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Market Analysis and StatisticsG00210122
Market Insight: Investment Banking and CapitalMarkets Primer,
2011Published: 26 January 2011
Analyst(s): Kristine Pfeiler
This research is a companion to the investment services primer
(see "MarketInsight: Investment Services Primer, 2010") as it
provides an in-depthanalysis into the subvertical industry of
investment banking and capitalmarkets also known as the sell side.
It is one of a series of industry primers.Industry managers in
marketing, sales, product management, or servicestargeting or
working in this sector will gain a top-level view of the
sector'sbusiness trends, IT investment priorities, inhibitors, IT
spending, go-to-market messaging guidelines, and key influencers.
IT investments are a topfocus for both the business and IT due to
their criticality in ensuringcompliance with new regulations, their
enablement of expansion, and ahigher scrutiny on costs as the
investment banking and capital marketsfirms face tightening profit
margins and a volatile economic environmentaffecting capital
markets revenue streams.
Key Findings Ensuring compliance with regulations continues to
be a top focus in 2011. Regulations will
impact this sector most in derivatives, trading analytics and
revised and/or additional regulatoryreporting.
Additional market trends driving strategic and tactical
technology investments includecontinued merger and acquisition
(M&A) activity within the sector, geographic expansion
andproduct expansion.
Firms continue to focus on cost containment and reduction,
favoring operating expenditure(opex) over capital expenditure
(capex) while trying to prepare for regulations and makestrategic
investments to grow the business.
Key messaging themes include regulatory compliance, operational
efficiency and control,technology as innovator, and cost
containment and structure. Marketing messages must still betargeted
to each area within the sector in which the messaging theme takes
on a specific flavor.
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Recommendations Product or industry marketing: Refine overall
industry messaging to be specific for each
targeted subsegment; not all IT spending drivers have the same
priority or the same impact. Forexample, the regulatory impact for
a derivatives trader is very high, causing a transformation ofthe
settlement and clearing processes, while the investment banker
feels the regulatory impactthrough restricted activities in
principal investing and higher capital requirements likely
resultingin long-term, fundamental business model and
organizational changes, rather than immediateprocess changes.
Sales: Position new products in mature markets as a gradual
evolution rather than a "rip andreplace" where possible. Provide a
road map for the client, highlighting features such
asservice-oriented architecture (SOA) or interoperability that help
migrate a firm to a more open,flexible IT landscape to combat the
rigidity of legacy IT environment, which can be a majorinhibitor as
firms present a complex myriad of applications tied together with
manyinterdependencies.
Product management: Embrace alternative pricing structures that
reduce initial capitalinvestment and favor opex over capex as new
regulations are also expected to adverselyimpact a firm's bottom
line with requiring higher capital requirements and increasing the
cost ofrisk.
Table of Contents
Analysis..................................................................................................................................................3
Introduction......................................................................................................................................3
Investment Banking and Capital Markets Industry
Overview.............................................................3
Segmentation and Organizational
Structure......................................................................................4
Business Priorities and Key Technology Inhibitors and
Drivers..........................................................7
Key Drivers of IT
Spending..........................................................................................................7
Key Inhibitors of IT
Spending......................................................................................................9
Investment Banking and Capital Markets Solution
Map....................................................................9
Solution
Areas..........................................................................................................................11
Capital Markets (Sales, Trading,
Research)...............................................................................11
Background and
Context.....................................................................................................................12
The
Impact...........................................................................................................................................12
IT Spending and
Forecast...............................................................................................................12
Assumptions for Sizing the
Market............................................................................................12
Assumptions for
Growth...........................................................................................................13
Forecast...................................................................................................................................13
Buying Centers, Messaging Map and Key
Influencers.....................................................................15
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Buying Centers and Messaging
Map........................................................................................15
Key Influential
Groups...............................................................................................................18
Conclusion...........................................................................................................................................20
Short
Term.....................................................................................................................................20
Long
Term......................................................................................................................................20
Recommended
Reading.......................................................................................................................20
List of Tables
Table 1. Organization Structure Within Investment Banking and
Capital Markets Firms...........................6
Table 2. Investment Banking and Capital Markets Solution
Map...........................................................10
Table 3. Investment Banking and Capital Markets IT Spending
Forecast (Billions of Dollars).................14
List of Figures
Figure 1. Investment Services Industry
Segmentation.............................................................................5
Figure 2. Investment Banking and Capital Markets Messaging
Map......................................................17
Figure 3. Key
Influencers......................................................................................................................19
Analysis
Introduction
The objective of this document is to provide technology and
service providers targeting theinvestment banking and capital
markets industry with a foundational understanding of the
industry.It is intended for industry marketing and product
management roles, as well as customer-facingsales and service
professionals seeking insight into industry segmentation,
organizational structure,market trends, IT spending, buying centers
and messaging guidelines.
