In recent years, Capital market players have had to adapt to changing macroeconomics, challenging growth environment and increasing regulatory burden. The advances of digital technology have presented threat as well opportunities for traditional players. This article presents high level analysis of various business models and explores potential instances of a truly digital operating model.

1. DIGITAL
TRANSFORMATION
For Capital Market Players
THREAT OR
OPPORTUNITY?
ABSTRACT
In recent years, Capital market
players have had to adapt to
changing macroeconomics, chal-
lenging growth environment
and increasing regulatory bur-
den. The advances of digital
technology have presented
threat as well opportunities for
traditional players. This article
presents high level analysis of
various business models and ex-
plores potential instances of a
truly digital operating model.
Adarsh Panda

2. 1 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
CONTENTS
Introduction & Context
DATA MANAGEMENT
ROLE OF |TECHNOLOGY
Product --> Service Approach
SERVICE ORIENTED MODEL
Digitize or Digitalize
AUTOMATION
DIGITAL STRATEGY
Cultural Transformation
Customer Centricity
Sales & Distribution
DIS-INTERMEDIATION
DIGITAL CHANNELS
Front Office – Where Digital Starts
Analytics & Customer Insights
ROLE OF DATA
ANALYTICS
Process & Technology Enablers
Conclusions
References

3. 2 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Introduction & Context
The advancement of emerging technologies at a time when Capital
Market players are going through significant overhaul of their business
model, has presented with both threat and opportunities. The threat is
perceived in the form of new entrants who are looking to offer services
enabled by platforms based on Emerging Technologies. The traditional
services provided by Capital Servicers (e.g. Investment banks, brokerage
firms etc) and Market Users (e.g. Hedge Funds, Pension Asset Managers
etc) have both been under pressure from regulators and investors alike.
This has pushed firms towards segregation of their core and non-core
business processes as market/clients demand more value for their bucks.
As more and more non-core business gets treated as ‘Non-Revenue
generating’, firms look to commoditise those and focus on core services
as means to provide value and
create differentiation.
Advancement of technology has made data
availability much easier for Non-Banking entities
Popularity of ETF (Exchange Traded Funds)
means easy exposure based trading
Better market connectivity is impacting Capital
Raising & Market making businesses
The increasing access to
technology and data has positive
impact on the users/investors
community as this provides them with better performance and analytics of
their servicers which was earlier the forte of specialized outsourcing
service providers. As firms look to consolidate more and simplify their
business model, Data Management as a function (Storage, Maintenance,
analytics of investment/trading data) has potential to be more
commoditised and being offered as a Managed-Service1
. This type of
service re-positioning opens opportunities for technology entrants as well
incumbents who are ready to partner and invest in Fintech space.
1
Outcome based contract where servicer is paid based on number of successful service units

4. 3 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Product --> Service Approach
The example above, solidifies one point – the industry would see a
gradual shift towards ‘Service Based’ model as opposed to a product
centric business model
approach. This is where
the newly shaped market
players would compete
based on their core
services and create
service differentiation
around building great
internal and external
customer engagements.
The role of data technologies like
Big Data and Analytics would play
a key role in creating services that
provide real value and insights to
the clients. This will be particularly
relevant to areas within Capital
Market where trading and
investment decisions are made
e.g. front office. A near real time accurate availability of data for
traders/investors has potential to create a true digital experience. Big data
technology has potential to create relevant storage solutions considering
investment and reference data volumes are in constant rise since the
financial crisis.
The other aspect of emerging technologies is the ability to create
commoditised services for functions which are not core to a firm’s
business. Increased margin pressure on both buy-side and sale-side,
means industry would further look at digital disruptions to dis-intermediate
thereby creating cost savings to be exploited by fewer players. This cost
savings has potentials to create digital/mobile solutions hence providing
enriched customer experience. The other sources of cost savings, could
come from technologies like Robotics, which firms would increasingly
leverage for automation as well for creating a digital base.
“In some ways, incumbents have a lot of benefits over new players, over start-
ups. They have customers, they have great data, they often have a brand. They
have financial resources, which a start-up may not have. The question is, can all
of those capabilities and assets be deployed in a way that allows you to defend
against new attackers as digital disrupts your industry?”
Paul Willmott | Director at McKinsey

