- 78% of FMI investment budgets dominated by maintaining and upgrading legacy technology, with more than a third planning a major system overhaul in the next five years
- Industry-wide need to upgrade legacy technology, whilst responding to wave of regulation, risks compromising resilience or missing out on growth opportunities
Nasdaq published the results of a global survey across the post-trade ecosystem, including over 300 decision makers from exchange groups, custodians, brokers, and other service providers.
The landmark study reveals that 78% of Financial Market Infrastructure (FMI) investment budgets are dominated by maintaining and upgrading legacy technology platforms. Simply keeping the lights on is taking up 44% of infrastructures’ investment capacity, whilst a further 34% is allocated to the transition and replacement of these systems. Alongside intense regulatory oversight and mandated change, operating models are being pulled in multiple directions. This is leaving very little scope for spending on growth initiatives and highlights an ever-increasing risk for the industry.
Roland Chai, executive vice president and head of Marketplace Technology at Nasdaq, said in a statement: “Over decades technology debt has built up amongst infrastructure providers across financial markets. With more than a third of firms planning a major system overhaul over the next five years, alongside responding to an unprecedented wave of regulation, the need for refreshing core technology is a challenge that is core to most industry participants. As the backbone of the industry and global economy, operators must differentiate themselves and remain relevant for the next generation of investors.”
This spending constraint is leading to a substantial difference in investment allocations between FMIs and their participants. For example, for over ten years Robotic Process Automation (RPA) has been proving highly effective in facilitating the quick and tactical automation of core processes and yet today only 4% of FMI spend is on RPA and AI initiatives, compared with over 28% by market participants.
A third of firms surveyed operate with legacy platforms more than ten years old, with 37% of respondents planning a major system overhaul in the next five years. The need to undertake significant projects is particularly prevalent in the post-trade space where 47% of clearing firms expect to trigger an upgrade, while in settlements 44% of firms see a transition as imminent. This comes at the same time as they look to remove time from their processing and increase their settlement efficiency, meaning an inevitable ‘distraction effect’ at a critical time.