Capital markets are experiencing a structural shift as investment banks transition from legacy, self-operated back office functions to shared, collaborative systems. This move is intended to support artificial intelligence (AI) and address the increasing complexity of financial markets, according to Joe Channer.
The current changes are taking place within the infrastructure that supports capital markets, contrasting with the 1986 Big Bang reforms that transformed trading floors. In the decades since the original reforms, investment banks have largely built and operated their own post-trade operations, such as settlements and regulatory reporting.
However, this model is becoming unsustainable due to the complexity of modern financial markets and the demands of AI. Many banks operate customised operational estates that are not equipped for modern AI applications. This has led to a move towards shared systems, where banks collaborate to create large, common platforms rather than each maintaining separate infrastructure.
This collaborative approach aims to reduce operational complexity and make fixed costs more variable. Some major banks are already outsourcing their OTC derivatives post-trade work to external providers, blurring the lines between internal bank operations and external services.