Legacy technology preventing FMI development, Nasdaq report finds
14 September 2023 US
Image: LunaKate/stock.adobe.com
Legacy technology remains a major issue among financial institutions, and is the most costly element of the majority of financial market infrastructure (FMI) investment budgets, a recent Nasdaq study has found.
The study, conducted in partnership with the ValueExchange, found that 78 per cent of FMI budgets are dominated by the maintenance and upgrading of legacy technology platforms. Just keeping current systems running requires 44 per cent of FMI investment budgets, while 34 per cent is allocated to the transition and replacement of systems.
Operating models are also subject to considerable regulatory oversight and mandated change, prompting conflicting directions of travel for systems. As a result of these combined factors, the Nasdaq report states that forms have little budget for growth initiatives.
Almost two-thirds of participants in the study stated that mandatory regulatory change is their central concern going forwards, with growing complexities of upcoming regulations, such as the T+1 transition in North America, adding to the as of yet unresolved pressures of mandates including the Shareholder Rights Directive II and the Central Securities Depositories Regulation.
Looking ahead, 37 per cent of participants in the survey are preparing for a major system overhaul over the next five years. This was a particular priority in the post-trade space, with close to half of clearing firms expecting to trigger an update and 44 per cent of firms expecting a systems transition in the settlements space.
Nasdaq reports that due to spending constraints and investment allocations, FMIs are falling behind market participants when it comes to new technology.
The study cites AI and robotic process automation, by which core processes can be automated, as an example of FMIs’ lack of investment. FMIs have only allocated 4 per cent of their budget to these technologies, compared to more than 28 per cent of market participants’ budgets going the same way.
More than 300 decision makers were polled for the survey, including global representatives from exchange groups, custodians, brokers and further surface providers.
Roland Chai, executive vice president and head of marketplace technology at Nasdaq, says: “Over decades technology debt has built up amongst infrastructure providers across financial markets. The need for refreshing core technology is a challenge that is core to most industry participants. Operators must differentiate themselves and remain relevant for the next generation of investors.”
“Across our client base there is an increasing recognition of the need to undertake major change programmes, having adopted a patchwork approach for decades.The need to respond to regulatory change is also seen as a significant factor, which increasingly demands re-engineering entire platforms, rather than tactical initiatives. This underscores the importance of modernisation initiatives across infrastructure operators, where growth should form a key part of legacy upgrades.”
The study, conducted in partnership with the ValueExchange, found that 78 per cent of FMI budgets are dominated by the maintenance and upgrading of legacy technology platforms. Just keeping current systems running requires 44 per cent of FMI investment budgets, while 34 per cent is allocated to the transition and replacement of systems.
Operating models are also subject to considerable regulatory oversight and mandated change, prompting conflicting directions of travel for systems. As a result of these combined factors, the Nasdaq report states that forms have little budget for growth initiatives.
Almost two-thirds of participants in the study stated that mandatory regulatory change is their central concern going forwards, with growing complexities of upcoming regulations, such as the T+1 transition in North America, adding to the as of yet unresolved pressures of mandates including the Shareholder Rights Directive II and the Central Securities Depositories Regulation.
Looking ahead, 37 per cent of participants in the survey are preparing for a major system overhaul over the next five years. This was a particular priority in the post-trade space, with close to half of clearing firms expecting to trigger an update and 44 per cent of firms expecting a systems transition in the settlements space.
Nasdaq reports that due to spending constraints and investment allocations, FMIs are falling behind market participants when it comes to new technology.
The study cites AI and robotic process automation, by which core processes can be automated, as an example of FMIs’ lack of investment. FMIs have only allocated 4 per cent of their budget to these technologies, compared to more than 28 per cent of market participants’ budgets going the same way.
More than 300 decision makers were polled for the survey, including global representatives from exchange groups, custodians, brokers and further surface providers.
Roland Chai, executive vice president and head of marketplace technology at Nasdaq, says: “Over decades technology debt has built up amongst infrastructure providers across financial markets. The need for refreshing core technology is a challenge that is core to most industry participants. Operators must differentiate themselves and remain relevant for the next generation of investors.”
“Across our client base there is an increasing recognition of the need to undertake major change programmes, having adopted a patchwork approach for decades.The need to respond to regulatory change is also seen as a significant factor, which increasingly demands re-engineering entire platforms, rather than tactical initiatives. This underscores the importance of modernisation initiatives across infrastructure operators, where growth should form a key part of legacy upgrades.”
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