Rearchitecting the Securities Industry

A common theme across Celent research has been the rearchitecting of both the sell side and buy side. Rearchitecting trends are evident across broker-dealers and asset managers faced with rising technology and regulatory requirements. 

The Changing Sell Side

The US Treasury market is at an inflection point and faces changing demands from the buy side. The largest, most sophisticated asset managers are demanding more alternatives, access, and analytical insight in their treasury trading, according to Brad Bailey's report Rates Revolution - US Treasuries: Technology for a Fragmenting Market.

The US rates market resembles the foreign exchange market five years ago and is on the verge of major technology changes, alternative business models, and competitive shakeout, with rapidly changing ways of sourcing liquidity. Rates trading is going from analog to digital. There is a wholesale rearchitecting of the treasury trading business across all tiers of investment banks. This has huge implications for how the buy side sources treasury liquidity.

At the same time, ResearchTech is affecting the sell side, with Research as a Service harnessing best-in-class technology to optimize transparency, compliance, and pricing of research under MiFID II, according to John Dwyer's Research as a Service: Assessing the Implications of MiFID II on Investment Research.

Moreover, coding investment research is becoming more attractive, with technological breakthroughs in artificial intelligence, developments in robotic process automation (RPA), and the advent of the cloud enabling changes business models, according to Josephine de Chazournes' report Start Coding Investment Research: How to Implement MiFID II with Robots and AI.

The Adapting Buy Side

The buy side has historically underinvested in technology, but asset managers realize they need to upgrade. Now the choice is how to source and implement technology solutions. Available options to the buy side include web hosting, cloud, and emerging technology, according to Jay Wolstenholme in Marching to a Different Beat: Architectures and IT Sourcing Options for Asset Managers. As strategies become more sophisticated and regulatory reporting requirements become stricter, IT and operations need to keep up if firms are to stay in the race. One area where we see vendor upgrades, according to Jay, is in the area of Performance Analysis and Attribution. 

Finally, the buy side is remapping their trading desks to leverage the growing similarities in market structure across equities, options, derivatives, fixed income, and FX, as highlighted in Brad's report Buy Side Cross-Asset Trading Technology: Putting the Pieces Together. The key challenge for most buy side firms is building trading and execution desks that can leverage both technology and expertise across asset classes.