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Capital Markets Outlook 2012

Battered and bruised by a difficult 2011, Wall Street faces another challenging year. We examine 10 critical issues that will set the agenda at capital markets firms in 2012.

Battered and bruised by a difficult 2011, Wall Street faces another challenging year. We examine 10 critical issues that will set the agenda at capital markets firms in 2012.

Following a profitable 2010, 2011 was a train wreck. Financial companies that seemed to recover following the 2008 and 2009 market shocks ended this year in far worse shape than they began it, and the global economy, as this issue is being sent to press, is waiting for a seemingly inevitable Greek default (though no Eurozone political leader wants to acknowledge it). As a result, market uncertainty is soaring, which is never good for investors. The drag on the global economy and jobs has given a once small group of Wall Street protestors the fuel to flame a global outcry against financial services/global warming/corporate greed/political corruption/unethical animal treatment and so on.

The stalled economy, coupled with depressed trading volumes and dwindling bank profits, has started another round of layoffs in the financial sector -- which never really recovered from the first round of job cuts in 2008-2009. For technology managers, it all makes planning for 2012 difficult, at best. If the economy continues to flounder, more cuts may be on tap, putting even more pressure on the remaining IT organization to do more with less.

But things aren't always what they seem. Everyone thought 2009 would be a brutal year for the markets, but it turned out to be the start of one of the biggest bull runs in history. Here's to hoping 2012 will be a repeat.

For CIOs and CTOs, however, there is a sense that technology is again becoming more than just a cost of doing business or a commodity that can be minimized. Yes, larger pieces of the IT organization -- once thought to be vital competitive differentiators and core competencies -- are becoming commoditized; email, storage, CRM systems, even entire data centers are being outsourced, sent to the cloud or to be hosted by a third party (SaaS). Even trading systems are being taken from proprietary data centers and placed in colocation centers -- liquidity centers -- run by someone else.

But even as those pieces of the IT organization move away, other demands and areas of expertise are taking their place. "Big data," a term common in other data-intensive sectors, has made its way to financial services, for example. In order to meet regulatory transparency requirements, Wall Street firms must churn through more and more data each day. Meanwhile, end users -- traders, financial advisers, risk managers, even regulators -- need to understand it all. While not new, data visualization technologies have matured, providing users with an easier way to digest the massive amounts of information.

Another area that will benefit from big investments in 2012 is clearing for OTC derivatives. The sell side alone spent $12 billion on clearing-related technologies in 2011; expect more of the same next year as dealers and exchanges enhance and fine-tune their infrastructures to centrally clear swaps.

How will 2012 play out? A lot hinges on what happens with the Greek debt crisis. While it would inflict a lot of short-term pain, a quick default might actually be good for the markets, as at least the uncertainty would be removed and everyone could move forward. Hopefully, by the end of 2012, we'll be discussing more promising prospects, such as growth and investment, not defaults and job cuts.

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