Exchange Technology Services: Addressing New Challenges

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31 May 2016


Celent has released a new report titled Exchange Technology Services: Addressing New Challenges The report was written by Brad Bailey, research director, and Anshuman Jaswal, senior analyst in Celent’s Securities & Investments group.

The economic environment in the last decade has been quite challenging. Trading volumes have declined across all asset classes and geographies. The increase in regulation, along with higher margin and collateral requirements, has also adversely affected the market. Against this backdrop, the leading global exchanges have to perform a fine balancing act. They have to sustain the higher cost of regulation and risk and collateral management, while investing significant amounts in improving their technology platforms.

The global exchanges are served by technology vendors that have to compete for the few big-ticket deals every year, and this leads to market uncertainty. There are only a few large and medium-size exchanges with significant technology budgets and willingness to use external vendors, so there is a lot of competition, and smaller vendors struggle to survive.

Regulatory and market changes have led to major technology upgrades at most exchanges and post-trade firms, as they seek to build modern capabilities by replacing legacy systems. Large Tier 1 players with strong technology capabilities are offering technology outsourcing solutions to clients who lack the time, resources, and technology capabilities to comply with changing regulatory requirements.

“Blockchain technology has significant potential for disruption, but the key question is when it would be able to be disruptive,” said Bailey. “For exchanges and vendors serving the space, it is important to ready themselves for the upcoming changes.”

“Firms need to respond to regulatory changes and innovation in their business quickly and cheaply,” commented Jaswal. “Exchanges that were spending a large proportion of their expenditure to acquire low latency technology earlier are now changing their focus to addressing regulation-related technology requirements.”