Acceleration and Consolidation on Tap for Financial Markets

The global securities market is changing in a big way – it’s shrinking, and in order to compete, U.S. securities firms and exchanges are going to have to consolidate and innovate.

This was the topic of discussion among industry professionals last week when BT hosted an event at the New York Stock Exchange that focused on the future of the global financial services market.

The financial services industry is experiencing a “disruptive change in every aspect of our business,” explained Ben Verwaayen, CEO of BT Group, who addressed the audience via sattelite. In order to cope with globalization and the sophistication of the financial services’ customer base, Verwaayen called for a shift in the industry dialogue, specially when it comes to partnering with other companies in the industry. “Can we work together so well that it is unclear where my territory ends and yours begins?” he asked. That unification will create a focus on global opportunity with the attention to local sentiment necessary to succeed on the world stage.

Fighting for a Place in the World Market The change that Verwaayen spoke of is a result of the acceleration of the previous 30 years of intense competition and cutting-edge technology that ultimately provided opportunity to more investors worldwide. No longer can U.S. markets exist in a bubble of Western investment.

“There are too many fragmented markets in the U.S.,” said Catherine Kinney, president and co-COO of NYSE, indicating the need for consolidation. She pointed to India and China as prime competitive growth centers for futures and options exchanges.

Kinney also mentioned the ever-growing foothold that international exchanges, such as Deutsche Boerse and EuroNext, are gaining in America, hinting at a potential bidding war for the London Stock Exchange. The NYSE, Deutsche Boerse and EuroNext are all rumored to be interested in buying the LSE.

“The forces of globalization are strengthening every enterprise in capital markets,” she said. Unparalleled global competition is driving organizations like NYSE to strive to deliver the best value possible for investors. A large portion of that value will come from variety and the ability of an exchange to offer the investor multiple securities types and geographical regions in which to invest. In doing so, Kinney believes there will be a considerable increase in investor confidence, and in turn, sizeable market growth.

Creating a Philosophy of Innovation

As the market undergoes a period of fundamental change, so too must its infrastructure. The technology currently supporting U.S. equity markets is not going to be able to sustain the level of of change and growth associated with the move to a globalized market, predicts Deborah Hopkins, who is currently on special assignment for Citigroup CEO Chuck Prince. Hopkins is a member of Citigroup’s management committee and is has also served as the company’s chief operations & technology officer.

“If your not living under a clear, defined architecture, going forward becomes almost impossible,” Hopkins says. The future will be about further increasing both institutions’ and investors’ access to a vast array of information and services, and that won’t happen by simply making today’s technology go faster. It’s going to take a change in the way the industry thinks about technology and the client/vendor relationship, noting that Citigroup has identified a handful of strategic vendors that must work to understand Citi’s business and must provide technology that helps Citigroup meet its business goals.

Hopkins expects firms to reach a point of maximum velocity whereby simply executing faster will not create a competitive advantage. Firms will establish a leg up based on what extent they are able to innovate and offer new ideas to customers. “Financial services institutions need a clear, standards-based architecture if they want to move more money to innovation and away from maintenance,” she says, adding a major overhaul in the philosphy of IT is in order.

The maintenance cost of modern infrastructure is restricting the investment placed on technological innovation, Hopkins explains. Financial services will remain stagnant until a solution is implemented to limit the exorbitant IT maintenance expense. For this reason, Hopkins suggests that vendors should be investing in a maintenance solution, freeing firms to devote their resources to innovation.

“What we’re trying to do is create sustainable competitive advantage for all of our firms,” she says.