Equities trading in focus: radical cost restructuring is on the agenda
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6 June 2013David Easthope
While our capital markets group has been focusing on derivatives and fixed income of late, due to regulatory and technology drivers, the businesses supporting equities markets continue to go through their own wrenching changes. With the equities business having persistently low revenue growth, stubbornly high costs, and capacity challenges, a new wave of thinking is required to get the business out of the mire. Until business improves, managers are no longer tolerant of high IT and operational costs. As a result, we have identified innovative strategies to reduce costs in the equities franchise for front office IT and operations. These strategies conveniently fit with how environmentalists approach their own questions of efficiency with resources, through the concepts of reduce, reuse, and recycle. Hey, it's a slogan. Another slogan- We believe brokerage firms must think the unthinkable with respect to reducing costs through outsourcing. Some may consider this surprising since outsourcing infrastructure is viewed as a contrarian viewpoint, with infrastructure providing competitive advantage. But this is increasingly not the case. It is far better to assume that any and all IT can be outsourced than to assume none can be outsourced at all. This is the proper starting point, not the reverse. As a result, we expect more mid and top tier brokers to outsource more functions over time through the use of managed services, outsourcing, etc. The business is struggling with low margins and managers must make radical changes. Prime businesses and other derivatives trading are not enough to support an equities business that is very sluggish. For recommendations of how to proceed for brokerage firms, we recommend the latest report: Innovation in Focus: The Future of Cash Equities Trading Operations, which can be found here: http://www.celent.com/reports/innovation-focus-future-cash-equities-trading-operations