Capital Markets: Top 10 Strategic Initiatives for 2005

According to Framingham, Mass.-based Financial Insights, the following 10 strategic initiatives will drive technology spending in the capital markets in 2005.

1. Enterprisewide data integration. The goal of many data-focused infrastructure projects is to pull siloed data together to derive meaningful business information to support strategic objectives.

2. SEC RegNMS (National Market System). After what will be more than a year of debate, Reg NMS will pass in 2005. U.S. and global firms will not look to be in compliance in the second half of 2005, but will more aggressively look for ways to turn Reg NMS to their advantage.

3. Soft dollars. The use of soft dollars will be dramatically affected in 2005 by regulatory scrutiny and possible new restrictions on usage. This could have major ramifications for vendors as institutional spending on technology that was previously financed by soft dollars goes away or decreases substantially.

4. Algorithmic trading/direct market access. 2004 was a boom year for algorithmic trading and direct market access. 2005 also will be a strong year, with greater institutional market penetration. Look for a greater emphasis on product differentiation that has not been seen in this arena.

5. BIS Basel II Accord. With implementation of the Basel II Accord looming in 2007, financial institutions are working toward compliance. Institutions need to wrap up the build phase and begin testing solutions to ensure compliance.

6. Retail adviser front-office integration. Increasing demands and rising expectations of retail investors are putting greater pressure on representatives and advisers. Front-office technology must leverage the information available across the firm to empower advisers in servicing clients.

7. Transaction cost analysis. The role of transaction cost analysis (TCA) in the trading process will continue to grow in 2005. Investment managers increasingly will screen their brokers on both their quality of execution and the quality and ease of use of their TCA tools.

8. FIX/SWIFT and other standards. Two years after its introduction, FIX 4.4 will become the de facto FIX standard in 2005. Also, FIX will continue the move, with increasing acceleration, beyond the front office and into more derivative products. Standards in reference data also will move forward.

9. Investment management process integration. The buy side increasingly is becoming aware of the need to improve operating efficiency across the investment management cycle. The move away from soft dollars also is highlighting the hard choices that need to be made.

10. Crossing networks. The focus on transaction costs and algorithmic trading, in conjunction with concerns about market impact, will continue to drive the utilization of crossing networks by institutional traders. Firms will take steps to connect internal processes and applications with these cross-industry integration vehicles. The examinations of soft-dollar practices also puts pressure on the tangible and intangible costs of trading, and this will drive buy-side firms' interest in crossing networks.

Source: Financial Insights