Investment Banking and Capital Markets Industry Overview
Gartner defines the investment services industry using standard
industry classification codes(NAICS rev. 4 or SIC) and includes
securities, commodity contracts and other financial investmentsand
related activities (NAICS 523, SIC 621,622) and funds, trusts, and
other financial servicesinstitutions, including banks, asset
managers and exchanges. This primer focuses on a subverticalof the
investment services industry the investment banking and capital
markets sector. Theinvestment banking and capital markets industry
includes two primary activities of raising capital forcorporations,
governments and other institutions and financial advisory services,
such as M&As,
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capital restructuring, and buyouts. Adjacent or supporting
activities for these primary functionsconducted by investment banks
include market making and research.
Top players in the industry are global, large universal banks or
bank holding companies withinvestment banks subsidiaries within the
universal bank. Global leaders include Bank of AmericaMerrill
Lynch, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP
Morgan Chase, MorganStanley and UBS. Additional business models
found in the industry include pure-investment banks,boutique
advisory firms, and broker-dealers. Pure-investment banks are not
associated with, or apart of, a commercial bank but conduct the
primary activities of capital raising and advisoryfunctions.
Example firms using this business model include Brewin-Dolphin and
Lazard CapitalMarkets.
Boutique advisory firms provide advisory investment bank
functions but do not underwrite orperform market distribution or
market making. These firms are often smaller than the other
models.Example firms include Duff & Phelps and McColl Partners.
Brokers and broker-dealers provideaccess to markets and perform
transactions but not underwriting or advisory functions.
Althoughmost investment banks are also broker-dealers, some pure
brokers exist such as InvestmentTechnology Group and Jones Trading.
Although different firms may pursue a certain model or acombination
of models, the most-critical information for technology and service
providers (T&SPs)to understand about a firm in this industry
sector is which functions the firm provides, because thisfinding is
one of the main factors influencing the firm's technology
needs.
Segmentation and Organizational Structure
As previously defined in Gartner's primer on the investment
services industry (see "Market Insight:Investment Services Primer,
2010"), Gartner has segmented the investment services industry
intofour sectors illustrated in Figure 1.
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Figure 1. Investment Services Industry Segmentation
Investment Banks/ Capital Markets
Asset Managers/ Institutional
Investors
Exchanges, Agencies and
Services
Investment Banking,Securities Dealing
(NAICS 52311/52313,SIC 621,622)
Brokerage Houses(NAICS 52312/52314,
SIC 621,622)
Securities and Commodity Exchanges
(NAICS 52321, Sic 623)
Hedge Funds(NAICS 52391,
SIC 621)
Asset Management (NAICS 52392,
SIC 621)
Investment Advice (NAICS 52393,
Sic 628)
Transfer Agency(NAICS 52399,
SIC 6289)
Insurance and Employee
Benefit Funds(NAICS 5251)
Other Investment Pools and Funds (NAICS 5259,
SIC 628)
Investment Services
Investment Advisor/Wealth Manager
Clearinghouse Services
(NAICS 52399, SIC 6289)
Custody Services(NAICS 52399,
Sic 6289)
Reference/MarketData Providers
(NAICS 52399, Sic 6289)
Private Equity/Venture Capital
(NAICS 52392, SIC 621)
Prime Broker(NAICS 52312,
SIC 622)
Source: Gartner (January 2011)
Within investment banking and capital markets institutions, the
front-office organizations are alignedby services or product areas
at the top of the organization. Typical departments and
relatedactivities are shown in Table 1. Additional middle-office
and back-office functions are also within thefirm; some of these
functions are grouped organizationally with the same structure as
the frontoffice, while other more administrative functions are
across the entire firm.
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Table 1. Organization Structure Within Investment Banking and
Capital Markets Firms
Department Areas Activities
InvestmentBank
IndustryCoverageGroups
Investment bankers create financial advisory relationships
withcorporate and government entities to advise and sell services
bypitching deals. These bankers are arranged by industry
(e.g.,healthcare).
ProductGroups
Product specialist bankers create financial advisory
relationshipswith corporate and government entities to advise and
sell specificproducts. Example product areas: Debt markets finance
Equity markets Corporate finance Project finance Public finance
Structured finance M&As Advisory Private placement
CapitalMarkets
Fixed Incomeor Debt CapitalMarkets
Various roles within debt capital markets facilitate the
distribution ofthe securities and products.Syndicate places into
market investment bank deals for debt capitalmarkets.Sales creates
relationship with institutional investors for primary andsecondary
market.Traders own the P&L for the trading inventory, provide
liquidity andmake markets by conducting transactions with the
investorcommunity.
