RiskTech Forum

SunGard: White Paper Transforming Capital Markets – Competitiveness And Profitability In The Brave New World Of Trading

Posted: 1 November 2013  |  Source: SunGard

The brave new world of trading

Many of the changes that the capital markets are undergoing have been much discussed elsewhere, so this paper will focus on a few: specifically, what will be the current and expected impacts on broker-dealers in the asset classes most affected, and what these will mean for business strategy, processes and supporting systems. We also suggest what we believe are the best actions to take to lead to competitive success for broker-dealers as market structures are transformed over the next few years.

Key changes driving capital markets

Progress and change in all financial services businesses come from a constantly stirred mix of regulation, technology and creativity — with powerful interests in the status quo usually dragging on the spoon. The first ingredient, regulation, has been the most important since the financial crisis, and the end-effects of the global drive in this area are only now beginning to be felt as the first rules on execution from the Dodd-Frank and EMIR processes come into effect in the US and Europe.

Much detail in these regulations (and also Europe’s yet-to-be-agreed MiFID II framework) remains to be finalized, but we can draw the following broad conclusions:

›› The asset classes whose trading is most heavily affected are OTC derivatives and fixed income. Europe has a vital role, given the concentration of OTC business in London in particular (47% of global interest rate derivative trading, according to the most recent BIS figures).

›› As with any change, while there will be winners and losers, there are significant gains for first movers and certain infrastructure providers, and the broker-dealer community as a whole must expect its margins to come under further pressure.

›› A serious worry about the sudden imposition of heavy and prescriptive regulation on the OTC markets is inconsistency between the major regulators. There is risk that timing, detailed content and concerns about extraterritoriality will lead to regulatory arbitrage.

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