Obstacles and Opportunities for Technological Innovation in Today’s Capital Markets

Introduction

We all know the impact of complexity within the capital markets. Issues encompassing data, business processes, technology portfolios, management systems, and critical infrastructure all increase the complexity headaches. And it’s important to note that the post-2008 financial crisis regulatory push has arguably stalled technology innovation in many respects in the financial industry. Compliance related projects have consumed IT budgets and deferred permanent solutions to address complexity. In many cases, systems improvements cannot keep up with the pace of change.

With CIOs focused on ensuring their organization’s technology has the “stay out of jail” reporting and compliance capabilities to avoid regulatory penalties, innovation has taken a backseat to these more pressing concerns. That’s especially true considering the financial markets remain volatile and global economic issues present continued challenges. These changing markets are shifting revenues and business priorities.

But, as the U.S. economy continues to improve and other global economies inch toward growth, more and more capital markets firms are looking at technology solutions to provide accurate, complete and timely information to various stakeholders so people can make better and more informed decisions to satisfy regulatory reporting, with customer insight and business improvement seen as ancillary benefits.

This white paper explores the obstacles to innovation that have plagued the capital markets in the last few years. As importantly, we’ll also outline how the tide is shifting toward innovation, the opportunities this new forward-thinking presents, as well as how emerging technologies, such as cloud computing and data analytics, fit into the future of capital markets technology.

Are the Capital Markets Ready for the Cloud?

One of the technology innovations that present an opportunity for financial institutions to work smarter and more cost effectively is cloud computing. Yet many financial institutions are fearful of the cloud. Security, confidentiality and other concerns can haunt CIOs worried about technology not housed on internal assets under physical lock and key.

Besides often unfounded fear, ambiguity is also a challenge. In a survey conducted by Wall Street & Technology/InformationWeek Analytics 1144 respondents at capital markets organizations showed clear confusion about what cloud computing exactly means. Respondents defined cloud computing in a number of ways, including 12 percent that characterized this technology as  “a marketing term used haphazardly.”

Like any emerging technology, the learning curve will improve as it becomes more widely accepted, educational resources become more prevalent and effective, and thought leadership helps clear the fog of ambiguity. Further adoption of cloud computing within the capital markets will no doubt also help dispel fear and concerns related to security, regulatory compliance and other issues specific to financial institutions.

Cloud Adoption Taking Flight

  • Despite some current confusion and fear, it’s also clear that the capital markets are A recent ECI survey shows that as of September 2013, 87% of investment management firms were using some form of cloud computing services.
  • A Wall Street & Technology/InformationWeek Analytics survey showed that 40 percent of respondents at capital markets firms said they already are using some type of cloud
  • An additional 31 percent said they are currently considering using services from a cloud in that same survey.

Profiting from the Cloud

Out of all the potential benefit of cloud computing, IT cost reductions remain atop of the IT agenda in financial services, though business agility is becoming a top priority for the more progressive companies. Our research shows that interest in services-based strategies to quickly deliver new business services and lower costs is peaking. The ability to meet compliance needs and accommodate cloud-based regulatory “risk and compliance as a service” within their existing enterprise architecture and portfolios was also essential to our findings in a survey recently conducted by a third party.

Top-of-mind with capital markets CIOs as they examine cloud computing are a number of business-critical issues with significant expectation for promising technology. The key needs in infrastructure priorities remain to:

  • Support business transformation strategies, such as the move to a digitalization
  • Improve business agility
  • Optimize IT cost structure
  • Make rapid improvements in business processes and operations
  • Enable scalable performance the ability to ramp up or down, depending on real-time needs

Of course, cloud computing has the unique ability to address all these priorities and so much more. Avoiding extensive capital expenditures on in-house technology assets that can be hosted on the cloud at a much more affordable cost (and as an operational expense) is a huge benefit. Plus the ability to use cost-effective external assets to handle peak loads is another win-win.

  • Transaction monitoring
  • Market surveillance
  • Corporate Actions
  • Reporting
  • Data integration of different formats

Cloud Strategies

In the early development stages of cloud computing, we heard about strategies to create services architectures. These include private cloud, services-based delivery, granular costing and agile development. However, even among the early adopters of cloud-based services, enthusiasm stopped short of both public cloud and a development/operations model. In addition to skepticism about cloud security and performance, regulatory resistance has thwarted the pursuit of private cloud services in banking.

