The Sell Side’s Tech Investment Cognitive Dissonance
There is a gulf within the sell side between where firms foresee their business heading and their preparedness to reach that destination, concludes the author a recent global survey of investment banks, commercial banks and broker-dealers commissioned by FIS.
“Of the more than 500 sell-side senior managers polled, 77% of them said that there will be a severe change to their business in the next 24 months, but only 5% of them are increasing their investments into compliance and 7% in risk,” said Craig Costigan, division executive for sell-side risk and compliance at FIS. ”There is a disconnect between the requirements for regulatory changes and requirements for supporting and managing the business.”
The greatest twin concerns cited by the respondents are the continued development of new technologies, such artificial intelligence and bitcoin, and competition from newer, leaner, and more tech-savvy competitors, he added.
To address these issues and maximize their firm’s balance sheet, 75% of the responding broker-dealers expect to increase the amount of automation in their businesses.
“It could start with algorithm trading; we’re now seeing it in back office with intelligent work flow.,” said Costigan. “We are moving from brute force to intelligence, and it will be transformative to the sell side.”
According to the respondents, front-office market data, middle-office risk management, and back-office post-trade processing will reap the greatest benefits from automation.
However, automation doesn’t necessarily mean eliminating positions. The majority or respondents, 57%, expect automation will augment employee performance while 31% said that it would lead to eliminating positions. The remaining 12% believe that adopting greater automation would accomplish neither.
The move to outsource functions is also continuing to growth, such as in the back office,” he said. “It’s one of the areas that they are looking at where they do not gain leverage from the tools, technology or resources.”
Yet the greatest pluralities of respondents believe that they will increase their investments the most in market expansion (31%), customer experience (20%), and disruptive technologies/companies (17%) compared to talent management (14%) and regulatory compliance (12%) by 2020.
For more on Operations:
- Buyside Worried About MiFID II Transparency
- Goldman Sachs Hires Nasdaq to Run Its Sigma X Dark Pool
- DTCC Appoints Jim Hraska as Managing Director of Its Fixed Income Clearing Corporation
Just as algo trading decimated front office headcount, AIs are ready to reduce the middle and back office.
Corporations now have a choice of paper or blockchain.
Industry utility expects significant savings from the new cloud-hosted platform.
Too many blockchain projects are hammers in search of a nail.
It no longer economical to throw bodies at problems.