Capital Markets Sector Overview

Liquidity and volatility

The current market is challenging institutions to rethink basic models as new entrants are taking ever larger shares of traditional debt and equity activities, and high levels of volatility are providing savvy traders with new sources of profit. After the 2008 financial crisis, firms redoubled efforts to manage risk, upgrade compliance efforts, and stabilize operations – this left institutions in a strong position as the new pandemic emerged – but new monetary policy, geopolitical stress, and the global nature of the event has created uncertainties that will reshape the nature and execution of markets for the foreseeable future.

We expect several trends to shape the market in the coming months:

  • Resurgence of trading – market volatility has created a very active environment and put trading desks back on the front lines of firm revenue generation. After averaging 7 billion US equity shares/month traded for the 12 months leading up thru January 2020, volumes climbed to 9.2 billion in February, 15.6 billion in March, and 12.3 billion in April 1 – and those increased volumes mean increased profitability for market participants and the infrastructure that supports them.
  • Alternative is the new data – even before COVID-19 there were 445 alternative data providers, a growth of 450% in the past five years. 2 As global economies re-open, results will be inconsistent with “winners and losers” driving investment decisions, and so much of the Alpha to be generated won’t be found in traditional analyst reports.
  • Tokenized assets – while the concept of digitizing assets is not new, the emergence of blockchain and distributed ledger technology (DLT) are creating a trusted mechanism that will allow firms to finally move many of the assets and products that remain bound to cumbersome manual processes into a frictionless process that will provide greater transparency and liquidity.
  • Workplace disruption – firms quickly responded to the challenges presented by the pandemic but were forced to relax several long-standing controls and accept new risks presented by a remote, distributed workforce. With this new model likely to become a standard part of a firm’s long-term resiliency plan, new controls and tools will need to be implemented to ensure prudent risk management practices and uninterrupted market functions.

Execution is paramount

We have assembled a team that is focused on executing critical changes that will position our clients for success in this new market environment. We start with deep expertise in critical areas:

  • Operations optimization – strong, consistent, and reliable operations continue to be critical to an institution’s success, and delivery now faces new challenges where business continuity plans have been turned into the normal operations. We have developed a set of tools to help you evaluate your current environment and structure a new model that recognizes these new challenges and requirements.
  • Technology modernization – while much has been done to digitize the customer experience, this has often been accomplished by wrapping legacy systems with a layer of modern technology – little attention has been payed to the core processing capabilities, back-office, and user efficiency, where lower-cost offshore labor pools were able to successfully close the gap. This supply chain now presents significant new risks and potential for disruption. We have assembled a unique ecosystem of technology assets to help you evaluate your technology environment, strategically acquire key capabilities, and establish a flexible platform to support your clients.
  • Digital assets – with the maturing of DLT, the opportunity to tokenize assets has never been closer or more viable. Trusted custodians are in place, exchanges are evolving, and established global players are exploring new products they can offer under this new model. Our team is working with emerging vendors and technologies to bring digital assets into the mainstream, recognizing the maturing regulatory landscape and dynamic competitive environment.

 

The unique blend of expertise and network of partners allow us to bring broad solutions to our clients with a focus on execution and market competitiveness.

1 US Equity Issuance and Trading Volumes, SIFMA

2 AlternativeData.org