Competitive Adaptability in an Opaque Market

Over a decade and a half ago, the decimalization of equity markets transformed financial markets, permanently altering the way investment banks interact with their clients. The electronification of equity trading spawned a revolution that took markets from the open outcry system and to the automated systems we know today.

The proliferation of electronic venues that followed led to a consolidation of data providers. Many of today’s largest institutions, from bulge bracket brokerages to proprietary trading houses, took the lead in developing and disseminating technological innovations in a climate of consistent alpha.

What followed is sometimes referred to as the golden age of financial technology. In reality, that age, while glorious, was transitional in nature; as a result, many institutions were left with bloated infrastructures, over staffed and heavily exposed to unforeseen risks lurking just over the horizon.

Today, those investments in outdated technology and out-of-favor business lines have left many firms unable to respond quickly to the changing marketplace of 2016— an environment where alpha is transitory, constantly moving, shifting and morphing. In the current global market environment, operational flexibility and adaptability are paramount, just as speed and computing power led the day in 2009.

As an onslaught of fintech challengers has caused a race by brokers to update their legacy systems, conventional wisdom has favored an “if you can’t beat them, collaborate with them” approach. Unfortunately for brokerage firms, this approach to innovation is easier said than done.

In many cases, the infrastructure that served the capital markets well in the past has now become somewhat of an albatross, a conglomeration of patches and fixes that now hinder their ability to innovate. In their struggle to keep pace, they find that not only is alpha elusive, new hurdles arise, seemingly at every at every turn.

This 17-page TABB Group note, Competitive Adaptability in an Opaque Market, examines the actions today’s sell-side institutions must take to stay at the top of their game. In addition, it discusses the need for firms to master the current marketplace in order to be operationally agile, and why they must focus their energies and resources on differentiating services while other efforts to trusted partners with the resources to shoulder the technology burden.

The note also describes in detail the rise of a new kind of competitor – one that is built for innovation, and why the most innovative brokers have sought to take a holistic approach to innovation; one consisting of partnerships, making innovation the center of a leaner, more agile business model.