Equity or EquityCapital Markets
Various roles within equity capital markets facilitate the
distribution ofthe securities and products.Syndicate places into
market investment bank deals for equity capitalmarkets.Sales
creates relationship with institutional investors for primary
andsecondary market.Traders or sales traders own the P&L for
the trading inventory,provide liquidity, and make markets by
conducting transactions withthe investor community.
Research Fixed Fixed-income security analysts are typically
industry-focused andpossibly asset-class-focused. Main activities
include analyzing andpublishing reports on issuers of debt.
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Equity Equity security analysts are typically industry-focused.
Main activitiesinclude analyzing and publishing reports on issuers
of equity.
P&L = profit and loss
Source: Gartner (January 2011)
Each department's client base, activities, products or services
delivered affect the culture as well asthe technology needs, and
typically, but not always, a vendor will dominate in one area but
not all.T&SPs targeting and selling into this sector should
understand the nuances between areas. If avendor holds strength in
one area, that does not preclude penetration opportunities
elsewhere.Developing a well-defined targeting strategy based on a
thorough understanding of the varioussegments within investment
banking and capital markets is advised. Each area is highly
specialized;reference clients are much more valuable when in the
same area than general reference clientsacross the investment
banking and capital markets industry. Within the front and middle
office andsome segments of the back office, retail banking and
other financial services reference clients orexamples are not as
strong as those from within the investment banking and capital
marketsindustry.
Business Priorities and Key Technology Inhibitors and
Drivers
Key Drivers of IT Spending
Top drivers for IT spending across the investment banking and
capital markets sector are regulatorycompliance. including risk
management practice improvement and operational efficiency,
asindicated through Gartner surveys, client inquiries, industry
discussions and secondary research.The remainder of drivers all
focus on growth through expansion, innovation and acquisition,
whichwill be more specific to an individual firm:
Increasing Regulation Although there is uncertainty about how
regulations will play out withspecific lines of business or how
they might impact market structure, new regulations arecertain to
positively impact IT spending in 2011 as firms gear up to address
these newregulations. Being in compliance and showing compliance
will require investment in ITsolutions, thus creating opportunities
in both solutions and services. It is important to note thanmany of
the intended regulations are still in definition phase in the
regulatory bodies that mustcreate new regulations and enforce the
intent of initial acts. Many of the regulations will alsohave
transition periods in which a firm is granted a specific time
period to meet newrequirements, and regulators also have the
ability to grant extensions in certain cases.
Restricted Activities Regulations such as the Dodd-Frank Act and
specifically themodified Volcker Rule will restrict the activities
of an investment bank within a bank holdingcompany in areas such as
principal investing. Although riskier than other activities,
principalinvesting and trading have been a source of high profits
for investment bank and capitalmarkets firms. Investment banks will
need to classify trading activity to distinguish between
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activity for the purposes of providing liquidity or market
making acceptable activitiesversus principal investing or
proprietary trading a restricted activity.
Derivatives Many of the new regulations target the derivatives
markets, includingmandatory trade execution of swaps on an exchange
or swap execution facility andmandatory clearing for listed swaps.
These regulations will cause capital markets firms andothers in the
derivatives market to revise processes and solutions to work with
newprocesses. The new regulations have also created new business
opportunities withGoldman Sachs, Bank of America, Citigroup,
Deutsche Bank and JP Morgan Chase to helpclients clear trades
through clearinghouses. Bank of America was the most recent
toannounce a new line of business in September 2010, Global Futures
and DerivativesClearing Services, predicting substantial growth in
the OTC derivatives clearing market.
Capital Requirements and Risk Management Although the biggest
impact of newcapital requirements and related changes is the
negative impact on a firm's bottom line,new capital requirements in
Basel III will require firms to revise their reporting to meet
newregulations. Additional focus on risk management and achieving
excellence in riskmanagement and operational controls continue
through 2011, as firms address riskmanagement issues exposed during
the financial crisis.
Systemic Risk Additional requirements for reporting will likely
required for thosefirms deemed "too big to fail." This new
reporting will create new data managementrequirements. The intent
of this regulation is to understand targeted, material risks
frominterconnectedness of the largest global institutions. Within
the US, two new regulatorybodies have been formed, the Financial
Stability Oversight Council and the Office ofFinancial Research, to
address how to monitor this risk and what new requirements, ifany,
will be required. In Europe, the decision to create the European
Systemic RiskBoard (ESRB) was made in December of 2010.
Operational Efficiency Profit margin pressure and an elevated
focus on risk managementwill drive firms to pursue projects that
improve business processes, resulting in operationalefficiency
gains, better risk management capabilities and improved operational
controls.Business process improvement initiatives, risk analytics,
back-office process improvements,end-to-end product flow process
improvements, and an emphasis on data management,including market
and reference data, are all areas firms are pursuing.
