Organisations a are now demanding better visibility about what’s going on externally in their market and internally within their business to maximise growth , improve competitiveness and decision management. The end goal is increased organisational agility in order to be able to deal with change fast.
Market Insights for 2011 and beyond- A fine balancing act...
These developments present challenges on both business and technology fronts.
From a business perspective, market participants must implement the right types of business transformation initiatives and remain performant, whilst deploying processes that comply with the rules mandated by these measures. On the technology side, firms need to enable innovative and flexible technology platforms to take advantage of the new trading methodologies whilst managing the explosion of market data volumes and risk/compliance processes that directly result from these new initiatives.
High Frequency Trading is now a globally recognised phenomenon and game changer. Along with the evolution of automated market making, HFT firms are dominating in the supply of liquidity. Policies that enabled automated trading in the first instance have naturally enabled HFT so the jury is out as to how policies can best be implemented to curb its natural evolution. Either way one has to look at “cause and effect” within the markets and the policies and processes firms need to adopt just to ‘stay in the game’, depending on what end of the frequency trading spectrum they reside. It is highly likely that new rules and regulations will appear in 2011 to address a number of concerns although there is still some debate as to how global regulators will react.
It’s a fine balancing act so who to turn to and what to focus on in order to maintain competitive advantage?
On the business side, the relatively new discipline of Technology Economics continues to gather momentum within capital markets, championed by pioneers in thought leadership such as Dr Howard Rubin from Rubin Worldwide in the US and Dr John Pettit from the Centre for Technology Economics in the UK. The technology intensity within financial markets demands that business models must accommodate technology imperatives. By providing the latest information business leaders need to master technology investment strategies and understanding how technology can be applied to enable new business models, organisations applying and subscribing to this discipline will continue to maintain that competitive edge.
Financial markets also need to be accommodating open innovation business models alongside the traditional closed approach. The old paradigm of a closed innovation, efficiency driven, product focused and proprietary business model needs to accommodate the new paradigm of open innovation, growth driven, customer integration, service oriented and flexible business models in order to rebuild trust with their clients, shareholders and the various regulatory bodies.
An imperative for innovating companies is that they can and should use and embrace external as well as internal ideas, use internal and external paths to market, in order to maximise returns from their transformation and innovation initiatives. Opening up business models in financial markets will continue to be challenging but is an opportunity for those that understand the importance of this strategic change. By adopting flexibility and continuing to on-board service-oriented open business models to transform, participants can quickly adapt and redefine themselves as markets and client behaviours have already changed considerably. To embrace open innovation for competitive advantage, business leaders must adopt a new set of management practices. As much as an agile or dynamic infrastructure aligns business and IT process and infrastructure, the business culture should be ambidextrous ( pursuing different contradictory strategies at the same time) in thinking, foster an ‘intrapeneurial‘ mind-set and take a holistic view on the firms business operations.
Businesses need to ensure that they partner with the right professional services organisations as part of a collaborative process to discuss key business initiatives and how IT can influence business value- these partners understand how to apply open innovation and ‘know how trading’ through a flexible network to deliver benefit to their clients . Understanding Technology Economics plays an important part in guiding how business leaders can use technology with modelling techniques to make investment decisions to transform their business.
On the Technology frontier, adopting the latest technology imperatives to accommodate advanced trading initiatives whilst building a dynamic infrastructure and optimising operations continue to be a top priority for many CIO’s.
Across these focus areas, improving data integrity and the quality of data continues to be of paramount importance as the pressure to provide a consolidated financial view grows in order to meet regulators demands for reporting and transparency. Those firms that can access complete sets of data across the business enterprise will have an advantage when addressing the regulatory requirements. Improving data integration has long been a priority for financial firms, but the need to provide accurate risk measurement across the enterprise, as well as the need to be able to respond to regulators’ requests for reports in a timely manner, increases the importance of the quality of the data.
Enabling a Dynamic Infrastructure will also provide firms with an advantage. With intelligent monitoring and adopting service oriented processes and technologies to streamline information availability, correlation, processing and reporting, organisations can integrate risk functions across all departments. With the right adoption of cloud services, more applications can be moved into the cloud. Market participants can optimise the allocation of their resources and maximise performance whilst minimising and avoiding cost. A large percentage of capital markets firms already use some type of cloud service and an increasing number will being to adopt the service throughout 2011. The elasticity and ability to scale up and down with speed is clearly an attractive proposition for many firms. The alternative management community are adopting cloud for CRM and online back up and hedge funds are seeing the benefits with back testing in risk analytics and high frequency compute requirements. Firms within capital markets are likely to initially build their own internal clouds within their own data centre and firewall environments.
Data centres represent the backbone to financial markets so the ability to optimise operations is fundamental in facilitating business transformation and managing cost. Low latency colocation services are a given but design considerations must also need to demonstrate the highest levels of security, robust connectivity, flexible configuration models and ultra-low latency to market data.
Organisations that can embrace these new business models and collaborate with the right partners in the above technology focus areas will continue to be the next business leaders and maintain competitive advantage.