How Capital Markets Firms Can Mitigate Risk in Periods of Uncertainty

Currently, external factors like the COVID-19 pandemic mean that the global economy has become increasingly volatile and capital markets firms are having to work harder than ever to make sure users, both retail and institutional, can continue to trade without interruption.

As these financial organizations look to mitigate risk in this period of uncertainty, gaining operational resilience, implementing risk mitigation strategies, and having the right technology in place will be crucial to continue to deliver value to customers, comply with regulations, get ahead of the competition – and, most importantly, maintain trust.

Given this, the pressure for incumbents to upgrade infrastructure is only increasing, but challenges remain in doing so. While the pandemic may have been the linchpin for organizations to start embracing new technologies there are still barriers to overcome and best practices to be put into play to not only mitigate risk, but also prepare capital markets for what’s to come in the future:

Replacing legacy technology

Critical to mitigating risk is ensuring data is available quickly and easily accessible. For many capital markets firms this is an area where they struggle due to a significant amount of legacy technology in their infrastructure and, consequently, data siloes.

Connecting these disparate systems will be vital to not only help them with performance issues they have today, adapting to situations such as mass remote working, for example, but also so they are capable of growing with them into the future.

This requires them to adopt solutions that can seamlessly run, scale, and expand into the cloud. By replacing legacy infrastructure, they will have the benefit of providing new technologies and innovations access to their wealth of valuable data.

These solutions should also be location agnostic to allow capital markets firms to be agile and take advantage of new technology and services and bring that into their existing infrastructure.

Investment in the future

As these institutions look to replace their legacy technology, they should focus their investments on two key areas.

First, they should invest in platform scalability as being able to scale up as the market spikes is crucial and can be a major differentiator. This scalability can even give firms a competitive edge with some firms having recently gained market share solely due their ability to scale up.

The second area of investment should be in analytics and automation that can support and, in some cases, reduce the manual-intensive workload. We’ve already seen increases in algorithmic trading and customer chatbot technologies, while many organizations within the financial services industry use AI to automate processes, such as fraud checks and compliance.

With less time spent on time-intensive manual tasks, capital markets firms will be able to direct their attention to more value-adding services for their clients. The use of AI will help to spot patterns and anomalies in those patterns much faster for fraud prevention, while also reducing the risk of human error.

Gaining access to real-time data

Within capital markets firms, there is a growing requirement to be able to access real-time data so these organizations can simplify their stack and get access to transactions that are happening in the moment. This will allow them to produce more time-sensitive reporting so they can make appropriate business decisions and better comply with regulatory requirements.

Data fabric

Data fabrics are fast becoming a key trend within data management across the board, helping to reduce friction. Improve the accuracy, availability and accessibility of data and should also be a consideration as capital markets weather this period of uncertainty and beyond.

A data fabric that uses the latest technology will help organizations to better grasp data governance, ensure that their data is clean and accurate, to harmonize that data where appropriate, and make it more accessible. All of these will help them derive more value and better insights from their data to help drive their enterprises and those of their customers forward.

How can capital markets firms not only survive, but also thrive?

As capital markets firms look beyond this period of volatility to thriving long term, it’s vital they embrace agility by implementing modern technology with a focus on analytics and automation. This will allow them to quickly adapt to changing and new business needs by helping them to make use of their data, analyze it, monetize it, and turn it into actionable intelligence.

In an increasingly competitive landscape, where new market entrants aren’t weighed down by legacy technology and architectures, this will be a key differentiator and enable capital markets firms to take advantage of new opportunities within the market faster.

If you want to hear more about this subject, listen to this webinar in which InterSystems takes a deep dive into the challenges facing capital markets firms and how they can mitigate risk, alongside a panel of other industry experts from Northern Trust, Westwood Group, and SIX Securities & Exchanges.

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Michael Hom

Michael Hom is a technology executive with over 25 years of experience working in Financial Services industry. Prior to joining InterSystems, Michael was a Managing Director managing Global Rates, Securitized Products, and Municipals Technologies at Royal Bank of Canada Capital Markets. Previously, he was an Executive Director overseeing Cross Product Technologies including Risk, Sales and Trade Management at Nomura Securities. Michael started his career at Lehman Brothers, building systems in the Rates, Foreign Exchange and Emerging Markets areas. Later on, he became Senior Vice President leading Securitized Products – Whole Loans, Real Estate, and Principal Finance Technologies. He holds a Bachelor’s degree in computer science from Columbia University School of Engineering and Applied Science.

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