Continued M&As Since the 2008 crisis and recession, M&As
in the financial services sectorhave been increasing. In 2010, the
industry witnessed 263 transactions. The trend is expectedto
continue in 2011, as additional firms merge to strengthen balance
sheets or divest noncorebusinesses. Mergers require substantial
integration projects involving business planning,complex program
management and project management, technology analysis, IT
portfoliorationalization, system integration and potentially
decommissioning or the purchase of newproducts when neither
platform nor application meets the requirements of the new
business.
Global Economy Expansion and Growth Market Opportunities After
the crisis and therecession, investment banking and capital markets
firms' belief in the global economy andemerging markets as a key
part of their growth strategy was further strengthened.
Globaleconomic expansion is increasing the prospective client base
for global companies with sizable
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market capitalization. Emerging or growth markets continue to
build their contribution to therevenue mix of investment bank and
capital markets firms. Both trends present opportunity forgrowth
and both trends will increase flow and volume globally. Many firms
cite expanding thegeographic and product presence as key drivers
for revenue growth in 2011. Higher transactionvolume, as well as
new offices and additional hiring, is anticipated as firms
undertakeexpansion.
Increasing Role of Technology Technology is not just supporting
the business ofinvestment banking and capital markets but has also
become a core part of the productoffering. Innovations in
technology can be products themselves, such as
high-frequencytrading, or enable bifurcated product strategies in
the case of high-touch and low-touchofferings within a single
business line. Within the industry, an important differentiation a
firm canhave is the firm's ability to quickly respond to the market
and changing customer needs with theright systems, products and
services. Firms will seek to exploit technology innovation
toachieve differentiation. Example areas of focus include
ever-faster improvements in low latency,as emerging markets offer
high-frequency trading, analytic and hardware acceleration
toincrease processes such as pricing and valuation, and real-time
information around risk.
Key Inhibitors of IT Spending
Some of the same factors that are pushing technology spending
are also acting as inhibitors.
Increasing Regulation Regulations are impacting IT spending
negatively in two ways:
Negative impact on profitability reduces overall funds available
for IT spending. Investmentbank and capital markets firms are
bracing for the continued evolution of capitalrequirements and
leverage ratios that are expected to raise the cost of capital and
risk,dragging down profits for the industry. T&SPs should
expect to see increased justificationrequired for IT spending and
higher levels of scrutiny on how each IT dollar is spent.
Continued uncertainty as regulations are drafted, revised and
implemented creates short-term focus and hesitancy on long-term
commitments. T&SPs should expect to see longersales cycles and
a more difficult sell in long-term commitments.
Legacy Technology Investment Investment banks and capital
markets firms have beenaggressive adopters of technology and,
therefore, have significant investments in legacybusiness
applications and infrastructure, making new solutions and
technologies more difficultto embrace and adopt. Integration to
aging applications and infrastructure can also add toimplementation
costs as well as implementation risk. T&SPs position new
products as gradualevolution rather than a "rip and replace" where
possible. In addition, they should highlight thefeatures of an
offering that will help migrate a firm to a more open, flexible IT
landscape.
Investment Banking and Capital Markets Solution Map
Solution areas within an investment banking and capital markets
firm are grouped within thecategories of front office, middle/back
office, enterprise and communications. Front-officeapplications are
there to support the business activities of investment bankers,
relationship
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managers, sales, traders and research analysts, as well as
client-facing support or corporate areas,such as individuals in
client services, marketing, and events. Middle-office and
back-office solutionsinclude operations such as clearing and
settlement, finance, risk management, static data andcompliance.
Enterprise solutions support general business activities, such as
HR, procurement, aswell as infrastructure needs, such as storage,
security and collaboration. Communications includesnetwork and
telecommunications needs. The Table 2 solution map represents a
graphicalpresentation that explains how the market's IT landscape
is perceived in terms of the majorbusiness functions in each area
of business activity. Although the solution map segments
solutionareas within a functional business area, such as capital
markets to front office and middle/backoffice, the rise of
straight-through processing (STP) as a discipline enables
automation of the fulltrade process from the front office to the
back office, eliminating manual handoffs and rekeyingbetween
systems.
