Regulation and volatility will continue to be the dominating forces across the financial markets in 2012.
2012 is going to be another tough year for both the buy-side and sell- side, with the regulatory demands of Basel III, MiFID update, and Dodd- Frank coming into effect. The bull market for fixed income side that followed the financial crisis is coming to an end, creating a major income growth challenge for the financial markets, and a key question is whether the growing importance of Asia-Pacific can compensate for weak and temperamental conditions elsewhere.
The underlying implication for technology strategy will be the need to enable organizational agility to support evolving requirements under tight timeframes. Financial markets participants will need to shift resources to respond to evolving market conditions, with technology continuing to remain critical for driving trading effectiveness, enabling stronger risk management, and supporting compliance.
The Financial Markets research stream looks at the industry trends and drivers that influence market participants’ technology strategies. As well as general IT investment trends, our coverage includes the following topics:
Managing liquidity risk remains a dominant issue for both corporate treasurers and internal bank treasuries. Risk management services and stronger corporate connectivity are top priorities; however, take-up of mobile devices provides an opportunity for banks to offer an additional range of analytical, authorization, and information services to enhance their cash management proposition.
The Dodd-Frank Wall Street Reform and Consumer Protection Act has potential to enact one of the most far-reaching reforms of banking in the US for decades. However, its implications will extend beyond the shores of the US into the wider international community. With many of its proposals replicated with MiFID updates, the regulatory ramifications are likely to shape the structure and value chain of the financial markets for the next decade.
While a spate of M&A among the main exchanges is consolidating the trading venue, the advent of new trading networks is simultaneously fragmenting liquidity in the market. With an increased regulatory requirement to achieve best execution, managing connectivity and trading performance across a highly dynamic venue landscape is an ongoing challenge.
While high-frequency trading continues to court controversy in North America, the use of automated trading is expanding into other regions. With Asia-Pacific representing much of the long-term regional growth for the financial markets, this has driven a corresponding focus on driving HFT in this region.
Basel II led a wave of investment around credit risk management in the early to mid 2000s. However, the financial crisis proved that systems and models were far from perfect. With Basel III driving a re- assessment of many of the tenets and scope of credit risk management, this is forcing a second wave of investment in systems, processes, and governance.
The buy-side will need to consider advanced decision support tools to devise and adapt investment strategies, as well as investment in tools to more effectively execute and evaluate trading strategies. The challenge for institutions will be to deal with the reality of the return/risk trade-off to seek returns while providing more transparency to clients around performance and risk.
