Weekly news up to 09/02/2024
Issue #22
Hello everyone and welcome to the latest edition of GreySpark Insights.
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💥Top story
UK fintech investment down 34% in 2023
📰Newsflash
📈Buyside
BNY Mellon expands collaboration with Microsoft to enhance data platform
BNY Mellon and Microsoft are partnering to expand BNY’s data analytics platform. Using Microsoft Azure cloud and BNY Mellon’s financial data and analytics capabilities, the partnership seeks to bolster BNY Mellon’s data management solution for buy-side and sell-side clients. The data management solution will offer deeper insights and actionable data that can help improve investment performance, distribution reach, and risk management. BNY Mellon last collaborated with Microsoft in 2020, having built a front-office data solution on the Microsoft Azure platform, offering three services on distribution analytics, environmental, social and governance (ESG).
More scalable wealth tech needed in Hong Kong
According to financial software platform Avaloq, over half (56%) of wealth management professionals surveyed in Asia find the technology systems and applications that they use are outdated. Specifically, 63% of wealth management professionals in Hong Kong reported that their technology is outdated. In contrast, only 37% of European wealth management professionals found their wealth management technology to be outdated. As the wealth management industry continues to grow in Asia, financial institutions, are under pressure to deliver personalised services to a larger and more diverse client base. However, with this in mind, current systems are comparatively unfit for purpose, with 69% of respondents in Asia agreeing that too many steps are involved in drafting investment proposals with current technology systems.
📉Sellside
JPMorgan Chase dominates AI research in banking
JP Morgan is leading the way in terms of AI research among sellside firms. Figures show that JP Morgan increased its market share of AI research output from 30% in 2018 to a whopping 45% in 2023, following heavy investment in AI talent. JP Morgan employs over 200 AI researchers, more than four times that of its nearest rival Royal Bank of Canada. The top ten banks for AI research accounted for over 80% of total industry output between 2018-2023. AI research refers to the production of research papers specific to AI, which explores the potential of AI technology across different sub-types, such as machine learning.
✴️Digital transformation
UK fintech investment down 34% in 2023
Total UK fintech investment dropped to $12.3 billion in 2023, down 34% from $18.7 billion in 2022, according to KPMG. Geopolitical and economic uncertainty fuelled by events including conflicts in Ukraine and the Middle East, the high interest rate environment, and tight liquidity across regions saw fintech investors hold onto their cash throughout the past year. The largest fintech deal in Europe in 2023 was the $6.9 billion private equity raise by UK-based Finastra. The payments space continued to account for the largest share of fintech funding among the fintech subsectors, despite a drop from $57.9 billion to $20.7 billion between 2022 and 2023. According to KPMG, investment in the UK fintech sector is expected to remain relatively soft in the first half of 2024, although investment will likely begin to pick up as interest rates reduce heading into the second half of 2024.
Nasdaq to Offer its First AI-Powered Order Type in Q1 2024
This quarter, NASDAQ will roll out Dynamic M-ELO, which is its first order type driven by artificial intelligence. This is arguably a watershed moment for how AI is leveraged in the financial markets. This new order type allows like-minded buyers and sellers of equities, such as asset managers and institutional investors, to minimise the extent to which their transactions impact prices. Specifically, the solution uses a learning algorithm that seeks to maximize liquidity while minimizing the impact that trades could have on price.
📱Technology trends
Bloomberg launches new automated swaps and futures basis trading and reporting workflow
Bloomberg has launched a new automated workflow for the trading and reporting of Euro denominated interest rate swaps versus bond futures on Eurex. The solution allows sellside users acting as executing brokers to use straight-through processing (STP) and facilitate a trade from a single interface. The workflow is available for Euro denominated interest rate swaps spreads to Eurex bond futures contracts, with plans for this to be extended to further products.
UBS launches tokenized warrant on public blockchain
UBS has launched Hong Kong’s first investment-grade tokenized warrant on the Ethereum public blockchain network. Warrants are a derivative that give the right but not the obligation to buy a security at a specified price before expiration. The warrant is being launched on UBS Tokenize, which is UBS’ proprietary tokenisation platform that supports the tokenisation of bonds, funds and structured products.
🧑⚖️Regulatory developments
SEC Imposes New Rules to Increase Oversight of Hedge Funds
The Securities and Exchange Commission (SEC) is adopting new rule changes that will aim to increase the oversight of hedge funds. Specifically, these rule changes will require private funds in the US to register with the SEC as dealers, in an effort to improve monitoring of the private funds industry when trading US government debt. By requiring funds to register as dealers, the SEC aims to improve transparency, protect the interests of the public, improve market integrity and facilitate capital formation. However, there are fears this move could lead to a mass exodus of investment companies from the US treasuries market, potentially causing greater instability.
Bank of England fines HSBC £57.4m for ‘serious’ deposit protection failures
HSBC has been fined £57.4 million by the Bank of England’s Prudential Regulation Authority (PRA) for “serious failings” over customer deposit protection, becoming the second highest penalty ever imposed by the financial watchdog. Although not done deliberately, the PRA found that HSBC failed “over many years” to properly put in place the requirements to protect saver deposits dating back to 2015. Under the depositor protection rules, banks and building societies are required to put controls and systems in place to ensure vital information is logged correctly, which the Financial Services Compensation Scheme (FSCS) relies on to make payments to savers in the event of a firm going bust.
📊Chart of the week
Alternative global asset management is on the rise. Alternative asset managers are now capturing around half of the asset management revenue pool, up from 41% in 2010. In this context, alternative asset managers refer to those who include only alternative assets in their portfolios, including private equity, private debt and real estate. Typically, alternative strategies have not been widely accessible by private investors, and only been available to high net-worth clients. However, in light of current fund-raising needs, alternative asset managers are now clearly in the market for individual, private investors, causing the asset management landscape to shift. Their barriers of entry may be higher, but solutions are increasingly being deployed through feeder funds and digital platforms and making accessibility more seamless. Banks’ wealth management units may arguably need to incorporate more alternative strategies in order to stay relevant to their clients, although the regulatory and technological implications of this will need to be considered.
📄GreySpark insight
The pace of technological advancement is ever increasing, and firms struggle to keep all their systems at the forefront. Application development is complex and the average turnaround time between receipt of validated requirements and delivery using the traditional project management approach can often be measured in years, during which time, business needs may change, and project goals become obsolete. A well-known example, in the field of aerospace, is the US Space Shuttle programme which, when the Shuttle was launched in 1982, was still using technology from the 1960s.
While many organisations have tried to reduce the turnaround time by setting smaller goals or delivering projects in phases, the complexity of those projects means that significant lag often remained. Demand grew for an approach that was timelier and more responsive to evolving situations. Businesses had to be nimbler and more flexible and, to remain competitive, they needed a faster time to market to take a more customer-centric approach to problem solving. Necessity being the mother of invention, this led to the development of Agile Transformation.
Discover more here.