5. 4 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Digitize or Digitalize
With the advancement of technologies, the
term ‘Digital’ is being used more than ever
before and sometimes quite loosely. It’s
important to draw the differences between
Automation and Digitalization while respecting the close linkage between
both. Digitization in pure term means converting Analogue to Digital. This
obviously provides many benefits including being able to store more data
(and types) and therefore presents opportunities to build relevant insights.
The capital market industry has done well in terms of Digitization of the
huge of amount of Data E.g. Investment,
Trading, Market, Client and Reference
data. Significant investments have gone
into automation solutions directed at
process/data level with a view to reduce
‘Cost of Processing’. While it’s probably a
necessity for firms to reduce costs due to
margin pressure on Servicers and Capital
User communities, firms have now recognised growth (as well as existing
business retention) would be based on how well they create ‘Digitalized’
experience.
Digitalization on the other hand, is about creating services or customer
engagements which
leverages the Digitized
data on back end and
enables service
differentiation. This
process of operating
model transition and transformation onto a Digitalized model, will be
referred to as Digital Transformation in this article.
Any Digital Transformation initiative needs to factor in costs like any other
transformation programs. ROI of such an initiative need to include
business growth strategies in existing market/client segments plus any
new market that the firm is aspiring to venture into. Additionally, business
owners need to play critical roles as much as Technology enabling
leaders.
“There is a strong need to re-design business and operating models in order to
better integrate digital advantages”
Boston Consulting Group

6. 5 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Cultural Transformation
Technology Implementation and Platform Transition are key success
factors for any Digital Transformation project, however the Non-
Technology aspects of an organization is often understated. Firms need
to factor in cultural shifts,
behaviour changes and
obviously develop new skills
to support the digital
technology.
The success of such
initiatives shouldn’t stop as a
one-off implementation of
the operating model. The
change in mindset at people and organisation level is essential for
adaption of digital journey. Technology is in constant change and timely
adaption of the same requires more cultural changes than technology.
A digital culture is often as much about leadership as it is about technology
change adaption. Digital agenda has far
chances of success when there is voice in C-
suit. Most of capital market firm’s due to their
widely variant business models, are complex
in terms of implementing innovations. Firms
with strong digital implementation objectives,
have introduced ‘Chief Digital Officer(CDO)
with objective of standardised digital strategy
implementations across
business units and
geographies. Any digital
agenda should closely
integrate firm’s ‘Data
Strategy’ as well.
There has been slow
increase in number of CDO roles in last
few years, with few firms having CDO equivalent roles. Though progress
has been slow, Gartner estimates about 90% of large organisations
having CDO equivalent roles by 2019.
Source: A Russell Reynolds Associates
‘Adapt, disrupt, transform, disappear: The
2015 chief digital officer study’, Strategy&
“The other characteristic to look out for is in your own behavior and that of
your colleagues. I mentioned earlier that this is 80 percent about people, not
technology. One of the most detrimental side effects for thought leaders in
business is to throw out the whole concept of a technological evolution, or
even revolution, during that stock market fear cycle I mentioned, the one
that follows the greedy hype cycle. But it is about how you shift behaviors,
develop skills, and put new processes in place that will determine whether
you and your colleagues will successfully navigate your business to adapt to
the social mobile cloud”
Business Models for the Social Mobile Cloud, Ted Shelton

7. 6 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Source - tdwi
Customer Centricity
At the core of a Digital Strategy is ‘Client Centricity’, which starts
essentially with creating the right Customer Engagement. For Capital
Market players, much before beginning of investment cycle, the sales and
product development processes play a crucial role in creating the right
customer centricity. The availability of data across social media presents
opportunities to create
analytics and feed the
market trends/sentiments
towards product building
engines.
This enables creation of
products/services with higher success probability based on firms’
business strategy and geographical footprint. Additionally, this also opens
critical analytics of existing products the firms might have invested which
requires re-consideration based on market sentiments analysis.
Predictive analytics, on the other hand is increasingly gaining popularity
amongst investment community. With the increased stress on natural
resources and population increase, firms who base their
investment/trading strategies around commodities and metals, need to
explore right digital
investment to be able to
predict price trends and
supply volumes. For
example, increase in electric
vehicles over time might
have significant impact on
crude oil leveraged
contracts. Firms who can
leverage the digital
technology in this space would be in a better position to create relevant
set of products & services for future.
“Becoming a Digital Business is not just digitized marketing or digitized
operations – it will be essential for survival, “
Accenture Digital

8. 7 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Sales & Distribution
The Sales and distribution (for Buy-side) process of a financial firm is
heavily customer focused be it institutional or retail channels. This process
therefore carries significant opportunity for digital
impact. The capital market industry is generally
moving towards a disintermediation model. This has
presented with threat and opportunities both
depending on which side of the market a firm stands
by.
Due to the changing customer demographic, a more
tech savvy digital
approach is the need of hour,
considering investor attitude is
constantly changing so as their
expectations. As newer generations
move towards more non-traditional
channels, the sales process for buy-
side and sale-side firms need to
seriously consider creating the right digital interfaces e.g. mobile and
smart devices.
This obviously leads to
the technology challenge
of creating those and
firms have already
responded by creating
relevant API2
. Subject to
architectural context, a
re-usable set of business
services would help firms
keep their system architecture simple and easier to maintain. Additionally,
promotion of BaaS (Backend as a Service), provides IT divisions of
investment firms to easily create omnichannel connectors for online,
mobile and social integration.
2
Application Program Interface
Definition - What Does Backend as a Service (BaaS) mean?
Backend as a service (BaaS) is a cloud computing service model that serves as the
middleware that provides developers with ways to connect their Web and mobile
applications to cloud services via application programming interfaces (API) and
software developers' kits (SDK). Compared to other service models in the cloud
computing environment, BaaS is rather new and there is a limited number of
available providers. (Source: Technopedia.com)

