Regulatory rules, an increase in moving jobs to lower cost areas and drives for increased efficiency will pressure banks to keep cutting sales, research and other front office jobs in 2013. For those with skills in the technology that supports finance, however, next year will bring greater opportunity.
As banks continue to automate, technologists will see their influence increase, says David Easthope, research director, securities and investments group at consultancy Celent. “We believe the ratio of technology-oriented jobs relative to others (sales, research, ops) will actually increase, which means financial engineers, quants, developers and other technologically gifted people will be in demand relative to others,” says Easthope.
“Part of the job of the tech staff will be to replace other staff with automation and make all staff more efficient.”
What else is 2013 likely to hold for technologists in investment banking?
1. Expect fixed income technology to become more sophisticated
Like equities traders before them, those on the fixed income trading teams of investment banks are more likely to be replaced by machines. Goldman Sachs and Morgan Stanley have already indicated that programmers and tech specialists will be drafted in to develop and maintain algorithms that will allow trading teams to be slimmed down.
A lot of recruitment for front office technology roles in 2012 has been around the increased electronification of the fixed income sector. Expect this to speed up: “Adoption of advanced technology for fixed income trading will be a key theme for 2013,” says Easthope.
2. More investment banks will head for the clouds
Investment banks were slow to embrace cloud computing. Those that have, focused on developing internal clouds, because of security concerns with using external providers. Banks are likely to keep going to their own clouds in 2013.
Goldman Sachs has been investing in its internal cloud this year and, according to Stephen Nundy, managing director in its technology division, there will be more of the same in 2013. Adoption of cloud computing will be “across the firm” next year and the heavy investment in cloud computing in 2012 “will continue for sure,” he says.
3. Nearshoring will only accelerate
Both UBS and Credit Suisse have demonstrated their new-found appetite for shifting tech functions to lower cost destinations this year, with Poland and India their favoured locations. For other banks, however, a staying closer to major financial centres is preferred.
Citi, which recently announced plans to axe technology functions, has been growing its ‘Centre of Excellence’ in Belfast, J.P. Morgan has tech functions in both Glasgow and Bournemouth, and Morgan Stanley also carries out IT development in Scotland’s biggest city.
“Banks are looking to cut costs by moving technology functions out of expensive locations like London and New York, but this doesn’t necessarily mean an exodus to the East,” says Rebecca Healey, senior analyst at capital markets consultancy TABB Group. “It makes more sense to nearshore tech functions - overheads are less, resources are cheaper and it’s close enough to jump on a plane if something goes wrong. Belfast is receiving particular attention.”
4. Regulation is going to be the main driver of tech investment
The increasing regulatory burdens are not just going to provide a compliance headache for banks. They will inevitably eat up an increasing proportion of tech budgets. Regulation is now going to determine how banks can innovate with technology.
“Regulation is no longer taking a back seat, it’s the main driver of banks’ technology investment,” says Healey. “Banks have to find a way of working within the new regulatory environment; it’s not just a back office problem, but one that requires banks to optimise their trading platforms across the organisation.”
“Market structure, liquidity and capital regulations are not merely compliance overheads, but are directly changing the dynamics of competition and risk-taking with direct P&L impact to most capital markets lines of business,” adds Easthope.
5. The importance of digital technology is being recognised
After a slow start, investment banks have been embracing mobile and tablet technology, launching trading platforms for clients across a range of asset classes and developing user-friendly apps for their staff. This has been good for digital professionals, who have been drafted in from other industries on higher salaries.
However, it also presents a problem for banks – with more of these devices being purchased, how can they offset the costs? And, with more people opting for iPhones or other alternatives to the standard issue Blackberry, how can they ensure that security is maintained with personal devices?
One of the big projects for Goldman next year is “BYOD (Bring Your Own Device)”, says Nundy, where the bank is aiming to allow employees to access the firm’s documents, e-mails, calendars and the like from their own smartphones. With the proliferation of these in the financial sector, expect other firms to follow suit.
6. The move to multi-asset class trading systems will accelerate
As part of the efficiency drive, the sell-side needs to tie-up disparate trading systems to a greater extent than it does already. The current siloed approach to trading systems increases the scope for error, reduces transparency and increases overheads, says Healey.
“There’s a push to move away from disparate systems prone to reconciliation errors towards a multi-asset class system that supports the whole trade lifecycle – harnessing legacy siloed systems to holistic front to back solutions that simplify the trading process,” says Healey.
7. OpenSource technology will continue to evolve
Why have banks been slow to embrace OpenSource technology? Quite simply because they felt that it would diminish their competitive advantage gained through IT. So, how are they likely to use it going forward? For the bits of technology that eat up budgets, but don’t give them any sort of edge.
Easthope believes that OpenSource will increase in “pocketed areas” like risk management and other parts of the business where technology is becoming increasingly commoditised.
“Margins are down forever, and firms are looking for cost savings across the board,” Kirk Wylie, founder and CEO of tech vendor OpenGamma, told us previously. “We’ve designed our technology to take care of ‘plumbing’, the parts of a firm’s infrastructure that bring no competitive advantage yet suck valuable development and maintenance resources that could be better utilised elsewhere.”