The future is here

The pressures are well known in banking and the capital markets. Each month there are front page articles of scaling back, overhauling, reorganizing, or closing major bank lines. A continued reworking, a forging of a new business is occurring. Old models are shrinking and being replaced by new business models or being cast aside. Since the 2008 crisis, wave after wave of pressure has made this perfectly clear. Capital constraints, on-going regulatory pressures, and an ultra-low interest rate environment have all struck hard at the existing banking & broker/dealer system. Nearly all players-big and small- are rethinking the very core of their businesses. And this is a multi-threaded problem across all businesses: equities, FX, fixed income, and derivatives. Banks and broker/dealers are trying to balance their existing franchises against the pressures they are facing to create a lean profitable business that supports their clients. There are no easy answers, given the strong interdependence between the wealth, asset management, and capital markets businesses across all products. Many of the solutions are moving from efficiency, or cost-cutting to effectiveness. Costs are being cut-there are improvements in risk, compliance, processing. The cost side is getting better but the challenge remains on the revenue side. This drive for effectiveness is driving business models that support internal and external clients from a compliance, transparency, regulatory, fairness and cost perspective are driving more automation and electronic trading solutions. Celent will be discussing the evolving landscape of innovation in automation and technology at two upcoming roundtables. On September 15th in London we will be looking at changes in the US and European fixed income markets and how new technologies are driving change. Then on September 22nd in Zurich, we will be looking at wealth management and the capital markets and the many changes that are occurring in Swiss banking.

All MiFID, All The Time

I just spent a week speaking to many of Celent’s UK based clients.  I was surprised by how high MiFID II was on everyone’s agenda.  Whenever I posed the question—what are you most interested in discussing? The answer was firmly-MiFID II.  The response was typical for the entire client spectrum: buyside to sellside; venue to infrastructure provider; vendor to regulator. It was most apparent regarding anything fixed income, given the potential magnitude of change coming to those markets. It is interesting to note the divergence, from a fixed income perspective between the US and Europe. On the US side, we have been discussing the evolution of fixed income markets-the gradual pace that occurs as a function of a naturally changing environment. Generally, change is slow, but sudden shifts to the established environment can occur. In a similar vein, think of the Cretaceous period-80 million years with incremental natural selection occurring over vast time frames but ruled by dinosaurs.  Of course, during those long periods of time stresses occurred that accelerated the process of change. In the US fixed income market, those stresses come from dealer decreasing balance sheet, transition to alternative liquidity, buyside flexibility, rise of new venues, QE, and, ever restrictive capital/regulatory regimes. By contrast Europe, where under MiFID II, slated for implementation in the next 18 months, market participants are looking at a major shift in the climate. Implemented as currently written, MiFID II will be a radical remapping of trading across the universe of FI products-an asteroid, plummeting into the Gulf of Mexico-ending the cretaceous period with a “bang”, and life/trading as we know it.  Of course, we know how that story plays out – the dinosaur die off made way for those nimble, tiny creatures to find their way and-well, become the established order.