Investment banks are looking to increase artificial intelligence and machine learning in pricing models, and see these technologies as improving client performance while ensuring operational efficiency.

Kian Abouhossein, an analyst at JP Morgan, said AI will have a significant impact on investment banking execution models and companies with the money to invest will gain the most market share.

Abouhossein discussed his report, The future of investment banking, with ISDA Chief Executive Scott O’Malia, on the derivatives trading body’s podcast, The exchange.

“Execution speed is continuously improving and I think AI will be more involved in this area, starting with linear products where you can have pure electronic execution models back and forth without real human touch. “, said Abouhossein. “I think we will see that very soon.”

He also pointed out that global investment banks are material users of data for which they pay – but have not been able to monetize the data they produce. For example, there are long-term opportunities for large investment banks to use their data to improve risk management practices and anticipate trading patterns, as well as to use technology to increase the back office efficiency.

The industry also needs to be more imaginative and strategic in its thinking about data, while building the IT infrastructure to use that data productively.

Kian Abouhossein, JP Morgan

“Other industries analyze the data very well and serve the customer better,” Abouhossein added. “I don’t think the investment banking industry does that.”

He recommended that investment banks move towards creating platforms that offer client connectivity through standard APIs on a single platform/aggregator and believes that liquidity should move to this “new model”.

Investment banks are still operating with weak front office platforms, which presents an opportunity for gain an advantage. They’ve done a poor job of investing in solid front office technology so far, and the analyst sees players like Bloomberg succeeding in capturing customer time.

“Some investment banks are starting to open up their platforms to other vendors, which I think is the future,” Abouhossein said. “They could potentially advertise non-investment banking products that appeal to their customer base. Open platforms are going to be a very exciting space.

For example, Barclays could sell its range of Barclaycard, home insurance and wealth management products to its captive investment banking clients.

“We think the possibilities are substantial and if we were to extend that argument further, by taking a leap of the imagination, we might see non-bank offerings such as Uber, or Deliveroo advertising, or computer accessories to acquire linked on website, etc.,” the JP Morgan report said.

Overall, the analyst believes the investment banking industry is in much better shape today than it has ever been due to regulations forcing a transformation into a low-risk business. and low capital intensity where banks facilitate transactions rather than take risks as principals. He estimated that the long-term baseline scenario revenue increase is about 5% per year.

In the first nine months of this year, investment banks recorded a record $112.6 billion in fees according to Refinitiv.

Data

The standardization and integration of data in capital markets was highlighted during a fintech panel at FIA IDX in London.

Umesh Patel, Global Head of Strategic Alliances and Partnerships at Symphony, said during the panel, “We think of ourselves as the connective tissue.”

Symphony started out as a messaging platform, but now sees itself as an open platform that builds workflows for the industry, because customers can choose who they want to work with, how data is delivered, and desktop applications they want to use.

“We’re making the next step of increasing efficiency a lot easier by aggregating data,” Patel said. “More and more people are building their own setup and joining the dots so they can customize their workflow.”

Matthew Cheung, managing director of ipushpull, said fintech solves the complexities of making data more accessible. The company’s unified data collaboration platform can take any type of data or workflow from any application, in real time. The platform then transforms this data so that it is provided as customers wish, for example via Symphony, Excel or API.

Matthew Cheung, ipush pull

“In OTC markets, there’s still copy and paste, Excel spreadsheet sharing and a very manual way of working,” Cheung said. “That’s basically the problem we’re solving.”

Having easily accessible data has become more important in a hybrid working model, especially since staff typically have fewer screens at home than at the office, so the office must be used more efficiently.

Liam Huxley, Managing Director and Founder of Cassini Systems, told the panel that the company wants to take more advantage of existing data and make middle office and back office data insights transparent and meaningful to the front office.

“That means thinking about all the post-trade costs such as margin and funding that affect any derivative and making them available to the front office,” he said. “We need to unify front, middle and back office perspectives on the same business with the same vision so that there is a holistic view and the company makes better investment decisions.”

Huxley said it was important for fintechs to be able to connect to existing workflows

“I think one trend that’s going to be highlighted is the need for rapid adoption of data standardization, such as the ISDA Common Domain Model,” he added. “Another example is just asset securities reference data between two brokerages, clients and exchanges.”