Picture this: Early 1980s London, brokers and traders jostling in the early hours of the morning, shouting out the buying and selling orders on the floor of the stock exchange.
Though this on-the-floor trading went on for many years, it didn’t take long for the scenario to turn on its head, thanks to the ‘Big Bang’ on October 27, 1986. With sudden deregulation of the markets, the trading floor now wore a desolate look.
While having all those real traders in one place provided a sense of community and continuity, brokers and traders who used to rely on fast reflexes were now dependent on computer programs.
London’s switch from traditional face-to-face share dealing with electronic trading not only helped it outpace its European competitors but also cemented the city as the world’s most important financial centre.
ROLE OF TECHNOLOGY IN CAPITAL MARKETS
As businesses adopt innovative financial solutions in payments and financing, technology is reshaping economies. Capital markets, too, have come under its realm, with the sector continually evolving and transforming.
With rapid innovation, AI platforms are also enabling real-time detection of complicated trading patterns across various marketplaces. Not just this, by opening the doors for investors to top stock suggestions every day, the trading community has increased earnings by providing optimal trading opportunities.
FUTURE TRENDS IN CAPITAL MARKETS
Capital markets are already using data and analytics to improve security, fraud detection, as well as for identity verification to meet regulatory and compliance requirements. Machine learning, the evolution of data analytics, is currently being deployed in trading, where volumes of data are leveraged in milliseconds.
Many firms analyse speech patterns from recorded calls at investment banks, brokerages, and even on the customer side. These smart algorithms can detect new trade trends or system abuse in the fast-paced financial trading industry, where the speed of judgement is critical, and automating the decision-making process is the way to go.
These algorithms have evolved to understand financial goals and risk profiles to come up with tailored investment portfolios that reallocate funds, book profits, and square off positions based on self-learning algorithms.
Diving deeper, machine learning has a myriad of use cases from analysing stock performance to deciphering relevant information from volumes of data from textual material such as press releases, earnings reports or even tweets!
Additionally large data samples require advanced storage and are ushering in the next generation of cloud architecture.
Blockchain or distributed ledger has the potential not only to store but also provide relevant information to a new scale, along with being cost effective. Distributed ledgers have already had success in bond issuances in global markets, loan syndication and securitisation or any process that requires a chain of evidence.
THE OTHER SIDE OF THE PICTURE
Like everything else in the world, technological advancements tend to often have a flip side. Great tech transformations come with great risks such as cybersecurity, technical product glitches, et al. The stock market meltdown of 1987 was in part due to the immaturity of the new technologies.
Closer home, as recently as June 2021, a serious data breach on a leading online trading platform in India caused customers’ data to be put up for sale on a data-sharing platform.
While these incidents may be few and far between, being cautious and taking steps such as upgrading security, initiating password systems, 24x7 monitoring, and additionally ring-fencing the network will help towards keeping such instances at bay.
Remember, technological innovations take time but developing communication technologies holds the promise of making capital markets more efficient with faster and more effective means of exchanging information.
DRIVING THE FUTURE
India’s capital markets technology is today at a crossroads, with the markets developing and tech defining the future of the industry. Due to stiff competition not only from around the globe, but especially on the home turf, both legacy and new-age firms need to continually evolve and scale up their technology to stay relevant and grow the capital markets ecosystem in the coming years.
Data and computing are important accelerators for technology-driven capital market reforms and the way forward is to make use of technology and apply it in novel ways to grow the markets.
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