Transcript Slide 1
Embracing Emerging
Technologies for Quantum
Growth
Nov 2008
Agenda
1. Importance of innovation in business
2. Role of technology in the financial services
3. Emerging technologies: Future of financial
markets
4. Success stories
5. Q & A
What is innovation?
Qualitative change (not any change)
The creation of something new (not just the adoption of somebody
else’s novelties)
The innovation process includes invention, and successful
implementation or market launch (commercialization)
A focused approach to enhance user value or productivity
TYPES OF INNOVATION
Radical innovation: Developing a completely new product/ service
which did not exist (Securitization)
Incremental innovation: Improving upon a previous innovation
(Straight Through Processing)
Product and Process Innovation
Product Innovation is characterized by
Creation of a differentiator through a superior product/service
Has a longer time to market
Success of the product/service is determined within a short time period
post launch
Process Innovation is characterized by
Creation of a differentiator that captures value through efficiencies
Has a shorter time to market
Success of the process innovation is determined over a longer period
of time
Product and process innovation complement each other and
one alone is seldom good enough to drive quantum growth
Role of technology in
financial services
As strong as the Weakest Link
A financial system is as
strong as its weakest
link.
– Alan Greenspan, former chairman
of the US federal reserve bank.
IT remains the key to
differentiation,
competitive advantage
and institutional
survival.
Capital markets transformation has
been influenced by multiple agents
E-trading has led to skyrocketing of trade volumes with average trade size plummeting
Technological
revolution
Economic
Increasing
environment
transaction
Multiplication volumes
New
of execution
competitors
venues
Industry associations
Electronic
Profitability
Service
providers
trading
pressure / cost
Market
containment
participants
Capital
Industry
Market
Infrastructure
adoption of
Markets
Security
organizations
STP
Players
Firm-wide risk
focus
Consolidation
Systemic risk
management
Internalization
Globalization
Client demands
for improved
services and
lower costs
Regulatory
change
Changing Face of Capital
Markets and role of IT
Significant changes in last decade
Shift from open outcry to
electronic trading systems
Birth of online retail brokerage as
separate from a brick-and-mortar
brokerage
Growing disintermediation
Direct Market Access
Reduced turnaround time for IPO
Advanced derivative products
Improved pricing analytics and
modeling
Competitive landscape with free
markets
Reduction in transaction costs
Globalization of markets
Key IT enabled functions
Algorithmic trading
Electronic communication networks
Risk management frameworks
Order entry and order management
systems
Client Relationship Management
Derivative trading tools
Asset management and
administration
Portfolio management tools
Clearing and settlement
Real time position monitoring and
collateral management
Risk reporting
Historical trend analysis and data
mining
Changing Face of Banking and
role of IT
Significant changes in last decade
Variety of new products and
services
Emergence of new delivery
channels
Convergence of core banking
business and information
technology
Mergers & acquisitions
New services (Tele-banking, E
banking, door step banking)
New approaches to banking
(automated self banking centers)
Key IT enabled functions
Core Banking
Internet/ electronic banking
Mobile banking
Payment system gateways
Smart cards
Risk management
AML/ KYC
Kiosks/ new delivery channels
CRM/ Call Centers/ Help Desks
Wireless technologies
Resource management
A rider on IT spend and technology adoption:
Spending more on IT doesn’t necessarily translate
into higher profitability
Spending more on IT doesn’t
necessarily mean higher profits.
Institutions with above-average
IT expenditures have higher costto-income ratios and belowaverage increase in revenues.
Many institutions spend too much
on running their daily operations
and too little on innovations
Institutions face difficulty in
translating IT investments into
real business value
Scale does not guarantee cost
benefits. Many big institutions
have yet to see sustainable cost
advantages from their vast IT
operations
What matters is the way IT is adopted strategically and
implemented tactically to drive growth in business
Source: McKinsey
Top-performing banks form their IT strategies in close cooperation
with the business
High-performing banks see IT as more strategic, and they drive more
of their IT agenda directly; that is, they outsource less
Embracing technology solutions –
choosing the right fit
Best of Breed
Hybrid
Integrated
Architecture
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Characteristics
Single integrated
solution usually
provided by an
external party
Mix of solutions from
multiple vendors that
have interfaces /
protocols for
integration
Multiple solutions
provided by external
parties and
developed internally
Pros
Cons
Common hardware
platform
Overall functional coverage
tends to be weak
Single vendor
relationship
Dependent on supplier to
ride the technology wave
Advanced functionality
coverage
Integration challenges
Ability to replace and
enhance depending
upon technology
evolution in a space
Advanced functionality
coverage
Lower cost to replace
parts of the system
architecture with new
technology components
Higher overall cost including
maintaining multiple vendor
relationships
Mix of hardware, software
platforms
Integration challenges
Higher overall cost including
maintaining multiple vendor
relationships
Impact of Electronic Trading
Technology on the Securities Markets
•
Cost-efficiency: Electronic trading greatly lowers continuing operation
costs by bringing significant efficiencies to the trading process. This
leads to a dramatic increase in trading volumes.