9. 8 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Front Office – Where Digital Starts
At the fore front of the digital impact, are the front office users of Capital,
e.g. the ‘Wealth & Asset Management’ community. The quality of
engagement they can build with their customers (e.g. Consultants, IFAs,
Institutional Advisors etc) would have a profound impact on their business
model by the digital experience across Omnichannel. New Gen
investors/IFAs expect availability of data and trading facility over
Mobile/Online media alike.
If we attempt and draw a functional heat map of various processes within
Capital Market trade flow, this validates our assumption around Front
Office being the digital impact creator on both Capital servicers as well as
users.
Depending on business
architecture of firms, the
above digital impact
assessment might throw
variations. For firms relying
heavily on outsourced or
utility based models, the
core ‘Applicable’ services
would drive customer
experience hence digital
strategy. The definition of
‘Core Services’ would
significantly change across
the capital market value
chain, e.g. Fund admin
services might be core to
an Asset Servicer while its
Non-value generating for
an Asset manager.
Hence, Investment
Managers who integrate Digital Transformation as key part of their
Technology Strategy would certainly be able to create that deep and
better client experience which we analysed earlier. This way, the cost of
transformation can be built into a stronger ROI model which provides
penetration into new markets and additional opportunities in existing areas
of business. Front office is the area which provides significant potential for
creating more digital processes which has direct impact on client
satisfaction.

10. 9 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Analytics & Customer Insights
As briefly discussed earlier, intelligent Analytics could play a big role in
the product manufacturing and sales process. The same has an even
bigger role when it comes to portfolio management.
The availability of data presents
opportunities to create Data model
that would allow trading decisions
to be made based on current and
more accurate data. Depending on
Business strategy, Asset Managers
need to embark on the journey of
selecting right digital technologies.
‘Multi Asset Class’ solutions would require the right technology to provide
single view across multiple Order Management Systems. A similar model
would apply for servicers e.g. brokers/dealers who are challenged to
innovate considering rise of ‘Direct Market Access’ channels.
While creating mobile/social/IoT channels early, provides head start
advantages, the true value differentiation would come from capital market
firms who can additionally create and present relevant analytics to their
customers. In a world of outsourcing, it’s difficult to a draw single digital
template considering variations in the level of functions kept in-house.
However, it’s likely that ‘Investment Operation’ providers would leverage
the scale of their operations and create an ‘Open Data Architecture’, which
allows subscribing applications to efficiently consume and manipulate the
data, be it in-house front office systems or 3rd
Party OMS.3
Choice of Analytics strategy also needs to consider how comprehensive
data can be made available to the Analytics engine. Most of Asset
Management firms are already investing in creating ‘Investment Book of
Records(IBOR)’ which aims to provide a near real time view of Trading
and Accounting books. Due to the widely different operating models
adapted by Asset Managers, there is no ‘One Size Fits All’. However, the
objective is to provide near real time copy of investment records for best
possible investment decisions. The right Technology strategy will be
based on which areas the firm decides to keep in-house.
3
OMS: Order Management System

11. 10 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Source - DISRUPTIVEDIGITAL.WORDPRESS.COM
Process Enabler ‘ROBOTICS’
As discussed earlier, Digitization is the
first step before a truly Digitalized
operating model can be created.
Robotics technology (RPA4
) has gained
significantly popularity across capital
market firms due to its non-invasive
nature of technical implementation
Investment or trading firms who decides to keep operations in-house or
service providers having fragmented applications footprint, are
aggressively looking at RPA which aims to replace software robots for
activities typically done by operators or help desk staff. While RPA by itself
won’t fix the operating model, however it provides quicker automation
solution which helps free up FTE capacity. While RPA has gained
popularity because of quicker cost reduction possibility, it produces a
‘Digitized TOM’ as throughput which opens exciting possibilities on a
digital journey. Depending the RPA tool process analytics, performance
and usage can be monitored with a view to fine tune processes as well as
to decide on process engineering initiatives. However, any robotics
implementation program need to consider the cost of change (e.g. screen
changes, or field repositioning etc).
Few firms have already
adapted RPA and are
looking to move to the next
level of Self-healing
systems, which anticipates
an issue and proactively
suggests a fix. The
applicability of various
suggested options, will be a
decision firms need to take
based on Business driver
and Technology Strategy.
4
Robotics Process Automation

