テクノロジーが革新する日本の資本市場プラットフォーム

[Celent Survey] Technology is Revolutionizing Japan's Capital Markets Platforms: Creating Mechanisms to Turn Market Changes into Business Opportunities

• Celent regularly conducts surveys on various trends in the financial industry. In this survey, we examine IT investment priorities in capital markets.
• The survey consists of 10 questions and will take approximately 10 minutes to complete. All responses will be statistically tabulated and included in our survey report. When we include the survey results in the report, we will not disclose any information that could identify individuals or companies. Those who participate in the survey will receive a summary report of the results at a later date. We would like to hear about your company's initiatives.
• Click here to participate in the online Celent Survey – "Japan's Capital Markets Platform 2022: Innovations through Technology"

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The past decade has witnessed incredible innovation in global capital markets, and the rapid pace continues. Regulatory changes designed to improve risk mitigation, boost transparency, and enhance asset stability have drastically changed the economics of capital market technology demands and business models. In recent years, EU-based sell side financial institutions have put immense effort and substantial resources into compliance efforts for the second version of the Markets in Financial Instruments Directive (MiFID II) regulations. The industry must now rush to prepare technology responses to other major pieces of regulation, such as the Fundamental Review of the Trading Book (FRTB) and LIBOR migration. In the US, a shorter securities settlement cycle to T+1 for equities is being discussed, with the target year of 2024.

Responding to growing regulation is made increasingly complicated when coupled with a worsening macroeconomic environment. European financial institutions face several challenges, including record-low interest rates that underpin weak economic forecasts for the Euro sphere compounded by possible Brexit-related turbulence. Growth in the leading developing markets of China and India has been muted, and the future outlook is cloudy. There has been increasing uncertainty over global growth, with US economic momentum continuing against a backdrop of rising volatility due to geopolitical factors in major economies, the possibility of a trade conflict, and the Russo-Ukrainian War.

In 2022, we are facing a new post-pandemic world, overcoming the difficulties of COVID-19. A fundamental rethinking and assessment are imminent—not just for capital markets but across consumer lifestyles overall, from private consumption to medicine, education, and more. The period of low interest rates in the US and Europe is over, and the focus in financial and capital markets appears to have shifted to a tug-of-war between inflation and monetary tightening. However, the market volatility and speed of change in interest rates, exchange rates, and stock prices exceed anything anyone anticipated, and the result in terms of the scale of change and exit point remains unclear. Right now, the only certainty may be that innovation will continue and will be driven by technology.

Review of Technology Strategies

Capital markets innovation is at a challenging stage. Capital market participants continue to grapple with the trilemma of complying with constant regulatory changes, meeting evolving client demands, and addressing challenging economics—all while harboring high hopes for structural innovation, that is to say, digital transformation initiatives to bring positive change. While buy side financial institutions face the commoditization of benchmark returns due to passive investing, sell side institutions are hoping to find breakout growth solutions to combat and emerge successful in an environment of weak underlying revenue growth. This prompts the question: In reality, at what stage are these technology-based innovation initiatives?

The last survey 2019–2021 (“The Dawn of Open Platforms in Capital Markets”) asked each responding company about the firm's growth strategy and the role of technology in that strategy over the past three years. It inquired about expectations for technology in tackling challenges in capital markets as a whole. Furthermore, it asked respondents to assess how the challenges were affecting business and how they were working to overcome them.

As might be imagined, technology is being leveraged to tackle the trilemma but has yet to jumpstart the desired dynamic innovation. For Japan and APAC market participants, the top strategic priority was restructuring business lines, followed by cutting costs and complying with regulations.

Through technology architecture innovation, what challenges have you planned to overcome?

Expectations and Initiatives for Emerging Technologies

In capital markets worldwide, market participants and stock exchange management have pursued the application of and lauded new and emerging technology initiatives. Likewise, market participants in Japan and the Asia-Pacific region are accelerating these initiatives. Celent’s last survey (“A New Era in Japanese Capital Markets Technology”) of next-generation technology in Japan’s capital markets found that a majority of respondents were actively assessing new technologies: 90% of respondents were evaluating robotic process automation, 80% artificial intelligence and machine learning, 70% distributed ledger technology and blockchain, and 75% cloud technologies. It is safe to say that the time is ripe for rolling out new technologies with commercial applications.

What is your state of addressing emerging technology?

Celent has consistently put forth various innovation models in the context of understanding and leveraging the promise and proliferation of new technologies in capital markets.

The concept of open platforms tackled in this report is no exception. In Celent’s past series of reports on the securities settlement revolution, we addressed a paradigm shift in infrastructure revolution and digital capital markets, modular financial services, and the idea of a revolution in sourcing models for system architecture and IT management. These proposals were framed in the context of an inescapable and impending tectonic shift in business models fueled by API financial services and the microservice-driven software engineering revolution. Open platforms, as explored in this report, are a concept that is similarly aligned with past themes and embodies the concept of technology portending change in capital markets.

In the post-open-platform world, capital markets will be a stage for co-creation, collaboration, and competition for the seamless provision of products and services on open platforms.

Technology Accelerating Realignment in Capital Markets

For market participants, 2022 will be a target year and a milestone for completing and revamping technology strategies and looking to the coming decade. Financial institutions are moving to implement the next leg of the road map on their transformation journey, with a view to the next 10 years. Mounting uncertainty makes forecasting the future more challenging than ever, but two things are certain. First, market players will continue to operate in an increasingly complex and opaque market, regulatory environment, and business environment as they strive to steadily generate transactions and revenue. The second certainty is that in capital markets, as in other industries, technology will become even more central as new technologies proliferate, enticing new market players into the arena and dramatically transforming the market landscape.

Already, many market players have begun to explore new models as they plan for the unknown—a new market of which only the vaguest outlines are apparent. This is a reflection of the strong interest and various perspectives that cutting-edge financial institutions have regarding open platforms. In short, the shift to next-generation models could happen quite suddenly. At the same time, financial institutions are typically risk averse and generally slow to lead—but fast to follow—when it comes to adopting new models that have proven effective. Technological flexibility, however, will in part impact how this "follow the market leader" dynamic plays out. More progressive market players will, from the perspective of avoiding risk, adopt cloud and API solutions, heightening IT agility and accelerating the speed of this "chase." Presumably, in the heightened uncertainty of today's world, this will become the "new normal."

Related Celent Reports

• Dawn of a New Era in Japanese Capital Markets Technology (February 2019)
• The Impending Post-Trade Market Revolution: Derivatives Clearing Infrastructure Renewal in Japan (January 2019)
• Securities Settlement Revolution in Japan Part 4: Toward a New Architecture (September 4, 2017)
• The Post-Trade Market Revolution in Japan (January 2018)
• Open API banking: New Framework, Threats, and Opportunities in Japan (June 2018)
• Microservices: A Software Engineering Revolution Beyond the Clouds (April 2018)