The good news is that there are solutions today that can provide a totally agile platform, which can be run in a stable and compliant environment using a secure high-performance network. For example, the Quinnox MOND™ solution provides these capabilities, as well as other benefits. Our cloud solutions are also versatile. The Quinnox cloud solution is an open and dynamic public cloud platform that provides capabilities for enhanced performance in computing, storage, databases, networks and more. In addition, if firms want access to all the characteristics of cloud-on-demand self-service, pay per use, metered service, etc—but have location or security requirements, the Quinnox Private Cloud is another option.

The Cloud and Customer Centricity

Enhancing the customer experience is the popular mantra for major banks in 2014. Businesses are seeking to move from multi-channel to omnichannel strategies. (We define multi-channel as deploying multiple channels at the lowest possible cost and migrating customers to lower cost channels. We define omnichannel as aiming at the alignment of channels and providing a holistic customer experience.)

  • Finding the best advisory methods to meet the needs of diverse customers
  • Providing customers with the information, channels, and tools they require
  • Developing the extensive operational, technological, cultural and behavioral capabilities in your institution

Again, cloud computing and the Quinnox MOND solution has the unique ability to address and solve the customer centricity puzzle in a cost-effective and expedient way.

Data and Analytics in Capital Markets

While thus far our discussion has been focused on cloud computing, analytics is a priority for the majority of capital market firms too. However, these efforts are still in their infancy, lacking a unified view of the enterprise data model something that remains elusive for many large companies.

Institutions are instead tackling the fundamental challenges of data standardization, aggregation, and cleansing. Data sovereignty is making it difficult to centralize data at multi-nationals. Likewise, data stored at third parties compounds the challenge of understanding the movement and location of data. That not with standing, an array of solutions to address data problems has flooded the technology landscape. These include solutions in the areas of data governance, enterprise integration, industry utilities for standardization, and enterprise data management.

The Quinnox Mond™ Cloud Solution

So, given the tide toward cloud computing and some adoption of analytics, what are the solutions available to organizations in the capital markets? Quinnox offers a MOND cloud computing platform that supports mission-critical exchanges of data, documents, and transactions every day. It is an enterprise data integration platform enabling the exchange of structured and semi-structured data from a variety of application owners. MOND also supports end-to-end traceability and process management, which helps you stay compliant with regulations.

Our MOND Cloud Financial Services solution is specifically designed for the distinct needs of firms in the capital markets universe, with capabilities that address all of the challenges and priorities outlined here. Just some of these include:

  • Speeds rapid business processes, enabling high-performance, intelligent business operations
  • Provides scalable performance, ramping up and down with no licensing fees
  • Reduces complexity via application portfolio rationalization
  • Seamless data migration
  • Improves service costs using technologies that allow a more granular view of expenses

TRADING HUB

  • B2B: EDI, XML, FTP
  • Business Intelligence (BI)
  • Business Activity Monitoring (BAM)
  • Enterprise Application Integration (EAI)
  • Supplier Portal

FINANCIAL SERVICES

  • Managing Risk
  • Liquidity
  • Compliance
  • Throughput
  • Fix, SEPA, ISO 8583, FpML, etc.
  • Support new Channel

In addition, Quinnox MOND can help institutions provide an enhanced customer experience, including faster and more cost-effective onboarding. As importantly, it provides a 360-degree view of the client, covering the essential priorities of data integration, external and real-time data, agile modeling and business intelligence. The result is a much more holistic view across the client landscape, giving organizations the tools they need to work smarter, gain cost efficiencies, speed time to market, and gain a competitive edge.

Conclusion

As capital market firms move away from a narrow focus on meeting compliance toward a more holistic and growth-oriented point of view, technology innovation will be a key industry driver. As the trend moves toward working smarter, as well as enhancing the customer experience, technologies like cloud computing and data analytics will be major players.

As you consider your IT partner, it’s important that you determine whether they can help you use today’s technology to balance operating costs and regulations against the need to grow your businesses. With the right partner, this can be achieved via cloud computing and other emerging and technologies that are already beginning to “unblock” and drive the financial industry toward innovation.

Quinnox offers cloud computing solutions designed for the needs of capital market firms. Solutions like MOND offer the capabilities and benefits that organizations are looking for as they set a course for greater competitiveness, higher customer satisfaction, and cost efficiencies.