This might be heresy for a financial technology blog, but is technology driving business growth in the capital markets?
I ask this because I had an organizational call for a panel discussion I’m moderating during Linedata Exchange New York on October 7 this morning.
The panel, entitled “Truth or Myth? What Drivers Really Play a Role in Growing the Business Today?”, promises to be an interesting conversation with Jeff Scannell, vice president of trading technology at State Street Global Markets; Ryan Bateman, director of technology at Sands Capital Management; Jonathan Wang, head of business development at TPG-Axon Capital; and Dushyant Shahrawat, research director at CEB TowerGroup.
It was relatively easy to cover the capital markets from a technological perspective before the 2008 financial crisis. Reporters only had to ask technologists how the specific investment would generate more money for the firm or how would it save the firm money, which could be used to make more money.
After 2008, Dodd-Frank, EMIR and Basel III, reporters started to add a third uncomfortable question: “How will this investment keep the company from being fined by regulators and appearing on the evening news?”
Over the past six years, I have not heard many technologists discuss how IT investments drive business growth. Instead, they have returned to the bearish mantra of doing more with less while throwing available resources at the middle and back offices.
It’s no longer a matter of capturing alpha, but controlling costs and improving internal efficiencies. Hence, why hosted-platforms, outsourcing, cloud computing and their management are the topics of the day.
Looking at my inbox, emails pitching trade reporting, margin management and risk analytics outnumber trade-execution pitches on low-latency messaging, trading algorithms or smart order routing, at least six or seven to one.
Until some level of volatility comes back to the markets, most firms are left treading water and updating their middle and back offices and it will not change until the US Federal Reserve and the other central banks take their feet off the interest-rate brakes. Then we will see the pendulum swing back to greater investments in the front office.
Am I wrong?
Let me know.