SAP FS Forum North America | New York | September 18, 2013

Capital Markets Inflection Point:

Preliminary Themes for 2014

E. Paul Rowady, Jr. Senior Analyst

TABB Group

For additional information, please contact info@tabbgroup.com

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Framework: Waterfall or Flywheel?

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Business Drivers

Financial Market Impacts

Technology Reaction / Disruption

Technology is both disrupting the ecosystem and reacting to

changing conditions…

Source: TABB Group

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Primary Business Drivers: More regulation, more

technology, more complexity, less clarity ahead

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Competitive

Capital Flows

Technical

Innovation

Post-

Regulatory

Reform

Economic

Uncertainty /

Risk Appetite

Source: TABB Group

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Primary Business Drivers: More regulation, more

technology, more complexity, less clarity ahead

Post-Regulatory Reform:

With key pillars of Dodd-Frank in motion and other G20 cooperation following along, the

rule-writing phase of the post-GFC era is winding down and the implementation and

optimization phase is ramping up in force. The need for transparency, reporting and

analytics has yet to reach its crescendo.

Economic Uncertainty / Risk Appetite:

G7 coordinated central bank intervention exposes itself as a double-edged sword. Taper

or no taper? And, how quickly will interest rates change? Will retail investors move from

equities to bonds, or to the sidelines altogether? Many unprecedented questions on the

table to be answered in the coming year and beyond.

Competitive Capital Flows:

Capital becoming increasingly fluid, moving more easily from region to region, asset

class to asset class and strategy to strategy. Meanwhile, traditionally players are

becoming dis-intermediated with the advent of everything crowd-sourced. From crowd-

sourced data to crowd-funded investment, fewer intermediaries are need for the road

ahead.

Technical Innovation:

Social media and other data contribution / collection functionality serves as the

progenitor for the big data era. High performance (solid state) storage allows more data

to stay “hot” and available to respond to the growing demand for real-time analytics.

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Why so painful?: Large players have bolted businesses together

over years – now suffering from capability gaps, complexity costs

Source: TABB Group

Sources of technical complexity that need to be solved: Elastic Fragmentation: Cultural tolerance / policies allowing excess end-

user flexibility in solution choices

Legacy Fragmentation: Accumulation solutions tied to outdated

technology, old workflows / rules and former clients

Transactional Fragmentation: Accumulation of redundant solutions and

functionality as a result of mergers, acquisitions, etc.

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Sources of technical complexity that need to be solved: Elastic Fragmentation: Cultural tolerance / policies allowing excess end-

user flexibility in solution choices

Legacy Fragmentation: Accumulation solutions tied to outdated

technology, old workflows / rules and former clients

Transactional Fragmentation: Accumulation of redundant solutions and

functionality as a result of mergers, acquisitions, etc.

Source: TABB Group

Why so painful?: Large players have bolted businesses together

over years – now suffering from capability gaps, complexity costs

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Capability gaps, complexity costs create impediments to

enterprise analytics, improved overall transparency…

In the post-GFC era, a partial

picture of any counterparty –

no matter how sacred – is

unacceptable….

Market and credit risk analytics

absolutely must move to the

enterprise level, followed

quickly by update frequencies

approaching real-time…

Past

Present

/Future

Source: TABB Group

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Need for comprehensive, enterprise-wide, pre-trade analytics

puts pressure on data flows / data fluency…

Source: TABB Group

Data used for post-trade risk analytics now needs to move into the front

office Pre-trade use cases also force push towards real-time

For enterprise data flows, solving siloed / cross-business challenges is

critical Move towards real-time flows on horizontal basis a challenge here too

Reference data challenges – for legal entity identification – forces move to

standards

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Financial Market Impacts: The More From Less Era

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A complex market ecosystem is prone to new risks and challenges, as we have

seen in this post-GFC chapter. This leads to more rules, checks and balances,

which leads to more demands for data and analytics. Meanwhile, on the sell-

side, business is shrinking and market participants are struggling to right-size.

Future leaders will demonstrate a balance between human and technical

prowess. On the buyside, cross-asset and converting unstructured data getting

hotter..

Governance,

Risk,

Compliance

(GRC)

Improved

Data Analysis

/ Data Fluency

Culture

Operational

Intelligence /

Operational

Alpha

Shared vs.

Owned

Infrastructure

Granular /

Pay-per-use

Pricing

Models

Hi-Touch /

Lo-Touch

Balance BS + SS

SS Offerings

Source: TABB Group

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Technology Disruptions and Reactions

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The convergence of disruptive forces – from social media, big data deluge, and

high performance storage – will ultimately produce a level of analytics and

insight to map the collective intellect in real-time. Harnessing this intelligence

for economic gain will require unification of fragmented infrastructure, massive

process engineering, and highly creative user experience design. Only those

firms with the right innovative culture will be able to harness this power.

Standards /

Inter-

operability

Process (Re-)

Engineering

Computational

Destinations /

Cost of

Crunching

User

Experience /

Information

Design

High

Performance

Cloud / In-

Memory

Taming

Bigger Data /

Analytics

Source: TABB Group

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Key Takeaways

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Speed begets speed, now power begets power:

Calls for bigger workloads faster are getting louder…

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• More data leads to stronger engines, rinse/repeat (except a growing

portion of the engines are in the cloud)

• “Arms race” is between cloud providers (on the basis of

price/performance metrics), not necessarily individual firms…

Source: TABB Group

Even if HFT – and/or

demand for HFT solutions

and infrastructure - falls

off, a broader demand for

speed of bigger workloads

– by a broader cross-

section of the ecosystem –

will eventually take over.

Evolution of

Computational

Engines

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Plumbing

Raw Data

Derived Data / Analytics

Computational Engines (Measurement)

Presentation Layer (Aggregate / Monitor)

Exploration Layer (Aggregate / Discover)

Visual analytics will become critical to the process of

risk discovery; a current blind spot…

Source: TABB Group

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Key Takeaways – The More for Less Era

Big data only getting bigger – but also more diverse

Data standards, plumbing and storage key to everything else further up the

stack

In-Memory Revolution: Big memory meets big data

Shared infrastructure tackles cost reductions / shifting

Standards reduce costs, improve data fluency

Increasing acceptance of cloud offerings for more workflows

Leaders harvest more from existing data

Increase cycle time on existing datasets

Use existing data in new, more creative / complex ways

Capture, process new datasets

Use more – or ALL – of your data

Cloud + Co-lo: more computational power w/ proximity

Global markets on demand: accessing everything off of the same

(enterprise) backbone

More innovation around process engineering, managed services and user

experience (i.e. – information design)

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Technology and Innovation

In-Memory Revolution:

Solid state storage will take over more of the heavy lifting as

computational loads become bigger and faster

More data with a “hot temperature”

Managed Services: Moving the line btw Shared vs. Owned

The line between what is owned and what is shared needs to change in

order to right size cost structures with opportunity levels

Cloud offerings are a major part of this

Open source, standards, collaboration, consortiums, seamlessness,

interoperability, managed services are all part of the new paradigm

The New “Special Sauce”

“Human Latency” captures more mindshare

Process (re-)engineering, visualization and information design become

key value proposition (w/ new capabilities distributed to more roles along

workflows)

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SAP FS Forum North America | New York | September 18, 2013

Capital Markets Inflection Point:

Preliminary Themes for 2014

E. Paul Rowady, Jr. Senior Analyst

TABB Group

For additional information, please contact info@tabbgroup.com