Electronic Canaries in the DCM Coal Mines…
A business leader at an investment bank has an endless list of priorities. Market share invariably tops this list but data analytics and digitization should also figure. The question is, when should you prioritize digital transformation?
For capital markets leaders, the S-curve of electronification in secondary markets feeds into this prioritization. As the transaction flow underlying your business increasingly electronifies, the related data becomes more structured and transparent to the market and your clients. This raises the bar for providing genuine insight to help clients navigate markets.
The chart below shows how the investment grade market moved from “predominantly voice” through the “transition” zone in only four years. If the S-curve holds true, we are on the cusp of dramatic acceleration of market electronification. Even for the “it will never happen here” high yield market, the trend is clear!
“The why of electronification is no longer a relevant question to traders...Now, the more important question is how”
For Global DCM leaders, this transition zone is a great opportunity to start differentiating your business by leveraging this improving data environment and using more analytical insight to enhance your bankers’ client advice:
“Bleeding edge” risk of being too early is reduced
Data is more available, but still not ubiquitous, allowing for a “first mover” advantage
Catalyst for dialogue between you and your clients
As electronification becomes predominant, this work now becomes a necessity. As bonds continue along the S-curve:
Banks’ information value is reduced with clients
Larger banks have less advantage over smaller competitors
The door opens wider for the growing ecosystem of FinTech providers in this space
Forward thinking market leaders have always had to recognize and adapt to technological change. Let’s not forget there was a time when DCM bankers added value to their clients by telling them where 10-year US Treasuries were trading.
Attribution: Financial Times, TradeWeb
