whether they select a custom/homegrown or package platform as the way forward, how they approach technology change should transform.

The traditional ‘run, upgrade, run, upgrade’ on repeat is at the heart of this cost challenge. It requires excessive time, cost and manpower, and it can generate significant business risk and stifle innovation. The career risk for an IT application owner who launches a major upgrade or change of platform could be one of the greatest barriers to innovation in a bank today. What’s more, the platforms’ end users – traders – are increasingly perplexed by the mismatch between the user-friendly technologies they consume in their daily lives and those they use at work. When an app on an iPhone can be updated in a few seconds, why should an update to a trading platform take several months and cost millions of dollars?

Buying a package platform is a very effective way of tapping into a shared investment pool for both buy and sell-side players, and in theory should be an obvious choice in a constrained industry. But the question remains whether existing package vendors could be flexible enough to respond effectively and compete with the disrupters who are promoting technologies such as cloud, distributed ledger technology, artificial intelligence and machine-learning.

Banks are now actively challenging established vendors to deliver greater responsiveness and lower costs. Capabilities like DevOps and agile to support continuous delivery, cloud and microservices are fundamental to efficiently adapt to today’s fast-changing environment. Done right, continuous delivery could help reduce costs and time to market, improve job satisfaction and increase the quality of both implementation and support. It should be the mantra that all providers and their customers live by.

Sell-side players clearly have some big decisions to make if they want to reduce cost in the long term whilst remaining relevant. What are your thoughts? Leave a comment below and let’s discuss.

In this blog series, I’ll be looking in more detail at the packages that make the most sense to meet players’ different objectives for both the buy and sell-side. I’ll be exploring the role that modern delivery approaches, faster iterative releases and open technology architectures will have to play as they fundamentally challenge the status quo for banks, vendors and integrators.

If you would like to get in touch to discuss further, you can reach me at [email protected].