Financial technology has the capacity to truly disrupt the business of capital markets.
But while the potential of the technology itself is massive, there are practicalities that limit how much fintech can change how market participants operate, and how fast such change can be effected.
“The entrenched technologies, processes and regulatory obligations that comprise global financial markets make success so much harder to come by,” said Steve Grob, director of group strategy at trading-technology provider Fidessa.
Grob noted the ubiquity of startup and emerging fintech companies that say they will digitally transform their area of capital markets, akin to how Uber and Airbnb have disrupted the transportation and lodging industries. “Our industry is as ripe as any other for disrupting through technology,” Grob told Markets Media. “The question is how do you do that in a way that meets MiFID II, Dodd-Frank, and everything else.”
In Grob’s view, a key for prospective market disruptors is to find a company that works with the minutiae and intricacies of markets on a daily basis. Such a partnership can elevate a fintech innovation from interesting but not feasible, to implemented and operational.
Steve Grob, Fidessa
“When you look at some of the new and very cool technology innovations in our industry, the big problem they have is how do they establish themselves in today’s environment, because there’s so much scrutiny over compliance, regulation, information security, etc.,” Grob said. Disruptors “need to find partners to enable them to achieve that.”
“This is where some of the established, proven providers have a role,” Grob said. “How do we ingratiate ourselves with some of these firms in such a way that they can leverage our brand, our distribution, and our reputation for robustness in infosec?”
Firms acting as connectors between fintech disruptors and institutions with entrenched market-participation protocols can also manage costs, a critical function in a market that has been running lackluster for much of the past few years.
“Bigger firms are thinking very hard about costs,” Grob said. “They’ve all worked out that they can’t get to a cost point that makes sense on their own, so they’re in the slightly uncomfortable position of needing to find ways to collaborate to reduce the costs of market participation for us all, in a way that makes sense.”
“What’s required is somebody or something that will sit in the middle of that as the neutral organization, that will say leave your guns outside the door and let’s sit and talk about all the things that don’t make any competitive difference but need to be done,” he added. “Let’s find ways of doing that, collectively.”
Featured image via Dunadicarta/Dollar Photo Club
