Broker Dealer Tech Trends for 2016 and Beyond
Over the last 10 to 15 years, an assortment of new technologies – from algorithmic trading platforms to mobile devices and cloud applications – have transformed the way broker dealers do business. But as many firms still figure out the best way to invest in and implement these solutions, a new class of innovative IT concepts is emerging.
Capital markets firms have always lagged behind the mainstream technology adoption cycle – a habit that brokerages must break in order to save costs in the long run, mitigate risk and best serve clients. With the New Year weeks away, broker dealers should resolve to proactively learn about the latest IT advancements.
For starters, here are three trends firms should keep an eye on in 2016.
The rise of the industry cloud
Cloud-based programs for functional needs like marketing campaigns and payroll are commonplace across businesses and sectors today. Going forward, however, more organizations plan to embrace industry cloud solutions: tools specialized for an individual sector, supported by vendors with expertise in that vertical’s unique challenges, regulations and customer needs. Given regulators’ crackdown on cybersecurity, industry cloud systems could present a solution for mitigating IT-borne risk.
Vendor management requirements
The SEC is increasingly critical of broker dealers’ cybersecurity efforts, and willing to knock firms for maintaining subpar data protections or IT governance policies. One of the most challenging areas of cyberrisk firms must confront is vendor management. Brokerages are ultimately responsible for guaranteeing that each third party they engage (i.e., managed service providers or data center operators) has stringent data security mechanisms in place to safeguard clients’ personally identifiable information. For starters, broker dealer leaders should implement a process for verifying that all contracts include language detailing their firms’ recourse when a vendor’s systems are breached.
Blockchain’s financial markets debut
One of the most innovative technologies set to invade the capital markets sector is blockchain, the decentralized public ledger system that supports cryptocurrencies like bitcoin. In the last few months alone, Nasdaq launched a blockchain-supported proprietary trading platform (“Linq”) for managing shares of its privately held companies, and major banks including JPMorgan and Citi joined a consortium to develop industry-wide blockchain standards. It’s still too early to tell how blockchain adoption will impact broker dealers, but the technology’s efficiency, security and transparency benefits are something to watch in the coming months.