Equity markets are at a turning point as large sellside flow houses and prime brokers prosper again while boutique offerings grow their aggregate market share. The remaining players, primarily mid-size firms, must adapt to this altered landscape. The fallout from the financial crisis saw the profits of these banks and investment houses squeezed as the cost-per-trade rose, and they struggled to maintain market share. Pre-crisis investments in large-scale, industrial trade processing platforms became costly to maintain. To survive and return to profitability, the firms in the squeezed middle must adopt one of four strategies: specialisation, reduced ambition, monetisation of the franchise and financing volume.
Technology innovation in equity markets changed direction as the race-to-zero latency and the pursuit of high-frequency trading cooled. The focus now rests on the convergence of high-touch and low-touch trading platforms as the competitive gap between the providers of low-touch and high-touch platforms narrows due to the continuous functionality enrichment of low-touch offerings. Banks looking to reduce their trading platform costs will simplify and consolidate their platforms where possible. GreySpark believe that the coming 18-to-24 months will witness many banks eliminate the need for separate low-touch and high-touch trading platforms as they invest in consolidated third-party vendor offerings. This belief is furthered by a trend towards independent software solutions as the technology stack has become commoditised, and only those functions that offer a competitive advantage will be maintained in-house.