12. 11 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Technology Enabler ‘AGILE’
On their Digital Transformation journey, Capital Market firms would need
to have the adequate agility both in terms of organisation processes as
well as technology support systems. Digital innovation would apply to
internal organisation processes as much to firms’ investment business
processes. While, cultural transformation is a discussion topic itself, IT
operations would require significant attention from a Digital agenda
considering most of capital market firms runs disparate, manual and
legacy deployment processes. Although recent times have seen heavy
focus on ‘Buy-Vs-Build’ approach, firms have not had similar attention
towards software infrastructure and deployment processes.
Due to legacy nature of the business
and historically higher number of M&A
activities, Buy-Side and Sale-Side
participants are stuck with their IT
infrastructure consisting of Application
Silos, Multiple Monitoring & Ticketing
tools and manual intensive Release &
Deployment processes.
All these backend challenges
present obstacles for time to
market, which is essential for a
future digital experience.
Successful Capital Market firms
with highly automated release
infrastructure would be able to
support the Agile Based code drops
thereby enabling quicker service
releases and beating the
competition. For example, during pilot introduction phase of a new
fund/product, there might be need of multiple releases based on market
sentiments through omnichannel.
Source – PERFORCE.COM

13. 12 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
The below diagram is a schematic evaluation of various backend
processes and automation options for deployment scenarios:
The level of automation would obviously vary based on the application
landscape, however firms need to decide their technology strategy and
build the IT infrastructure roadmap accordingly. The best-case scenario is
an end to end service orchestration of Code-Build-Environment-TDM5
-
Deployment-Testing as depicted in the illustration above. Additionally,
firms need to decide on hosting solutions strategy (private vs Public cloud)
and service virtualisation for pre-production assurance.
The choice of hosting options will be based on various factors including
data security and local data regulations. Capital Market firms are
constantly being monitored and subjected to significant regulations
around data security and privacy. Firms need to evaluate private cloud
option for sensitive/restricted data and build the business case
accordingly. Utility based models for reference/non-sensitive data is an
option to be evaluated in correlation to cloud strategy.
5
Test Data Management
Source
Code
Repository
Automated
Builds
Automated
Package
Deployment
Automated Package
Configuration
Software Repository
Environment
Provisioning
TestData
Management
SERVICE ORCHESTRATION, MONITORING, AUDIT, KPIs
TEST AUTOMATION,ISSUEES/MANUALTRIGGERS

14. 13 | R O A D T O W A R D S D I G I T A L C A P I T A L M A R K E T S
Conclusions
Capital Market as an industry is going through multiple challenges due the
Macroeconomic and Socioeconomic factors. The current operating
models adapted by firms are more likely to be undergoing changes based
on the business model individual firms decide to stick to. The Digital
Strategy adapted by firms need to factor in future Business Model and
respective Technology Strategy as an enabler. The actual adaption and
selection of technology platforms would depend on the Technology
Strategy adapted and investment appetite at a firm level.
In short to medium term, re-evaluation of Enterprise Data Model would be
a priority item for Capital Market firms considering significant increase in
Alternate assets and market opportunities around these areas. A Digital
strategy would likely include an Automation Strategy as enabler of
‘Digitization’. Here Capital Market firms need to carefully decide functions
to outsource (Vendor, Utility, Blockchain) vs functions to keep in-house.
In either case, functions around Middle and Back office would fall prey to
Robotics Process Automation(RPA) which would be able to provide
quicker FTE/Cost reduction while firms decide their Target operating
Model. Most importantly RPA solution would provide a Digitized process
landscape which could be used for analytics and enrichment on the path
towards a true ‘Digitalization’.
In medium to long term, firms focusing on an open Data Architecture,
would have advantage of being able to offer/create digital services around
the data. This also presents firms with opportunities around building
Social/IoT/Mobile channels for market penetration and positive customer
engagement on existing business. The areas around front office, have
significant impact due to evolvement of technologies like Robo-Advisor for
example. Capital market firms with an Open Architecture would enjoy an
added advantage as they would be able to integrate with new technology
platforms like Robo-Advisor or Blockchain quicker to create digital
services as opposed to competitors.

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References
ADAPTING TO DIGITAL ADVANCES (May 2015) – Boston Consulting
Group
Capital Markets: innovation and the FinTech landscape, EY
Business Models for the Social Mobile Cloud, Ted Shelton
Digital Transformation in Capital Markets, Daizy Mehta, C Damodar, TCS
About the Author
Adarsh Panda is a principal consultant at Syntel Europe Ltd (till April/17),
specialising in technology consulting for Buy Side firms in Capital Market.
He has worked in number of Technology consulting firms over last 17
years. If you would like to discuss any issues analysed in this article,
please contact at (Adarsh_Panda@yahoo.com),