Table 2. Investment Banking and Capital Markets Solution Map
Segment Front Office Middle/Back Office
InvestmentBanking
CRM, deal management, pitch book,marketing, customer
profitability, clientanalytics, market data, productdevelopment,
product origination,syndication, portfolio management
Risk management, regulatory reporting,reference data management,
portfoliomanagement (BO), corporate actions,compliance, fee
billing, regulatoryreporting
Capital Markets Contact center, pretrade compliance,account
setup and management, tradeplatform and execution, ECN,
tradeanalytics, derivatives management,pricing, risk, product
development,product origination, syndication, portfoliomanagement,
sales order managementand routing, investor performanceanalytics,
sales attribution, commissionResearch only:Conference/event
management, contentmanagement
Risk management, reference datamanagement, market
datamanagement, portfolio management(back office), corporate
actions,compliance, fee billing, paymentprocessing, reconciliation,
transferagency/record keeping, custody,securities lending,
post-tradecompliance, trade/confirm matching,clearing and
settlement, regulatoryreporting
Enterprise
Communications Telco services and equipment, IM, e-mail, mobile,
mobile services, WebconferencingTrading only turrets, squawk
box
Administrative andEnterpriseOperations
Cash management, finance and accounting, HR, procurement/vendor
mgmt., appservers, storage, OS, DBMS/Data Warehousing, MDM, BPM,
workflow, businesscontinuity, security, e-mail, collaboration,
document and imaging management,
portals, middleware
Source: Gartner (January 2011)
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Solution Areas
Investment Banking
Front Office The front office consists of senior management,
bankers, analysts and juniorresources. Client coverage in
investment banking is most often industry-based, requiringbankers
to be highly mobile as they cover an industry regardless of
geographical area or acrossa broad geographic region, such as North
America or Europe. Front-office solutions focus onCRM, require the
use of industry data by providers such as deals in market and
league tables,and focus on facilitating and managing deals.
Comprehensive industry, competitive and clientinsight rely heavily
on strong analytics and external data.
Middle/Back Office The middle and back office in investment
banking provide front-officesupport services in the areas of market
data, industry research, document production, graphicservices and
expense billing. Risk management and compliance functions require
solutions tomanage risk across products and meet regulatory
reporting requirements.
Capital Markets (Sales, Trading, Research) Front Office The
front office consists of senior management, bankers, syndicate,
traders,
institutional sales, research and others such as marketing and
events. Technology needs varyby user base:
Syndicate supports the deal flow once mandated through
completion, including solution-support activities, such as deal
structuring, marketing, pricing, capturing indications ofinterest,
capturing orders, final pricing, issuance to market and closing the
deal. Syndicatecollaborates a great deal with the investment
bankers, lawyers, client, ratings agencies, andother external
parties.
Trading is a high-technology use group requiring low latency
information on market dataand trade transactions. Multiple trading
systems can be found in one shop to supportmultiple product types
equities, derivatives, commodities, bonds, structured bonds
andloans, for example. Demand for real-time analysis for pretrade
risk analytics to post-traderisk analysis is extremely high;
regulations such as Market in Financial Instruments Directivein
Europe have elevated this demand. Market data and external
information is usedextensively in many activities throughout the
trading floor.
Institutional sales sell to institutional investors requiring
solutions that support clientmanagement, information insight
regarding the market, past trades, holdings, research,preferences
and collaboration.
Research analysts cover issuing firms. Solutions typically
include client management,content management, publishing and event
management.
The front office is technology-heavy requiring low-latency
information and processing onmarket data, trade transactions and
often involve large amounts of data. The front office
isincreasingly automated with electronic communication networks
(ECNs), algorithmic tradingand other advancements in trading
technologies becoming present in every shop.
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Middle and Back Office The middle and back office provide many
services to support front-office activities including risk
management, compliance and regulatory reporting, market
data,settlement, clearing, and cash management.
Communications
The investment bank and capital markets sector is an intense
user of communications solutions.Investment banking is a highly
mobile workforce, while capital markets is a low-latency,
high-volume, high-throughput business. Mobile applications are
gaining increasing acceptance anddemand targeted for the banker,
institutional salesperson and research analyst; mobile
applicationstargeted to the trader are less appealing because most
traders, buy side or sell side, haverestrictions on where they can
do a trade for surveillance and compliance reasons. Demand
formobile applications targeted to external customers is beginning
in areas such as institutionalresearch delivery, as seen in JP
Morgan's research app for the iPad. Connectivity to
exchanges,custodians, clearinghouses and other industry-specific
networks, such as Bloomberg, andalternative trading networks (also
known as ECN), such as BondDesk and ForEx, is critical for
dailyoperations. Communication solutions specific to trading
include turrets and squawk boxes.
Administrative and Enterprise Operations
Administrative and enterprise operations support administrative
functions including, but not limitedto, HR, finance and procurement
as well as common infrastructure solutions, such as master
datamanagement, reference data management, B2B gateways and
messaging middleware.Compensation systems are of high importance,
as the industry is known for a high incentive-to-base ratio, as
well as for competition for key resources among firms. Master data
management andreference data management are key focus areas to
address and support new regulations and riskmanagement
practices.
