IBM Global Business Services © Copyright IBM Corporation 2010 IBM Institute for Business Value...

IBM Global Business Services

© Copyright IBM Corporation 2010

IBM Institute for Business Value

Toward transparency and stability:Building a new financial order

A Future Agenda Study


© Copyright IBM Corporation 201004/19/23 2

We surveyed over 2,750 industry participants and conducted secondary research to determine how firms must prepare for the future

Our analysis focused on selected financial markets industry participants1:- Buy side- Sell side- Processors- Others: academics, think tanks, industry

associations, regulatory bodies

We surveyed 2,754 industry participants2:- Qualitative interviews of 185 executives and

government officials - Survey of 1,493 executives and government

officials- Survey of 1,076 investors - 33% Americas, 35% EMEA3 and 32% Asia

We conducted secondary research and developed quantitative models

Scope Approach

Note: 1Buy side includes institutional and retail asset management inclusive of private banking, hedge funds and the end institutional investor (sovereign wealth funds, retirement plans, endowments & foundations) and individual investors, Sell side includes investment banking and capital markets, Processors include custodians, exchanges, ATSs and clearing firms; 2Primary research was conducted between April 1st, 2008 through February 22nd, 2010, 85% of business leaders are Board or C-level, EVP or divisional head with the remainder Director, SVP or VP level; 3EMEA is Europe, Middle East, Africa

Which forces will disrupt the industry landscape? What will clients pay for? How will the bases for competition change? What steps must firms take today to win?


CFA Institute



Historically firms have benefited from a lack of transparency; returns of the past are over and firms must concentrate on delivering sustainable results

Sophistication in financial engineering has outstripped our ability to handle and risk-manage it.

Together government and industry must work together to establish a financial

system that balances stability with innovation.

Daily realities must deliver on brand promises by focusing on the needs of clients.

To thrive, the industry must solve its identity crisis, which will likely involve a change in business models.

Summary of Findings

The industry will unbundle into more specialized organizations that are better equipped to monetize client needs.



CSDs – Main Business and Regulatory Drivers

Volumes - up, down, volatile and variable- Pressure on Exchange Infrastructures spills over, CCPs

siphoning-off CSD volumes, settlement being split off from asset servicing.in Europe.

Products extensions – to strengthen and diversify revenue sources , get out of the “CSD box” (leaving natural monopoly zone?)- Demand for risk management, data services and portfolio

optimization, but time-to-market factors, competition among infrastructure providers nationally and cross-border.

Cost Reduction and Efficiency- For-profit pressures- Pressure on costs, including capital reserves - Cost of innovation (often underestimated)- Critical mass and economies of scale issues

Regulatory Drivers - Systemic risks, liquidity pressure, transparency and debates

on global coordination, retail investor protection and omnibus model

Competition – up and down, including clients

Customer Demand for High Service Levels - absolute reliability, extended hours, real-time support

Transaction volumes are growing againBut……

Costs are under constant downward pressure



So, how can CSD’s transform to help firms deliver sustainable results

Business Drivers and Regulatory Drivers will evolve new business models

Need to enhance revenue (justify price points of services) and reduce cost of operations

Is there sufficient critical mass for the independent CSDs to grow their core business?

Stick to core business or innovate in providing new (added-value) service (e.g. fund settlement,…) Price points vs cost of operations Use the power of the data floating through the systems: multilateral, potentially expand into bilateral (Markit) Vertical integration within domestic borders? Or horizontal integration via shared services utility across borders? Consolidate and integrate horizontally (across products, markets) and vertically (along value chain) to increase

economies of scale Domestic, Cross-Border, Cross Continent consolidation vs fragmentation Re-use common infrastructure in shared services models

The industry may need to adopt new, probably federated business models (‘utility’) that will reduce cost by the same token offering more (added value for revenue) service



CSD Business Models – how to thrive as well as survive?

Vertical Horizontal Outsourcing Consolidation Shared Combination models

Implications for each CSD, national economies, Americas region, globalization

Constructive roles for ACSDA


© Copyright IBM Corporation 2010

Contacts:

Suzanne Duncan

Financial Markets Industry Leader


Cambridge, MA USA

Tel:+1 617-216-7743

Email: [email protected]

www.ibm.com/iibv

Rosa Ziccarelli

Global Client Executive, DTCC, NYSE, and FINRA

IBM Corp.

590 Madison Ave.

New York, NY 10022 USA

Tel: +1 212-745-2048

Mobile: +1 646-784-6736

Email: [email protected]

04/19/23 7

IBM Global Business Services © Copyright IBM Corporation 2010 IBM Institute for Business Value...

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