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Future-gazing 2020: technology continues to drive financial markets

I have now spent a good few years working with financial services firms and can confidently say that the perpetual change is the only constant in global capital markets – that, and the fact that it’s difficult to get bored! Looking ahead, after a thrilling 2019, 2020 promises to be another interesting year for capital markets participants. Here is the 2020 edition of my six predictions on technology trends that will dominate the marketplace.

  1. Mutualisation of post-trade services. The concept of mutualising costs in non-differentiating post-trade functions has been a point of discussion amongst market participants for at least a few years. While the benefits of this approach have always been evident, the uptake of mutualised services has been relatively slow due to an insufficient strategic alignment between industry participants, as well as other issues such as the lack of standardised processes in the post-trade space. Nevertheless, existing regulations such as MIFID II as well as upcoming regulatory mandates such as the Securities Financing Transactions Regulation (SFTR) are driving post-trade mutualisation higher up the agenda. While the practical implications pertaining to service integration and interoperability will need to be addressed, next year we will likely see a greater appetite for this approach.
  2. Continued expansion of the hybrid cloud. Cloud, without a doubt, is an established entity in global financial markets but we will likely see new innovations and a significantly enhanced scale of cloud applicability in 2020. Forrester Research predicts that the use of high-performance computing (HPC) in the public cloud, which historically has been difficult to achieve, will see growth to 40% in the coming year. A key reason why this is now considered possible is the ever-increasing uptake of the hybrid cloud which enables financial services firms to combine the best of both worlds – an on-premises, private cloud with third-party, public cloud services – equipping them with a robust and secure infrastructure, while also supplying an impressive computing power which is key to testing and rolling out new solutions.
  3. Electronification of fixed income. Fixed income is often referred to as the last stronghold of the “old school” trading, where the majority of trades continue to be negotiated over the phone. But automated trading is becoming increasingly prevalent in this market too and 2020 will likely mark a sea change in the electronification of fixed income, especially as the push for cost-cutting and transparency continue to dominate the markets.  
  4. Impact of the real-life application of blockchain. Over the past 12 months we have seen the industry move from what one may call exaggerated excitement to healthy realism with regards to real-life applicability of blockchain systems. We will see this trend continue into 2020 with an increasingly focused application of blockchain, targeting specific inefficiencies in the marketplace. What is more, some of the most high-profile blockchain projects are expected to go live in 2020.
  5. Market consolidation. 2019 has been the year of major deals, kicking off with the Nasdaq-Euronext battle over Oslo Bors, with Euronext emerging as the winner; LSE-Refinitiv mega-merger, with far reaching implications for a range of market participants across the financial universe; SIX Group-Euronext tussle over Spanish stock exchange BME; Charles Schwab's $26 billion acquisition of TD Ameritrade, merging two of the leaders of the online brokerage industry; as well as, most recently, Cboe Global Markets acquisition of EuroCCP, the largest pan-European equities clearing house. In the current environment of thin margins and high operating costs, this trend is more than likely to continue into the new year. It will present opportunities, as well as challenges to financial technology firms, with potentially opening new markets, but also leading to an increased scrutiny in the cases where their services are being used by an acquisition target.
  6. Automation. The growing uptake of AI tools was one of the trends I expected to see in 2019. That prediction has proven to be amply true, with more and more firms seeing the value in leveraging machine learning (ML) and robotic processes to automate their systems. Financial services no longer need to be convinced of the business value that lies in automation. Augmenting business efficiency while also increasing employee productivity is the number one priority among the firms I speak with daily, and that will further spur the adoption of AI tools.
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