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A BearingPoint global research study, among other findings, predicts that by 2015 global exchanges will compete directly with investment banks.
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| Consulting-Times E-zine
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BearingPoint study looks at capital market firms in the 21st century
According to the study, Shifting From Defense to Offense: A Model for the 21st Century Capital Markets Firm, the potential stock exchange consolidation happening today – as demonstrated by developments such as Euronext’s merger talks with the NYSE Group and the Deutsche Bourse – is a precursor to the migration by exchanges into the traditional world of investment banking, driven by the exchanges’ need as public companies to identify avenues for growth. The study also found that capital markets firms will use technology to formulate more detailed client profiles than ever before, enabling companies to deliver highly-customized products and services to more effectively meet unique client needs.
The surveyed top executives from leading capital market companies to find out how these firms are already transitioning their operations in preparation for the challenges of the next decade. The global study in its entirety can be found at www.bearingpoint.com/21stcentcapmarkets.
“We have seen the list of the top ten investment banks and brokerages change every ten years, with new players breaking in and others fading away through consolidation and competition,” said Peter Horowitz, managing director of BearingPoint Financial Services and global markets lead. “We can expect to see an even more dynamic shift over the next ten years as exchanges, which are searching for profits and growth more aggressively than ever before, muscle their way onto the playing field. As a result, sell-side firms must begin preparing immediately to use technology to both capitalize on alternative revenue opportunities and identify new ones.”
The study also found that capital markets firms will need to establish an organizational structure that maps to their clients’ “investment DNA” with a centralized view of client data across all business lines and products. This will allow banks to provide a consolidated risk and finance profile of each client, as well as the necessary information to design custom products for each client’s portfolio.
“Just as genetic research may soon enable the medical industry to develop pharmaceuticals that are custom-designed for individual patients, the capital markets industry will combine customer data and technology to create ‘designer’ investment vehicles to serve individual client needs,” said Chris Formant, executive vice president, Global Financial Services, BearingPoint.
Formant also noted that the shift from commoditized to customized products will require highly efficient processing capabilities and the development of a responsive, open-ended technology platform that will allow companies to be more nimble and creative than ever before. He also pointed out that another result of this new client-centered focus may be that many of today’s largest firms could find themselves splitting off advisory and product development functions.
The global study cited key technology enablers that should be considered:
— Enterprise client management: Middle- and back-office functions will be reconfigured into massive processing utilities, leaving capital markets firms focused on the front end.
— 21st Century data infrastructure: By 2015, all forms of data, including unstructured data like email and messages, will need to be stored for internal and external audiences.
— The role of emerging markets: Emerging markets will represent an important growth engine for the global capital markets industry, as their upper and middle class grows.
— Architecture: Services and Events are the Building Blocks: As larger firms require more nimble IT support, service oriented architecture will become essential.
— Strategic risk management: Impending market restructuring legislation is causing the leading capital markets firms to take a different approach to managing risk.
— Process Automation: T+0 and Real-Time Everything: By the year 2015, the widespread implementation of straight-through processing is expected to happen.
The global study was developed in conjunction with Datamonitor plc, who conducted the study for BearingPoint in the spring of 2006 based on interviews with the top executives at leading capital market firms.
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