A closer look at trends in the FICC market:
Automation and AI are one of the drivers of competitive differentiation in capital markets—in the front and back office
The FICC business within the investment banking sector has been slow to experience disruptive technologies, largely due to the human based nature of the advisory work. The trading aspects has been awash with multiple algorithmic solutions over the past two decades, although most of these have been computational in nature using better processing capabilities of existing software and hardware. Many banks have also scaled back FICC desks due to post-crisis regulation, higher operating costs, and a shrinking revenue pool.
However the emergence of new technologies such as intelligent automation and AI can be a driver of competitive differentiation in capital markets—in the front and back office. Front-office technology innovation, especially cognitive automation, can bring efficiencies and possibly new sources of growth. In the back office, the industry can confront a smaller and unpredictable revenue pool by mutualizing post-trade overhead across participants. Banks that build the right capabilities and make the strategic choice to ride out near-term pressures to stay with the FICC business could see big pay-offs.