 Matthew Nelson
Executive Director, Strategy
In 2009, Omgeo’s Advisory Board of leading global financial services firms discussed tactics for surviving the business environment as the markets were struggling and the industry was reeling from the losses of Bear Stearns and Lehman Brothers. Now two years later, has anything changed? Uncertainty over economic conditions, regulation and the future of the industry is still with us. Will markets ever return to normal?
Back in 2009, I heard a mix of obvious and not-so-obvious sentiments and areas of focus. Not astonishing was the feedback around the low level of investor confidence mixed with the conflicting realization that money had to be put back into the market. At the time, the operational impacts of the crisis were still being evaluated and the changing market structure combined with new levels of volatility added to insecurity. It was also unclear whether “new” market participants - such as high frequency traders - were beneficial to the market. At the same time, market conditions were driving discussions around a different level of service, driven by client profitability. Similarly, the custody and outsourcing segment viewed the crisis as an opportunity and all agreed that firms who could automate functionality more quickly were expected to be the most successful.
In early 2011, I again surveyed the market and met with a total of 15 investment manager, broker/dealer and custodian bank firms from our Advisory Boards to identify changes since 2009, new trends and pain points, and expectations for the future.
Overall, it became abundantly clear that in the current environment, whoever can supply the most information to clients in a timely manner, such as reporting on positions, valuations, risks, etc., will be the most successful. I also heard a significant, and not surprising, focus on the changing market and regulatory landscapes, more specifically, the anticipated impact to OTC markets.
Firms discussed regulation being the 800-pound gorilla in the room and comments about regulatory arbitrage entered the picture in a very real way. They commented on the unprecedented pace of new regulation, which still comes with a great deal of ambiguity even two years later. But more than anything else, the topic of regulation opened up a whole new set of questions including how best to plan and how to effectively prepare in the short and long-term, something that was less of a concern in 2009. One common best practice: stay close to regulators and your peers through industry bodies and advisory groups for the foreseeable future.
Looking ahead, 2012 will see the outcomes of a significant election year with a notable impact in the US. T+2 is on track to happen in Europe over the coming years, which will raise questions around how market participants might need to enhance their operations to support an accelerated trade lifecycle. Firms with global portfolios will be forced to further explore balancing different cycles, specifically FX and securities lending practices, and the cost of funding these projects grows to be a tangible concern.
Outsourcing continues to be of interest and is growing to possibly meet its once-promised potential. Firms around the world are noting the benefits of this practice which allows them the opportunity to focus on their strengths and core business. Based on this dialogue and my most recent conversations with industry influencers, I expect to see more RFPs and continued interest in outsourcing globally.
As my industry counterparts have well observed and communicated, now is not the time to lose sight of the challenges ahead. While many issues look to be consistent with 2009, 2010 and 2011, it is those who can identify the opportunities within the chaos that will make it through the next period of changing market structure, regulation and volatility.
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