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Market Infrastructure

Modernizing Market Infrastructure on the Digital Journey to 2025

CIOs at global market infrastructure providers are actively modernizing and future-proofing their infrastructure with the top factors driving the agenda being agility, product creation and customer centricity, according to a new report by Celent.

The capital markets ecosystem is evolving as digitalization rapidly accelerated amid the pandemic, creating a hybrid world with a mixture of digital and analog processes, from on-premise and cloud infrastructure to digital and traditional assets. Given this current environment, chief information officers (CIOs) at global market infrastructure providers are actively modernizing and future-proofing their infrastructure with the top factors driving the agenda being agility, product creation and customer centricity, according to a new report by Celent, a leading research and advisory firm.

Findings from the CIO Market Infrastructure Survey 2021 indicate that CIOs expressed a strong interest in moving toward more agile technology, microservices and data models. The increased appetite for these solutions comes as a combination of drivers, including regulatory, macro forces and emerging digital models, are contributing to a shift in the technology and data demands of market infrastructure.

“These driving forces create immense needs to consider the future technology estate so that it is aligned to the business of the future. Modernization of the platform, in conjunction with partnership models and advanced technology, will serve the demands of clients in their future technology, service and data needs,” stated the report, which was commissioned by Nasdaq.

For insights on the digital journey to 2025, Celent interviewed 25 CIOs and senior technology leaders of global market infrastructure to understand their focus, priorities and investments around the creation of their future platform. Celent noted that 66% of its conversations were with exchanges, 19% with central securities depositories (CSDs) and 15% with central counterparty clearing houses (CCPs).

When reflecting upon the past year, CIOs noted that the global pandemic was a stress test on market infrastructure, as volatility and transaction volumes reached record highs and created tremendous strains on legacy market structure systems. According to 61% of CIOs surveyed, the pandemic exposed data flow, scale and operational challenges in the process of scalability.

Considering these challenges, CIOs said that key market infrastructure investment areas include rearchitecting for cloud technologies, data analytics and intelligent automation.

Modular Architecture, Cloud, Data Analytics, and Automation Ranked as the Top Investment Priorities for MI CIOs

As market infrastructure CIOs focus their investments on modern technology, they are also working to re-platform core trading and post-trade systems. According to the report, there will be a 45% increase in the number of market infrastructure providers with fully modernized technology stacks by 2025.

“Core platforms are critical, and therefore MIs have traditionally been cautious and conservative in transforming these platforms, such as trading, clearing, and settlement systems,” the report stated. “The urgency for core transformation comes from a balance of the demands client have, the state of their infrastructure, and the aim to create a more robust infrastructure. Modernizing the core platform reflects the absolute requirements for resilience and performance while driving key business needs forward.”

Beyond leveraging investments in tech for re-platforming, CIOs expect to use cloud technology and microservices as tools to increase agility and service partner and client demand. Between 2021 and 2025, Celent sees a 27% rise in the number of cloud-ready applications.

As CIOs work to modernize their infrastructure, they are also indicating a willingness to partner with third parties to access and provision technology and services. More specifically, 31% of CIOs said they plan to move more components to third-party providers.

These partnerships are critical as CIOs consider planning for crypto-related services. While 80% of market infrastructure CIOs are in the planning phase for crypto-related services and models for digital issuance, 61% noted that they are considering outsourcing either services or technology.

“With some of the biggest area of change regarding new business models/revenues coming in areas outside of an MI’s core functionality, there is a once-in-a-generation opportunity for [market infrastructure providers] to not only re-platform but also to build entirely new platforms to better meet clients’ demands. This is especially true in the areas of data analytics and crypto/digital assets.”

Read the report.

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