Despite recognition of the benefits of investing in securities trading technology, many buyers are still standing on the sidelines. "Investment managers seem to be unwilling to adopt technology," noted Hal McIntyre, president of the Summit Group and moderator of the Sibos session entitled "The future of securities trading technology". "We've got to automate but we don't. What's preventing the technologies from taking hold?" he challenged panelists to discuss.
Panelists agreed that the debate had moved away from whether companies need to invest in technology and on to how and when they would do so. But they also agreed that investment was generally slower than expected. "There doesn't seem to be a great deal of urgency around," says Barry Marshall, COO of Gartmore Investment Management.
Legacy was identified as a key barrier to the adoption of new trading technology. Christopher Biscoe, head of electronic trading and client connectivity, Asia Pacific at Credit Suisse First Boston, noted that Asia had seen an enormous shift towards electronic trading partly as a result of greater regulatory scrutiny and also the availability of suitable technology. "There are very few dinosaurs left. The fact is electronic trading is coming and its not going to put people out of their jobs but people who run from technology are going to be very quickly replaced by people who are tech savvy."
"Asia will be very interesting in my opinion. You have Asia setting the pace for the future in electronic trading," agreed Volker Potthof, managing director of banking and custody services at Clearstream International.
Asia contrasts strongly with Europe and particularly the US where systems were built incrementally and over a number of decades and have resulted in a system that lacked a coherent design. "One of the clearest battles is dealing with the legacy systems," said Jimmy Gambill, president of Franklin Templeton Services. "With Asia, when you're starting with not much it's easy to get it right."
But legacy isn't the only issue preventing uptake of securities trading technology. Panelists also identified a reluctance to commit to any one technology when it is unclear which one will come to dominate and which may be rendered obsolete. Players are waiting to see which of the technologies will emerge as the market leader that will deliver long term low costs said Magnus Bocker, president and CEO of OM HEX.
Change within the industry is also driving indecision. "I see an industry that needs a lot of change; and in an industry that needs a lot of change there's not a lot of certainty," said Marshall.
"We have to have something that drives companies to get off the sidelines and invest in technology. That's not going to happen until you have a clear path so you can say to the board of directors that this will solve the problem," said Gambill who identified cost as a key issue for many companies.
He also noted that regulatory changes are driving the adoption of technology. "There's a whole regulatory regime being applied to the industry not just to investment managers. The regulatory environment and the economics that are going to flow out of that are going to change people's business models like you've never seen it before. The technology that we're seeing today is moving in the right direction but it's going to take a lot more effort to get there," he said.
Increases in regulatory costs along with shrinking margins and increasing volumes will all necessitate technological advances but it is also likely to lead to restructuring and consolidation within the industry.
Panelists warned that delaying too long could be more costly for companies than investing. Rather than counting the costs of the technology they should be thinking about the risks of being left behind. "There are a number of solutions out there where you can take an incremental step," said Biscoe. "You don't have to implement the full solution. In Asia even some of the most entrenched institutions have now adopted electronic trading."
