Magnus Haglind, head of product management at Nasdaq Market Technology, said a big trend in the Covid-19 pandemic is that companies are much more confident about buying software-as-a-service solutions.
Nasdaq hired consulting firm Celent to survey chief information officers and senior technology leaders of market infrastructure operators around the world to understand their priorities, priorities and investments around the creation of their future technology platforms.
Brad Bailey, research director at Celent’s capital markets division, told Markets Media that much of the discussion when the consultancy conducted a similar survey in 2018 was more theoretical.
“The big difference since then has been that the technology cycle continues to accelerate, as are the demands of customers and internal stakeholders as more data is produced every day,” he added.
The COVID-19 pandemic, the shift to remote working, increased volatility and volume have been a stress test for capital markets infrastructure, and the survey showed increasing demand for more agile technologies, microservices and data models.
Market infrastructure CIOs plan to increase their investments in modern technology and nearly two-thirds, 65%, see cloud technology as a fundamental and growing part of their software development. Researchers estimate a 27% increase in cloud-enabled applications between 2021 and 2025.
Haglind told Markets Media that Nasdaq Financial Framework, the company’s cloud-based enterprise technology architecture, was deliberately designed to run on a variety of infrastructures.
“We did a good job investing in the capabilities of the Nasdaq financial framework,” he added. “From the technology platform’s point of view, infrastructures must have open APIs, scalability and a resilient messaging infrastructure.”
Companies can’t just move from on-premise to the cloud one day, so the Nasdaq Financial Framework creates a layer in between that enables a hybrid operating model, which Haglind says is critical to gradual transformation.
They are also increasingly open to partnerships with third-party vendors in accessing and delivering technology and services, with a third (31%) planning to move more components to third-party vendors in the future.
Haglind went on to say that there is a convergence between industries that all face the same challenges.
“Financial services and capital markets have moved from building proprietary technology stacks to more innovative technologies like the cloud,” he added. “The technology is mature enough to give itself a competitive advantage, and we can learn from other industries that have seen similar changes.”
Bailey went on to say that digital assets with tokenization, central bank digital currencies, and crypto will be a big part of capital formation.
“Institutions of all kinds need to think about what it means for money, trading and clearing,” he said.
The survey found that some type of blockchain has the potential to revolutionize securities retention systems, and more than a third of market infrastructures have already established a digital asset joint venture or subsidiary.
“A minority of the leading market infrastructures are way ahead of their competitors, many of whom do not yet have to tackle a proof of concept,” the report says.
The survey also found that approaches to digital models differ widely between traditional market infrastructure and newer players.
“61% of market infrastructure CIOs are considering outsourcing services or technology,” the report added.
Bailey went on to say that the big challenge is to develop market infrastructure that won’t be out of date once it’s done.
“It has to be built for future requirements, be secure, meet regulatory requirements and the requirements of partners and customers,” he added. “Market infrastructures need to find out what their particular sauce is and what other people are doing better.”
For example, if other companies spend billions of dollars on security every year, they may offer better solutions.
Bailey said, “The various players in market infrastructure are all realizing that this change is happening faster than expected and that they will be very different in the next four or five years.”
Haglind highlighted that one of the most interesting results of the survey is that people recognize the challenges of transformation but have a lot of ambition.
“The amount of change we wanted to see requires skills you can’t build in 12 months, so there has to be a long-term strategy,” he added.
As a result, customer attitudes have changed, from transforming as a vision to asking for advice on implementation and planning.
“We’re excited to offer real advice and solutions from a 10-year perspective that can help you change,” said Haglind.
He expects market infrastructures, service providers and stock exchanges to come together in three years.
“We will see a lot of innovations in ways that we have never seen before in this industry,” added Haglind.