The year 2022 brought changes, as capital market players grappled with challenges in the postpandemic world. A fundamental rethinking and assessment was imminent not just for capital markets but across consumer lifestyles overall—from private consumption to medicine, education, and more. With the end of historically low interest rates in the US and other Western nations, the focus for financial and capital markets seems to have shifted to the balancing act between inflation and monetary tightening. However, the speed of change and market volatility when it comes to interest rates, foreign exchange rates, and securities has exceeded anything anyone anticipated, and the resulting scale of change and exit point remains unclear. Right now, perhaps the only certainty is that innovation will continue and it will be driven by technology.

This report is based on the results of Celent’s 2022 fall survey on technology-driven innovation in capital market platforms in the Japanese market. The survey highlights the efforts of market participants to overcome challenges and blaze new trails in postpandemic capital markets. Below is a summary of key findings and the outlook going forward.

Change in IT Initiatives

• Growth strategies and the role of technology: IT initiatives changed more after the pandemic than might be imagined. In 2019, the back office was the highest-priority IT area (45%), followed by the front office (24%) and client relations (21%). With 2022 came a change in IT initiative priorities. Survey respondents put the front office as the top priority (33%), followed by client relations (28%), which tied with the back office (28%). In the process of weathering and overcoming the pandemic, market participant growth strategies and the role of technology changed, undergoing a shift in priorities: the focus moved from the back office to the front office and became more client-centric.
• Initiatives and challenges: In 2019, the predominant challenges were items that respondents planned to address through trading technology architecture: restructuring of business lines was the top priority (27%), followed by cost-cutting (22%) and regulatory response (22%). In 2022, IT and operational efficiency logged the most responses for top priority (26%), followed by a regulatory response (21%) and client experience (21%). In short, having emerged on the other side of the pandemic experience, market participant awareness of challenges has shifted, and improving the client experience and operational efficiency have become higher-priority agenda items.
• Signs of change: Market participants are facing increasing difficulties in procuring IT resources. In-house resources remain the most important item but decreased in degree from the previous survey (dropping from 47% to 38%). Survey responses indicated some signs of change: results saw a jump in the importance of existing vendor resources (rising from 19% to 25%), a slight increase in outsourcing (6% to 8%) and fintech (3% to 6%), and a marginal decline in custom-made resources (SI and consulting: 6% to 4%).

Responding to Regulatory Change: Challenges and Priorities

• Reflecting on past efforts to respond to regulatory change: The majority of responses indicated a significant impact from the shift to T+2 securities settlement (67%) and T+1 government bond settlement (48%). Several respondents indicated that a major impact had been felt in the area of system renewals, back office business operations, and system structures and that changes to business flows were initiated to shorten processes and boost efficiency. At the same time, most respondents said they had wrapped up efforts to respond to the requisite regulatory changes, while only a handful of companies perceived the new system as a business opportunity and had started planning and developing new products and services.
• Challenges and priorities for complying with future regulatory change: Many respondents anticipate a significant impact resulting from the extension of Tokyo Stock Exchange trading hours (67%) and the update of the cash equity trading system (48%). In addition, more than 30% of the respondents noted the impact of the migration to T+1 for US stocks and the inclusion of English characters in securities codes. At present, it would be fair to say that market participants still lack sufficient knowledge and experience of these new systems.