Background and ContextThe investment banking and capital markets
service industry faces many regulatory changes andadditions as it
heads into 2011. In addition, firms must begin to make strategic
investments to growand differentiate the business through
expansion, potentially acquisitions, and productinnovation.
The Impact
IT Spending and Forecast
Assumptions for Sizing the Market
Gartner's quarterly IT spending forecast by vertical industry
(see "Forecast: Enterprise IT Spendingfor the Banking and
Securities Market, Worldwide, 4Q10 Update") forecasts IT spending
for the
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"banking and investment services" industry. This forecast
provides detailed forecasts for the twosubverticals banking and
investment services. For the purposes of this primer analysis,
Gartnerhas forecast the sector within investment services of
investment banking and capital markets only.The investment banking
and capital markets forecast is a modeled forecast with constraints
basedon the broader investment services forecast.
Gartner has applied a top-down model forecast approach that
analyzes the investment banking andcapital markets sector revenue
(excludes buy-side firm revenue and asset management revenue
oflarger sell-side institutions) and estimates percentage of total
sector revenue attributed to overall ITspending across hardware,
software, IT services, communications and internal services
modeledwith industry growth rates. The model sourced sector revenue
from annual reports of investmentbanking and capital markets firms
and 2010 regional industry revenue splits from Dealogic.
Assumptions for Growth
These assumptions factored into the growth of the investment
banking and capital markets globalIT spending forecast:
Emerging markets may have faster growth rates due to faster
expansion of investment bankingand capital markets activities.
As the model is revenue-based, principal investing revenue was
included in the trading revenuenumbers, because they are not often
split out within annual reports of investment bank andcapital
markets firms. It is expected that this sector will reduce
principal investing over time dueto regulations.
Forecast
Gartner projects the investment banking and capital markets IT
spending forecast to grow from$68.7 billion to $85.5 billion by
2014 with a 5% compound annual growth rate (CAGR). Table
3highlights regional differences in the forecast.
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Table 3. Investment Banking and Capital Markets IT Spending
Forecast (Billions of Dollars)
2009 2010 2011 2012 2013 2014AGR (%)
2010AGR (%)
2011AGR (%)
2012AGR (%)
2013AGR (%)
2014CAGR (%)2010-2014
North Ameri-ca
35,035 36,157 37,603 39,483 41,576 43,696 3.20 4.00 5.00 5.30
5.10 4.85
EMEA 24,044 23,683 24,299 25,465 26,777 27,781 -1.50 2.60 4.80
5.15 3.75 4.07
Asia/Pacificand Others
9,618 10,502 11,269 12,171 13,083 13,986 9.20 7.30 8.00 7.50
6.90 7. 42
Total 68,697 70,342 73,171 77,119 81,436 85,463 2.40 4.02 5.40
5.60 4.95 4.99
AGR = annual growth rate
Source: Gartner (January 2011)
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Buying Centers, Messaging Map and Key Influencers
Buying Centers and Messaging Map
Although most investment banking and capital markets firms have
similar organizational structuresfor the line of business, the IT
organization and how it operates may vary from firm to firm.
IT embedded in the business Some firms embed IT into the line of
business, making mostlarge IT investments both a business and IT
buyer. Primary buyers can include the followingroles:
CIO or division information officer (DIO)
Line-of-business managing director/VP
Line-of-business COO or chief administrative officer (CAO) or
designated "businessmanager" role
Operations VP in the case of a back-office-driven investment
IT outside the business In other firms, IT is outside of the
line of business in which the CIOor DIO is the primary buyer.
In either organizational model, the business is often a decision
maker. Most firms have a line-of-business-specific COO, CAO or
"business manager" position that deals with all areas and issuesnot
directly related to generating revenue on the desk client-facing,
selling or trading. Thisposition can be a buyer decision maker as
well but will look to IT for final sign-off and IT "fit" withthe
existing and future IT environment. Compliance and risk often get
involved and have influencewith regard to vendor risk or
operational risk and regulatory compliance of proposed
solutions.
Across the buying centers, the following key messaging themes in
2011 emerge.
Regulatory compliance Ensuring regulatory compliance within the
mandated time frames isextremely important. Messaging around
industry experience, proven capabilities to meetrequirements within
specific timelines, and implementation success tie well into
regulatory-driven initiatives.
Operational efficiency and control Regardless of the business
area, firms are looking toimprove business processes with the
objective to improve efficiency impacting the bottom lineand
improve control, thus reducing operational risk.
Technology as innovator Technology is viewed as a critical
component to enable thebusiness strategies of expansion and growth,
as well as defending market share throughcontinued
differentiation.
