Morgan Stanley (NYSE:MS) executive vice president and chief financial officer Ruth Porat recently gave a presentation at the Barclays CapitalFinancial Services Conference that highlights important changes in the banking industry (and argues that Morgan Stanley is well-positioned as a market leader, of course).
Morgan Stanley: Electronic trading
As electronic trading has grown in popularity and complexity the way that client judge banks has had to change – even abstract notions like trustworthiness have had to adapt. In the past clients may have decided to trust bank based on the people in charge and how well it could be expected to weather a downturn, but now the stability of the bank’s trading platform is just as important as underlying IT infrastructure becomes essential for clients to conduct business.
Similarly, communicating is no longer just about being reachable by phone, it must also include a “direct connection to clients’ own trading systems,” and be capable of “connecting via multiple market platforms to satisfy client demand,” says Porat. The platform connects to dozens of market and must be able to analyze the sometimes rapid flows between, handling orders that condition orders in one market on what’s happening everywhere else.
Morgan Stanley: Liquidity
Sources of liquidity have changed from “largely single stock sources (NYSE, London Stock Exchange, etc), screens and brokers own liquidity” to a much more complicated array of options including dark pools, derivatives exchanges, and equity commitment notes (ECN).
Clients have raised their expectations for the research that banks provide, and not only that it be provided more promptly. Porat says that there is a much greater emphasis on “fundamental logic and recommendation via predictive analytics,” and that clients want access to interactive analytical tools to help them put that research to good use.
The recent NASDAQ crash has reminded people that some systems work better than others, but that’s an extreme case of system failure. System slowdowns that delivers information too slowly or execute orders with a bit lag can be far more damaging in the long run and aren’t likely to end up as front page news. As these trends continue to take root banks will have to compete on the strength of their platforms as much as the quality of their analysis or industry expertise.