Challenges in the Capital Markets

Market Challenges

  • Costs due to Capital increases
  • Costs due to Margin increases (Cleared and uncleared)
  • Regulations are changing sell/buy side relationships, some buy-side positions incur unacceptable cost to the sell-side
  • Compliance has been expensive but 2018 onwards should be more stable
  • Focus on cost reduction in the front office, greater ROE
  • Focus on cost reduction in the middle and back office – better automation to reduce costs and manual tasks
  • Giving senior leaders appropriate tools to make sense of the huge amounts of economic information delivered by analytics systems

Leadership Challenges

  • Profit margins eroded on buy-side relationships
  • Buy-side portfolios can bring more cost than profit
  • Understanding where and who is driving capital charges (which products, desks, books, business lines)
  • Tracking the evolution of P&L up and down the hierarchy of traders, books, portfolios, desks and products
  • Tracking costs back to the underlying drivers
  • Improve reporting from post-event/reactive to real-time/proactive

CCP Challenges

  • The network effect – bigger is better, LCH dominates IRDs and ICE dominates CDS
  • Developing national / local capital markets via clearing can open up business by intermediating the trust relationships
  • Take the risk out of trading by introducing a CCP
  • Expensive to build and needs considerable subject matter knowledge

Technology Challenges

  • Everyone sees smartphone apps – setting expectations of the user experience
  • Corporate software is rarely as easy to use, or as appealing
  • Hardware gets cheaper so capabilities can expand
  • AI & Machine learning – should you be using it?
  • Enterprise wide analytics demands large scale processing with data aggregation across multiple business lines and systems
  • Aggregating data across a segmented organisation is a foundation to then produce enterprise wide analytics

The Razor Approach

  • Aggregate high quality portfolio data and track provenance
  • Acquire high quality market and scenario data
  • Map the organizational hierarchy
  • Calculate the analytics once
  • Present the current state across the hierarchy
  • Show the outcome of business ‘what if’ scenarios
    • Reduce capital by desk and product
    • Reduce margin by product and business line
    • Understand P&L evolution versus costs
    • Show the portfolio optimization opportunities
  • Integrate with Compliance platforms

Your Score Sheet

  • Do you have portfolio data from across your enterprise in one place?
  • Do you have strong controls and monitoring on portfolio data?
  • Do you have your market data in one place?
  • Do you have strong controls and monitoring on your ‘golden’ portfolio data?
  • Do you have full scope pricing and analytics?
  • Do you have “What-if?” capabilities?
    • On capital
    • On margin
    • On gross notional
    • On P&L
  • Is your platform real-time?
  • Are your analytics and metrics focussed on senior leadership business decisions?

Lets Us Know What You See

We want to validate these statements and hear what challenges you face in your firm, use the form below to let us know. Thanks for Reading.

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