Cost containment and cost structure Previous Gartner analysis
for the broader investmentservices industry indicates modest budget
growth overall but also acknowledges that themajority of budgets
remain flat into 2011 (see "Market Insight: IT Spending
Polarization OffersPockets of High Growth Within an Overall Flat
Market"). Although firms must spend to meet
Gartner, Inc. | G00210122 Page 15 of 22
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new regulations, improve processes and support revenue growth,
they will look to make themost of the IT spending.
Although there are key messaging themes, it is important for
T&SPs to craft marketing messagesthat are specific to each role
and area within the sector in which the messaging theme takes on
aspecific flavor. Role-specific messages are illustrated in Figure
2. Take the next step to craft bothrole- and sector-specific
messages. Differences exist, for example, on what might be a focus
foroperational efficiency from one department to another, such as
fixed-income versus equities, orbetween organizational areas, such
as the front-, middle- and back-office focus. Another exampleof how
top-level messaging themes must become more targeted in execution
is looking at the useof technology to drive innovation or
differentiation. Within investment banking departments,technology
can be exploited in the analytics areas to provide better
information on clients tostrengthen relationships between the
investment banker and the corporate customer, while on thecapital
markets side, technology is exploited to offer a better quality of
service to the customer,such as the use of in-memory analytics to
reduce cycle time of pricing, differentiating the tradingfirm from
the competition.
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Figure 2. Investment Banking and Capital Markets Messaging
Map
Goal of messaging varies according to the type of buyer. Vendors
must target different buyers at all touchpoints in the purchase
decision cycle to influence the decision to buy.
IT as a forceto enable
strategy, product, gain
differentiation and maintain operational efficiency
Focus on strategic nature of IT, fit with
future IT vision, improving
internal prestige
Vendor risk, cost, contracts
Functionality, speed of
implementationtotal cost of
ownership, fit with existing landscape
Functionality, ease of use,
speed of implementation
Focus on improving
reducing or not adding to
operational risk, adherence to regulations
Demonstrate cost discipline, opex
vs.capex
KeyVendor
Message/Themes
Buyer Focus Strategic Strategic/Tactical
TacticalStrategic/Tactical Tactical TacticalStrategic
Medium High HighHigh Medium MediumMediumImpact on
Decision to Buy
Business BusinessIT Business Operational Risk Operational
Efficiency, Risk
Cost Control, Capital Planning
Influencer Buyer Decision MakerBuyer
Decision Maker Influencer InfluencerPrimary Buyer Influencer
Focus
Buyer Role
CIO, Division Information
OfficerCOO, CAO CEO CFO, VP Finance Managing Director, Line of
Business
Risk Manager, Compliance
VP, Procurement
Source: Gartner (January 2011)
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Key Influential Groups
Industry direction is influenced by multiple groups, such as the
dominant firms, the regulatoryagencies, industry associations,
standards bodies, and even social network groups (see Figure3).For
example, as the Commodities and Future Trading Commission considers
ways to implementcentralized clearing, the Futures Industry
Association (FIA), large firms, and exchanges areproposing methods
and alternative approaches. Future regulation will likely involve
creating newreporting entities to collect information and provide
daily analysis, a change to a capital marketsfirms regulatory
reporting and potentially a change to the underlying trade
infrastructure and datawarehousing to meet a new cadence of
reporting. An influencer not seen much before 2010 is theinfluence
of social networking group on sites such as LinkedIn. These groups
offer online and offlineopportunities to network. Common networking
activities include discussing hot industry topics,debating industry
regulations, and requesting suggestions on technology solution
options. Industryparticipants can be influenced from trade
journals, event and conferences such as SIFMA's annualTechnology
Conference. Tech provider selection criteria can be directly
influenced by key researchfirms, dominant consulting firms and
colleagues as well.
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Figure 3. Key Influencers
There are many country-specific regulatory agencies. Listedare a
few of the major regulatory bodies in the major markets.
Asia/Pacific
Australian Securities and Investment Commission (ASIC)
Australia
China Securities Regulatory Commission China
Securities and Futures Commission Hong Kong
Financial Services Agency Japan
Europe
Financial Services Authority (FSA) U.K.
EU Commission Europe
Federal Financial Supervisory Authority (BaFin) Germany
United States
Securities and Exchange Commission (SEC)
Financial Stability Oversight Commission (FSOC)
Office of Financial Research (OFR)
Commodities and Future Trading Commission (CFTC)
Regulatory AgenciesIndustry and Standards Associations
Many industry associations are instrumental in setting industry
standards.
