Capital markets are continuing to shift as a result of regulatory oversight, consolidation of resources and a changing appetite toward technology. While it’s safe to assume that there will be constant change across the industry, it’s difficult to pinpoint where exactly those changes will take place. One theme has been consistent: the buy-side is embracing digital transformation and has an increased appetite for collaboration, increased control, and utilization of technology to reduce cost.
With buy and sell-side users increasingly congregating toward consolidated platforms, vendors are putting more emphasis on reducing friction and improving the delivery service consumption model. Meanwhile, banks and broker-dealers are focusing their efforts on how to deliver better results for their buy-side clients.
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ADW Capital Partners was up 119.2% for 2020, compared to a 13.77% gain for the S&P 500, an 11.17% increase for the Russell 2000, and an 8.62% return for the Russell 2000 Value Index. The fund reports an annualized return of 24.63% since its inception in 2005. Q4 2020 hedge fund letters, conferences and more Read More
Mike McCarthy, VP of External Research at Fidelity, says, “Reducing friction continues to be one of the main underlying factors in making technology decisions. If you look at the model today as it relates to corporate access and the delivery of research, there are a lot of pieces within that process which are still very antiquated and, in turn, relatively costly.”
The pivotal role of the fintech vendor is bridging that gap between the buy and the sell-side. By serving as a trusted partner and examining the internal plumbing of a firm, it becomes much easier to determine what commoditized functions should be addressed. While certain processes will continue to be done manually, the rest should be more streamlined and automated. The key moving forward for both buy and sell-side firms is to have a more open and connected architecture to adapt to the market structure changes that will unfold.
“In many cases what we found was that the existing tools in the marketplace weren’t necessarily inadequate, they just weren’t interoperable, and the overall workflow needed to be improved,” says McCarthy.
Meanwhile, the sell-side has been spending ample time focusing on post-consumption data and, more importantly, how they can transform that data to ensure that it is usable for buy-side clients leading to more value for both sides.
The buy-side, on the other hand, has focused more of its resources on how to reduce friction, automate workflow, and enhance the collaboration with their partners. What is clear is both are working toward the goal of establishing a relationship based on value.
“One thing I hope we can do as an industry is to continue this collaboration and ultimately create a best-of-breed solution that brings the buy-side and sell side together,” says Kim Prado, Managing Director, Global Head of CM Client, Banking and Digital Channels Technology, RBC Capital Markets
Cloud computing has become a major part of the landscape. Cloud-based concerns are no longer present in the industry landscape. If anything, we’re being challenged why we’re not using cloud-based solutions. Cloud-based data and applications measure tremendous advantages with the level of flexibility and the speed at which operations can be performed.
Security and data protection were the primary concerns for customers with data stored in the cloud. Today, that’s far less of a concern. Firms are employing cloud services due to the level of scalability and efficiency it provides, as well as reduced costs. But they are also seeking the cloud because of its ability to streamline workflows and connect counterparties in meaningful ways that were once not available.
“While our people are responsible for delivering alpha, in order to do that they have to weed through a ton of data and information. When you start rolling through the number of interactions and touch points, it really starts to expand and becomes more and more difficult to manage that volume,” adds McCarthy.
Organization and accessibility to clean data are where firms need to put more focus. Ten years ago, we didn’t have enough data. Today, we have the problem of almost having too much data and not having the human resources to sift through what’s necessary and what’s not.
While many technology providers refer to their products and services as “solutions”, the real solution is collaboration. The value-add proposition is centered around the generation of many ideas from multiple tech vendors working together.
McCarthy continued, “We want to embed intelligence into all of our systems so that information is routed to the correct people after going through a series of validations. The more of this that can begin to occur across our organization as well as other buy-side firms, the more efficiencies there will be for the overall model as it relates to each side of the industry landscape.”
For any client, it’s always going to come back to alpha. In order to generate the best results, firms must establish a standard business operating system that works seamlessly across the buy and sell-side but is also flexible enough to plug in additional tools when and where needed.
What we’re seeing now - and what we hope to continue being a part of - is a healthy ecosystem of innovation partners that are constantly collaborating on what works and addresses value. These interactions are what will drive more positive structural shifts in the market and, as a result, improve outcomes for the industry at large.
Article by Doug Christensen, VP of Strategy, Tier1 Financial Solutions