By Srikant Ganesan, Global Practice Head – Financial Services, Ness
The digital disruption in the financial services industry over the last 15 years has been nothing short of revolutionary, and there’s little sign that the pace of change is going to let up any time soon. Across all jobs and titles—from trading to risk and compliance and leadership—the expectations for tracking and reporting trades and exposure have morphed beyond recognition. Indeed, if someone in compliance from a decade ago was asked to meet today’s data compliance expectations, it’s likely that they would smile politely and then hand in their notice.
How can capital markets firms like yours best adapt to this dynamic environment? What mindset do you need to begin the process of modernizing the legacy technologies and computing architectures your firm relies on every day?
To answer those questions, let’s take a closer look at why application modernization is needed, the most common challenges, and most importantly, the key to an effective solution.
The Application Modernization Imperative for Capital Markets Firms
Capital markets firms must embrace application modernization initiatives centered around the sourcing, movement, processing, and distribution of data. More specifically, your firm needs to modernize its platforms so you can better:
· Adapt to market volatility. The increasing frequency and magnitude of price swings require complex event-based computations and distribution of data.
· Manage expanding volumes of data. Applications are now publishers and consumers of extremely large datasets and the sheer volume of data in today’s capital markets prohibits traditional data processing architectures to work in real-time scenarios.
· Comply with evolving regulations. Changes to trade, transaction, and risk reporting regulations have increased the need to access not only datasets representing historical information, but also new datasets derived from complex calculations executed on-demand and in real-time.
· Increase revenue. Although capital markets applications have been traditionally considered a cost center, financial services firms are beginning to realize their potential for revenue, with a focus on monetization of internal data assets.
Application Modernization in Capital Markets Is a Complex Challenge
Despite the increasing necessity of application modernization, decommissioning legacy platforms in capital markets, especially those that have an enterprise-wide footprint, can be difficult and seem impossible in some cases. Generally speaking, the challenges you are facing are rooted in these three barriers:
1. Data processing (capabilities to source, transform, and store data): Legacy data platforms are unable to process large amounts of real time datasets because they were designed to operate in a batch mode. The need for real-time processing of continuously changing datasets using streaming architectures is driven by the need to apply real-time business rules to achieve real-time business outcomes.
2. Data distribution (capabilities to derive and aggregate data): Legacy data platforms are siloed datastores incapable of deriving insights across the organization’s eco-system of applications. By contrast, just-in-time derivation and aggregation of datasets distributed via a robust user API experience provides data availability across internal and external consumers.
3. Data visualization: Legacy data platforms cannot implement domain-specific visualizations using custom or third-party vendor technologies. Business aligned visual dashboards that cater to the operational needs of the data consumer provide focused and relevant views of complex datasets with the ability to perform multi-dimensional analysis supported by drill through features for granular investigations.
These barriers are particularly high for core capital markets platforms carrying the burden of day-to-day risk management, pricing, and valuation of securities—and that is precisely why balancing the need to modernize technologies versus the need to maintain daily operations can be so daunting. As an executive at a financial services firm described it, modernizing capital markets applications is like “doing open heart surgery while the patient is running.”
Overcoming the Challenges of Application Modernization Requires Understanding the Data Value Chain
The key to overcoming the challenges of application modernization is to shift your mindset. Rather than taking a traditional, siloed “top-down” approach, you need to adopt a data-centric “bottom-up” strategy that is based on an understanding of the underlying value chain—from data sourcing through transformation to its eventual visualization. For many capital markets
firms, this will lead to a comprehensive data re-orchestration to include a next generation cloud solution (to remedy the legacy barrier of data processing), data streaming (to remedy the legacy barrier of data distribution), and deep domain expertise (to guide data visualization and consumption).
The good news is that this type of greenfield strategy is easier than ever.
First, since the technology has been evolving incrementally over time, we haven’t just moved from T+1 to the Internal Models Approach (IMA) overnight. Second, there have been dramatic improvements in the underlying technology that sits behind the APIs used by trading, reporting and compliance.
Advances in Technology Enable Strategic Transformation Without Impacting Existing Systems
Think back to 15 years ago, when individual desks would report their activities differently, leaving compliance to try and bring it all together and make it coherent. Since then, the increased use and evolution of APIs has enabled different parts of an organization to work from the same datasets. That means even though they might use the data differently, all desks can start from the same place with data that has been accredited as robust, secure and, importantly, auditable. This reduces the risk of misunderstanding between trading desks, compliance teams, and leadership and lets both trading and compliance teams ensure that trading strategies are correct, rather than debating the derivation of the data. It also enables institutions to respond to regulatory changes more effectively.
Today, application modernization can occur without disrupting these existing business systems. How? It’s all thanks to significant advancements in the technology underlying the APIs. They make it possible for trading and compliance teams to continue to work—and innovate—day to day, even as modernization initiatives are underway. In other words (and modifying slightly the expression I used earlier), these technological advancements allow the patient to not only run, but win, while surgery is being performed.
The post-COVID world has made it imperative for businesses to upgrade to superior digital enablement, ensuring continuity, customer satisfaction and a competitive edge. As capital markets firms continually globalize, organizations need to rid themselves of redundant and error-prone systems that result in lost opportunities. Today, the need for application modernization is critical for organizations to sustain and succeed, despite deep-seated issues such as low productivity, high-end costs, complex maintenance, and bad customer experience. The idea is to not only update existing applications, but also to identify white spaces that act as a catalyst for developing new technology. A systematic approach is needed for assessing a current application portfolio that extends across an entire enterprise supports technology evolution and finds ways to build, deploy and improve software continuously, ultimately creating a solid foundation for an organization’s growth.