•
Removing physical constraints on markets: It removes physical
constraints such as geography and the number of market participants.
•
Disintermediation: By providing a means for natural buyers and
sellers to meet without a market intermediary, electronic trading has a
great potential to dis-intermediate markets.
•
Blurring Regulatory Distinctions: It poses regulatory challenges for
market participants and regulators alike
Recent evolution of domestic equity market
capitalization in USD
Source: World Federation of Exchanges
Exponential growth in trading volumes
in Indian markets
Exponential growth in trading volumes
Exchanges had to scale up their
IT systems
Growth in Indian Stock Market (USD billions)
Source: Dun & Bradstreet
Impact of technology in a front to
back environment
Front Office
Middle Office
Better campaign
management using CRM
tools
Targeted distribution of
research in quick time
using internet and mobile
technologies
Real-time market data use
with improved data
warehousing
Program trading efficiency
Improved beta with trading
in dark liquidity pools
Faster analytics using grid
computing
Reliable disaster
recovery
Back Office
Automated accurate fee
calculation
Swift quotation of
commission structures
Better order management
Real-time post trade risk
management and portfolio
evaluation
Improved collateral
management
Tools for accurate
performance measurement
Fast and accurate margin
calculation
Electronic client reporting
Robust infrastructure for
performance & uptime
Improved
STP
• Reduced failure in
settlements due to
automation of manual
processes
• Faster and accurate
corporate actions
processing
• Accuracy in accounting and
reconciliation
• Quick cash transfer with
electronic payment
gateways
• Better risk reporting to
management and
regulatory bodies
Robust security
Operational Risk Management
Automated exception
management
Emerging technologies: Future
of financial markets
Expectations in the current market
Improvement in service levels
A single window for multiple services
Increase in convenience for customers – including being
able to transact on the go
Transparency – ability to compare products/services
feature for feature against other competitors in the market
Security of transactions and confidentiality of data
Convergence in markets will increase
Understanding and adapting to the client’s needs,
through a broader distribution network,
supported by a wider array of service/product
offerings and capable talent,
and ‘state-of-the-art’ technology systems
Convergence of financial institutions is the blurring of conventional boundaries
separating the traditional providers of once-discrete financial services (i.e. life
assurance, short-term insurance, banking, health, general retail)
Emergence of a financial supermarket
is leading to Client Centricity
Wealth Management
Education
provision
Retirement
Savings
&
Investment
Home loan
Risk cover
Client
Medical
Personal
Cover
Car &
household
cover
Lifestyle
Banking /
Transactional
Wills
& trusts
Financial
Education
Financial
Education
Medium
term
credit
Where Are We In The Technology
Hype Cycle? - Gartner
Emerging technologies in capital
markets
Next 2 years
Real time market-data
distribution
Algorithmic trading
tools
DMA trading tools
Credit and market risk
calculation engines
2 to 5 years
Complex event
processing for trading
applications
Consumer on-boarding
tools
Mobile solutions for
developing and
emerging markets
Operational risk engine
Private virtual worlds
5 years and more
Enterprise reference
data management
solutions
Financial social
networks
Component based buy
and sell side securities
processing
Q&A
Use of some more emerging
technologies..
Social Networking
In order to conduct an on-line transaction in which both parties
have confidence, identity is a key.
Facebook is one platform providing identity. Based on this
identification, third parties can make use of this base for deriving
software applications for transaction services.
Cloud computing
Promises reliable services delivered through next-generation data
centers that are built on compute and storage virtualization
technologies.
Consumers will be able to access applications and data from a
“Cloud” anywhere in the world on demand.
The Cloud will appear to be a single point of access for all the
computing needs of consumers.
NSE and BSE had to scale up their IT systems to accommodate increasing number of brokers across various instruments
Success Stories
Technological innovations at
NASDAQ
NASDAQ tries to keep its systems scaled to two times the level of the
previous peak in IT demand.
Has 3 sets of websites: Trade Station, private and public websites
Has Web 2.0 features:
Mobile site for nasdaq.com,
boardrecruiting.com: social networking for recruiting candidates for
corporate directorships.
Blogs are used for internal use;
site shareholder.com offers interactive webcasting.
It recently consolidated all fundamental and real-time data into a single,
internally developed ticker 30 plant. A custom made content
management system was developed
Closer at home - National Stock Exchange
uses technology effectively
NSE's IT set-up is the largest by any company in India. NSE can handle up
to 6 million trades per day in Capital Market segment
NSE introduced a nation-wide on-line fully-automated screen based trading
system (SBTS)
NEAT is a state-of-the-art client server based application which helps
achieve minimum response time and maximum system availability
Technology has carried the trading platform to the premises of brokers and
to the PCs of investors
More than 9000 users trade on the real time-online NSE application
Trading cycle reduced from 14-30 days earlier to T+2 now