FinTech Spending and Innovation in Capital Markets

Executive Summary

As portmanteaus go, FinTech—the obvious blending of the words financial and technology—is clearly not amongst the cleverest since author Lewis Carroll introduced them in Through the Looking-Glass, but its growing influence in the capital markets is hard for players to ignore, however off-putting the term.

The interest in FinTech isn’t limited to nascent start-ups in the space. In fact, like the capital markets, it’s far more complicated. Capital markets and technology have become so intertwined that any business strategy that does not include technology as a key element would be ludicrous. In this report, we examine FinTech in the capital markets and classify FinTech players into three categories:

  • Established software and technology vendors to financial institutions. The largest players include Bloomberg, Thomson Reuters, FIS, Broadridge, Misys, Murex, and Calypso.
  • Emerging FinTech providers seeking to gain market share at the expense of the above players by relying on advantages, such as more modern technologies, improved functionality, greater speed, and lower cost. Examples of these providers include Symphony in messaging, AlphaSense in analytics, and TradingHub in market surveillance.
  • Firms competing directly with established financial institutions by relying on technology-centric business strategies. Firms such as XTX Markets and Virtu in trading, as well as WorldQuant and Two Sigma in asset management are prime examples.

Capital markets players are indeed bullish on the near- and longer-term promise of FinTech, as indicated by their willingness to invest in IT. In total, we expect spending on IT across all market participants in the capital markets to amount to over US$127 billion in 2017, with three areas standing out as the largest:

  • Order and execution management at US$19 billion;
  • Post-trade transaction processing at US$14.6 billion; and
  • Analytics at US$12 billion.

Opimas outlines trends in FinTech, first, by the step in the capital markets value chain, including capital formation, pre-trade, at trade, post-trade, risk management, and regulatory compliance or RegTech. Then, we examine trends by type of market participant, looking at investment banks, trading venues, sales and trading firms, asset managers, wealth managers, securities processors, and industry utilities. Each has its distinct characteristics, challenges, and addressability by FinTech.

We then assess the potential for nine different emerging technologies in capital markets, including artificial intelligence, advanced analytics, visualization, blockchain, big data, robotic process automation, cloud computing, digitization, and alternative data.

Despite the significant investment in IT in the capital markets, and the repeatedly demonstrated potential for FinTechs to disrupt and gain significant market share, external investors, such as venture capitalists and private equity firms, have significantly underweighted capital markets in their portfolios. We believe that this creates a compelling opportunity for investors, and have ranked the various areas in capital markets by their attractiveness for external investment. The three most attractive areas for investment are pre-trade analytics, post-trade transaction processing, and portfolio management.

Table of Contents

Page

Executive Summary

5

Introduction

7

IT Spending by Step in the Value Chain

9

  Figure 1. Technology Spending By Step In Capital Markets Value Chain 10
  Capital Structure 11
  Pre-Trade 11
  At Trade 12
  Post-Trade 13
  Risk Management 14
  Regtech 15

Fintech Providers – Established And Emerging

16

  Figure 2. Leading Fintech Providers By  Step In Captial Markets Value Chain  17
  Figure 3. Emerging Fintech Players To Watch  19

Fintech By Market Participant Type

20

  Investment Banking 21
  Execution Venues 22
  Sales & Trading 24
  Asset Management 26
  Wealth Management 27
  Securities Processing 29
  Figure 4. Fintech By Type Of Financial Institution 31

Emerging Technologies In Capital Markets

32

  Artificial Intelligence 32
  Figure 5. Articifical Intelligence Map In Capital Markets 33
  Advanced Analytics 33
  Visualisation 34
  Figure 6. Example Of Visualisation 34
  Blockchain 34
  Alternative Data 35
  Figure 7. Areas Of Greatest Activity For Emerging Technologies 36
  Big Data 37
  Robotic Process Automation 37
  Cloud Computing 38
  Digitisation 39
  Figure 8. Applicability Of Emerging Technologies By Line Of Business 40

Opportunities In Capital Markets Fintech

41

  Figure 9. Investment Potential In Capital Markets Fintech

43

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