Interact 2024: The Evolution of Capital Markets

In a discussion on “The Evolution of Capital Markets,” at S&P Global Market Intelligence’s Interact conference in New York on October 15-16, panellists from  asset management  and  trading firms  spoke with moderator Carl James, Head of Fixed Income - Primary Markets Group at  S&P Global Market Intelligence about how the use of technology in the space has truly followed Moore’s Law (which refers to the exponential growth of the power of computing).

The panel session covered several key points and insights about the capital markets and its evolution:

The size of global equity markets has tripled since 2003 to about $120 trillion, China’s market has grown twelve-fold in the past 20 years, and bond markets are now worth about $315 trillion. Banks are now in the business of moving assets, not storing them.

Technologically, fixed-income trading is emblematic of Moore’s Law.  This type of trading, 15 years ago, looked a lot more like it did in 1970 than it does today.

Sometimes, it’s regulatory changes that spur change in the market or innovation. The growth of fixed-income ETFs is an example of this as well as expanding portfolio trading to source equity, engage clients, and figure out which way the market is going.

However, buy-side firms are lagging by not changing their business models to take advantage of opportunities created by improved technology and availability of data. Buy-side firms to be liquidity providers, think about how they use data and think about how to use platforms and connectivity to become alternative market-makers.

Now financial firms are looking at more than just basic financial information, such as KPIs. This makes it possible for associates to tell portfolio company clients what issues the data reveals. Instead of just comparing a company to its peers, they can tell the client company what it should be doing, based on the new types of information available.

The trading approach on a “bond by bond” basis can change over the course of the next year to one emphasizing technology.

In some cases, behaviour can be the biggest hurdle for firms trying to change the way they function in the market. A few ingrained habits include salespeople prefer doing trades by phone, transacting risk is fraught with emotion, and trading personnel must adapt to new workflow methods.

Working with templates will have to change for companies receiving investment, but firms will still have to reconcile financial information.  Being able to use the latest technology to clean up the information automatically rather than manually would be a great advance.

In the next five years, having better data, paired with AI, will bring firms much better results than those who don’t change anything about how they use data.