Global investment banks today face unprecedented challenges in the shape of increasingly volatile markets, rapid technological evolution and intensified regulatory scrutiny. To succeed and thrive in this complex landscape, speed of response to shifting market dynamics is a key strategic imperative that elevates industry leaders above the competition.
However, that enhanced responsiveness is predicated on the ability to navigate complex technology and operational challenges. Success demands a systematic approach to identifying high-impact areas and developing targeted implementation strategies that deliver measurable results, while avoiding other options that offer little or no added value.
In this article we outline a framework that allows global investment banks to achieve competitive advantage through agile market responsiveness.
The strategic imperative
Enhanced market responsiveness allows for the swift adaptation of strategies, resource allocation and products to keep pace with changing market dynamics and customer demands. This agility optimises revenue generation by rapidly capitalizing on emerging market opportunities, arbitrage scenarios and emerging client needs. Operational resilience improves through proactive adjustments that absorb market volatility and regulatory change shocks.
Core sell-side activities such as market making, algorithmic trading, sales and distribution, prime brokerage, securities financing, and payment settlements demand precise intra-day visibility and seamless liquidity management. These activities require real-time execution capabilities and global coordination to drive efficiency and minimise risk exposure.
Real-time data insights and rapid execution across global markets unlock previously inaccessible revenue potential. Cost optimisation follows naturally, as automated and agile operations reduce operational expenses while enhancing efficiency.
Perhaps most critically, risk mitigation capabilities improve dramatically through global oversight and real-time analytics, enhancing the bank's ability to manage financial and regulatory risks proactively. Consider the practical impact across key operational areas:
- In algorithmic and high-frequency trading, distributed infrastructure reduces latency to enable algorithms to execute trades globally with sub micro-second precision
- Real-time compliance monitoring leverages global infrastructure to flag anomalies across jurisdictions near real-time, preventing compliance breaches before they materialise
- Dynamic capital allocation becomes possible through globally distributed data centres that facilitate real-time decision-making on optimal resource allocation based on market conditions.
While such transformation brings significant advantages, its implementation is often complex and costly, however. Successfully identifying and targeting areas that offer true competitive advantage demands strategic planning and a data-driven approach.
Not every function within an investment bank requires real-time infrastructure. For example, activities such as trade confirmation, scenario analysis and capital raising typically do not require near real-time systems and processes. It is therefore crucial to focus efforts on those business areas where transformation can deliver the greatest impact and return on investment.
These architecture patterns are reusable across a variety of use cases, including – but not limited to – intra-day liquidity management, risk calculations and compliance monitoring, as identified by your real-time strategy and maturity assessments.
Implementation realities
Real-time infrastructure allows for immediate processing, analytics and dissemination of data across trades, risk assessments and compliance management. This capability enhances trading performance by maximizing speed and execution efficiency to capitalise on time-sensitive market opportunities.
Real-time visibility and control over exposures, enabling proactive risk mitigation, allows for superior risk management. Regulatory compliance becomes more manageable through near real-time monitoring, reducing both reputational and financial risks.
A globally distributed architecture comprising geographically dispersed but seamlessly interconnected IT resources and infrastructure provides the following benefits:
- Operational continuity through resilience against localised disruptions, ensuring uninterrupted global operations
- Latency reduction occurs by strategically positioning infrastructure closer to global trading hubs, enhancing trading efficiency
- Scalability and flexibility increase as organisations can easily accommodate growth and shifting market demands by leveraging distributed cloud and edge solutions.
However, organisations will need to address integration complexities across legacy and emerging platforms, maintain data consistency and synchronisation across geographically dispersed systems, and manage latency and performance issues that can impact execution speeds.
Distributed systems do not inherently guarantee improved system performance – the benefits come primarily from the distributed components operating at the edge of the IT ecosystem. By processing data and executing functions closer to where they are needed, edge-based systems can reduce latency and improve responsiveness across the overall architecture. Some elements of this model already exist today, such as execution venues that act as localised performance hubs, but it is not as yet a widely implemented architectural principle.
Additional considerations include maintaining elevated levels of operational resilience, addressing cybersecurity and compliance complexities, ensuring regulatory and enterprise requirements are met, and controlling intra-day liquidity risks. Embedding disaster recovery capabilities, building necessary talent and capabilities, and managing the significant investment requirements for sophisticated global infrastructure are equally important.
The mechanics of a real-time architecture
An effective distributed real-time architecture leverages a high-performance, event-driven approach to ensure low latency, scalability and resilience across global markets. At its core the system relies on a pub-sub messaging pattern. This allows for seamless, asynchronous communication between various microservices, each responsible for specific business functions such as order management, risk calculations and trade execution.
The microservices are deployed in a containerised environment, using Kubernetes for orchestration and scaling across multiple geographically dispersed data centres. A combination of in-memory databases and high-performance time-series databases handle real-time market data feeds and ensure sub-microsecond response times. Processing is handled separately by the stream processing layer.
The architecture diagram in Figure 1 illustrates a hypothetical distributed real-time trading system and its key components and interactions.
Figure 1
These architecture patterns are reusable across a variety of use cases, including – but not limited to – intra-day liquidity management, risk calculations and compliance monitoring, as identified by your real-time strategy and maturity assessments.
The path forward
Organisations that strategically leverage real-time infrastructure to achieve market responsiveness will enhance profitability, resilience, agility and client satisfaction, addressing the increasingly complex and uncertain global financial ecosystem challenges.
To help investment banks assess precisely where investments will maximise value and elevate their market presence and which areas will avoid, Capco has developed a maturity model and we can also help with pan-industry benchmarking, current state architecture assessments and future roadmap planning.
By applying this maturity model, sell-side global investment banks can clearly evaluate their current capabilities and areas for strategic improvement. This in turn will allow them to identify an actionable path to achieving industry-leading performance across real-time infrastructure, market responsiveness, globally distributed architecture and intra-day liquidity management.
To find out more about Capco’s maturity model and our other offerings to help you enhance market responsiveness, please contact our experts via the form below.