Financial Product Markup Language (FPML)
Futures Industry Association (FIA)
Enterprise Data Management Council (EDM)
International Capital Markets Association (ICAA)
Securities Industry and Financial Markets Association
(SIFMA)
Securities Industry Association (SIA)
World Federation of Exchanges (WFE)
Publications
Bloomberg
Financial Times
Institutional Investor Magazine
Research Magazine
The Street.com
Wall Street Journal
Wall Street Technology
Waters Magazine
There are many industry- and technology-focused groups on social
networks such as LinkedIn. Examples include:
Electronic Trading Group
Low Latency for Trading Infrastructure
Security Pricing and Valuations
Quant Finance
Women in Financial Markets
Social Network GroupsStandards
Organizations
Extensible Business Reporting Language (XBRL)
Financial Information Exchange (FIX)
ISO Technical Committee No. 68
Market Data Definition Language (MDDL)
SWIFT (industry co-op)
Investment Banking and
Capital Markets Decision
Maker
Source: Gartner (January 2011)
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Conclusion
Short Term
Overall, the investment banking and capital markets sector faces
"must do" IT investment to ensurenew regulation compliance, as well
as continue to make process and technology improvements tobetter
risk management capabilities or improve operational efficiencies
through processimprovement. Strategic investments are being made to
support revenue growth though geographicexpansion or product
expansion. T&SPs need to align their messaging and value
statements tothese overall drivers of IT investment to capitalize
on where growth in IT spending is predicted tooccur.
Long Term
Regulations will continue to impact technology spending at
investment banking and capital marketsfirms, as many regulations
have yet to be finalized and will continue to take shape throughout
2011.In addition, many new regulations will set the compliance date
well into the future, allowing firmstime to address the new
requirements; some transition periods are as late as 2019. Gartner
expectsthe balance of investments to shift from "must do" to more
emphasis on growing the businessthrough geographic expansion and
product innovation by 2012. Investment banking and capitalmarkets
firms have always leveraged technology to support the business and
drive innovation, suchas high-frequency trading. Firms will
continue to exploit technology to deliver new products
ordifferentiate with faster or better-quality services. T&SPs
targeting this sector must assess thealignment between their
current product offering and future product road map with the
predicteddrivers of IT investment in the long term and realign
service and product investments as necessary.
Recommended ReadingSome documents may not be available as part
of your current Gartner subscription.
"Market Insight: Investment Services Primer, 2010"
"User Survey Analysis: North American Banking and Investment
Services' IT Spending BudgetsFavors Software and Business
Improvement"
"Forecast: Enterprise IT Spending for the Banking and Securities
Market, Worldwide 3Q10 Update"
"Latest Survey Shows IT Investment Priorities for Banking and
Investment Services Firms"
Page 20 of 22 Gartner, Inc. | G00210122
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Acronym Key and Glossary Terms
Marketdistribution
Market distribution is the reselling of securities to the
market.
Market making Market makers maintain bid and offer prices in a
given security; they stand by,ready to buy or sell at quoted
prices.
Underwriting The underwriter assumes the risk of buying a new
issue of securities from theissuing entity (corporation or
government) and reselling the securities in the market.
Evidence
This document is one of a series of "industry primers" that
provide a single, short document foreach industry, and consolidates
visual and graphic views of that industry. The primer is intended
forindustry managers wishing to gain a top-level view of key
industry-specific business trends,technology trends, executive
concerns, leading T&SPs, IT investment priorities,
go-to-marketmessaging guidelines and key influencers.
Although some of the figures and tables included in this
research have been presented in otherGartner documents,
consolidating them in this way provides a valuable snapshot of each
industry.
This document is published in the following Market
Insights:Industry Market Strategies Worldwide
Gartner, Inc. | G00210122 Page 21 of 22
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Page 22 of 22 Gartner, Inc. | G00210122
AnalysisIntroductionInvestment Banking and Capital Markets
Industry OverviewSegmentation and Organizational StructureBusiness
Priorities and Key Technology Inhibitors and DriversKey Drivers of
IT SpendingKey Inhibitors of IT Spending
Investment Banking and Capital Markets Solution MapSolution
AreasInvestment Banking
Capital Markets (Sales, Trading,
Research)CommunicationsAdministrative and Enterprise Operations
Background and ContextThe ImpactIT Spending and
ForecastAssumptions for Sizing the MarketAssumptions for
GrowthForecast
Buying Centers, Messaging Map and Key InfluencersBuying Centers
and Messaging MapKey Influential Groups
ConclusionShort TermLong Term
Recommended ReadingList of TablesTable 1. Organization Structure
Within Investment Banking and Capital Markets FirmsTable 2.
Investment Banking and Capital Markets Solution MapTable 3.
Investment Banking and Capital Markets IT Spending Forecast
(Billions of Dollars)
List of FiguresFigure 1. Investment Services Industry
SegmentationFigure 2. Investment Banking and Capital Markets
Messaging MapFigure 3. Key Influencers