By Neha Singh, Vice President, Product Strategy & Innovation, Capital Markets, Broadridge
It’s time for traders to start paying attention to a data revolution underway that is increasingly impacting their ability to both scale their business and provide value to their clients.
Capital markets firms leading this revolution are using the power of normalized data across the lifecycle to keep up with rapid changes in the industry and to prepare themselves for a future that will be driven increasingly by artificial intelligence and other technologies. Going forward, firms’ ability to become more agile and efficient across the trade lifecycle will be an important determinant of business results.
Pressure on firms to get this right is coming to a head with the approach of T+1. The Securities and Exchange Commission has set May 28, 2024, as the date for the move to a next-day trade settlement cycle. That looming deadline has set off a scramble to streamline platforms. Many capital markets firms are still running on legacy platforms fragmented into siloes by asset class and region. Those platforms have been coming under stress from surging trading volumes, market volatility, geopolitical uncertainty and increased regulatory scrutiny. According to the 2023 Broadridge Digital Transformation and Next-Gen Technology study, only 35% of firms classed as Leaders in BR’s Digital Maturity Framework are at an advanced stage of replacing legacy systems. 44% of firms classed as Non-Leaders in BR’s Digital Maturity Framework said inflexible legacy systems were their top challenge when it comes to transformation.
This pressure will only intensify when the industry faces future changes that require a substantive shift in how firms operate, for example T+0 settlement. For that reason, front-office personnel should be pushing their firms to focus on data and act quickly, to ensure their ability to compete for clients and trades. Firms need to start thinking differently and normalize data across the trade lifecycle to simplify, innovate and become more agile. As they make the investment of time and resources required to update processes and platforms, firms should look beyond T+1 and focus on creating a data foundation for a future that will someday include not only T+0 settlement, but also the next iterations of artificial intelligence, GenAI and other innovative digital technologies that are transforming how capital markets firms do business.
A foundation of normalized data
The single most important step firms can take to prepare for this future is to normalize data and break down barriers within sell-side platforms. Normalizing and sharing data across the trade lifecycle creates immediate insights that enhance the ability to add value to clients, and efficiencies that speed-up processes, limit errors and lower costs. These rewards won’t be limited to the middle- and back-offices. To the contrary, seamless data management will create important benefits for the front office, and for the business as a whole.
Data normalization facilitates the flow of data across front-, middle-, and back-office operations—in both directions. For example, when Broadridge provides dashboards with real-time lifecycle data to the front office, firms see tremendous value in equipping not just their trading desks but their end-clients with valuable insights. The historically siloed nature of the front-to-back technology stack has made it difficult for the front office to track what has happened to an order, resulting in time and effort in chasing down this information. Having a common, real-time view into the status and what issues need to be resolved allows front/ middle/ back-office teams to efficiently move trades through the lifecycle. By providing this view directly to buy-side clients, firms expect to hire fewer people to be ready for T+1. Another example is firms expect to optimize their client revenues with access to real-time client trading activity, alerts based on changes and trends, and the overall economics of the relationship – all of which is being enabled through harmonized data visible across the trade lifecycle.
Data normalization is also the key to unlocking the power of artificial intelligence. AI applications are already creating tremendous value for firms. For example, Broadridge uses AI to parse historical data and predict which trades are most likely to fail. That knowledge allows the front office to factor the costs of potential trade failures into their own decision-making, and allows back-office teams to avoid fails by focusing attention and resources on trades most at risk of failure. Benefits like these are merely the tip of the iceberg for firms that master the data normalization needed to fuel AI applications and drive differentiation.
Future-proof your business
The sell side should view the fast-approaching shift to T+1 as an invaluable opportunity to future-proof their businesses by investing in end-to-end data normalization across the trade lifecycle. Firms unprepared for that transition will face significant business, financial and reputation risks. Those consequences won’t be limited to the back office. To the contrary, the entire business will suffer from any slip-ups. Regulators will be watching capital markets firms closely and assessing firms’ performance in the compressed settlement cycle. Buy-side clients will also be watching to see how well firms keep pace and innovate in this space.
That pressure is requiring virtually all firms to marshal significant resources to upgrade their platforms. It’s in the interests of everyone across the trading lifecycle to ensure those resources are allocated strategically. By leveraging the momentum of T+1 into data normalization across the lifecycle, firms have a chance to create a real competitive advantage in a faster, digital and AI-powered marketplace.
