Impact of Information Technology on the Investment Banking IndustryOctober 25, 2017
The major investment banks perform numerous transactions every day across national and international markets. The investment banking transaction could be varied in nature from huge mergers and acquisitions to derivatives, commodities, basically, deals of many natures. Now imagine how is this possible? Or was this possible for investment banks to conduct their business in this form, say a decade or two ago? Not really, for investment banks to function like this, they need to have a strong IT support, right from the front end support, like in sales and trading applications, quantitative analytics and risk analysis support to data warehousing, settlement, and position keeping systems.
For investment banks to thrive, especially in a global landscape, would need details like value at risk for portfolio, and information of global markets, and this information has to be valuable, accurate and in real time. It is established that the availability of this information is only possible with appropriate IT intervention. Especially things such as value at risk can only be calculated using statistical tools and historical evaluation over a period of time.
Information technology thus becomes an enabler for investment banks in conducting their business more efficiently, from within the bank. The objective of this department is to enable the bank function in an optimal way using technology, and to provide smarter and futuristic solutions. The function of the IT applications used in investment banking either integrate with the legacy technology or are built on new platforms which are user friendly, fast, flexible and automated.
An investment bank, to function at par with global standards and meeting client and customer expectations, needs to adapt smart technology. Effortless and efficient front and back end IT systems, risk management systems, multiple trading platforms are some of the major technological advancements being used by investment banks for effortless functioning. If one is part of the investment banking industry or the financial sector on the whole, they will use technology at every level, maybe the impact will change but the technological exposure will be there for sure. From as elementary to using excel, word and databases for managing client information, using power point for presentations, to using and managing information tools to compile the financial reports.
It is not only in the daily functioning, but also to match the volatile nature of global markets, there is a constant need to develop new financial products and make changes in the investment flows. The IT departments of any investment bank have to keep up with this demand and be innovative in providing solutions. So they not only need to keep up with the technical requirements of the investment banks but also the business needs and come up with innovative solutions on how to integrate them both.
Investment banks are in the need of building an IT leadership that has clear communication skills, a great technological vision, and the ability to blend well with the business need along with good global governance. Investment banks have realised the importance of change management, and opening up doors to embrace technology, perhaps building a strong coalition from executives to the leadership, with the endeavour to embrace digital capabilities.
The investment banks of tomorrow will successfully build a team that reduces operation dependency from archaic legacy solutions to effective IT structures while reducing the cost base to create financial incentives for transformation.