Capital Markets Trading Technology Strategies

Table of Contents

EXECUTIVE SUMMARY

KEY FINDINGS

• The future decoded
• Competitive dynamics and strategic implications
  • Strategic implications for vendors
  • Strategic implications for institutions

CHAPTER 1 INTRODUCTION

• What is this report about?

CHAPTER 2 MARKET CONTEXT

• European trading - overview
• Business drivers and trends
• Regulation and political developments in the EU are not only imposing increased operating overheads but also changing the market structure and competition dynamics
• Two years on from the trough of the downturn, cost firmly remains a strong business and IT driver in capital markets environment
• Aggressive search for growth in higher-margin activities continues
• Innovation and growth in complex derivatives products for financial risk management
• Increasing emphasis on middle-office functions, especially credit and operational risk management activities
• Integration of equities and fixed income sales and trading continues to be a feature
• The rise of algorithmic (quantitative) trading in the US and increasingly in Europe

CHAPTER 3 BUSINESS / TECHNOLOGY IMPLICATIONS

• The focus on data management now extends to underline end-to-end processes and applications
• The return of STP, but not as we know it
• External STP improvements are slow due to the complexity of the trade flow lifecycle amongst multiple parties involved
• Evolution of product-centric systems towards multi-product back-office operations
• Back-office restructuring momentum extends beyond IT infrastructure and applications consolidation

CHAPTER 4 THE FUTURE DECODED

• Package application spend by end-user segment
  • Amongst established end-user segments, institutional brokerage will still be the largest area of application spend, although asset management and private banking will provide the highest growth
  • Hedge funds represent a continuing high-growth area for technology spend as middle-sized firms emerge and competition heats up in the prime brokerage sector
• Institutional brokerage - application spend by front, middle and back office
  • Driven by the uncertainty in the broader capital markets environment as a whole, trading-related technology spend will be focused on two areas: building capability for product innovation, and operating a lean and mean organization

CHAPTER 5 COMPETITIVE DYNAMICS

• Introduction
• Vendor offerings
• Vendor landscape and implications
  • Strategic implications for vendors
    • Larger tier 1 banks with strong franchises in specific asset classes will continue to provide a market for asset specialists, but there will be increasing pressures to create cross-asset capability
    • The race for cross-asset, front-to-back systems will be based on strong asset class coverage that provides best-in-class (or near best-in-class) functionality across trading classes, especially for vendors taking the pre-configured packaged approach.
    • For risk management specialists, there will be mounting pressures to marry best-of-breed risk-related data, application and analytics provision.
    • Increasingly, exceptions management functionality will be "bundled" into front-to-back systems
    • The combination of new wave technologies will lower the cost-performance curve - but the real question will be what applications will drive take-up in the next wave
  • Strategic implications for institutions
    • Capital markets institutions must develop a stronger mandate for integrated risk management across asset classes, and between front to back functions
    • Capital markets institutions need to streamline the product manufacturing process to address the risks inherent in the financial engineering of complex products
    • Capital markets institutions need to further adopt component-based approaches and accelerate componentization within applications development activities
    • Conclusion

CHAPTER 6 APPENDIX

• Definitions / Abbreviations
• Relevant readings
• Strategic Planning Program (SPP) writing team

List of Tables

• Table 1: Packaged application spend by end-user segment, 2004-2006
• Table 2: Institutional brokerage application location spend, 2004-2006

List of Figures

• Figure 1: Vendor landscape and strategic positioning
• Figure 2: Key drivers of IT strategy in European financial markets
• Figure 3: Capital markets businesses - the search for margins & growth
• Figure 4: Growth in Derivatives, 2001-2004
• Figure 5: Enterprise risk management
• Figure 6: Algorithmic trading growth, 1994 - 2004
• Figure 7: Data management - business and IT considerations
• Figure 8: STP - not as it was previously
• Figure 9: Trade flow lifecycle
• Figure 10: Leveraging synergies across asset-specific applications
• Figure 11: Restructuring trends
• Figure 12: European packaged application spend by end-user segment, 2004-2006
• Figure 13: Institutional brokerage application location spend, 2004-2006
• Figure 14: Trade flow value chain / segments
• Figure 15: Vendor offering matrix
• Figure 16: Trading institutions approach to IT core systems development
• Figure 17: Vendor landscape and strategic positioning
• Figure 18: Adoption framework - next-generation computing
• Figure 19: Sell-side focus for improving operational functions
• Figure 20: Product design - Structured products / trades example
• Figure 21: Componentization and component-based approaches in the middle and back office