Older capital markets’ operational infrastructures are impediments to growth and grossly inefficient, as well as inadequate in supporting complex financial products. Many senior investment bank leaders are facing the realization that the systems that have been churning along for two, three, or four decades are not going to be the systems driving the next 10, 15, or even 20 years of growth and change.

Onboarding new products in investment banks

Legacy systems are frequently built on different codes and closed environments that prevent them from working together. Consequently, when a bank wants to launch a new product or asset class, it must build standalone infrastructure rather than plug into a scalable platform, leading to further complexity. Throughout the digital transformation, the industry advanced through channel innovations and through the digitization of treasury, cash management, and electronic trading in corporate and capital markets businesses.^vi Core systems have been largely untouched until recently. This phase of digital transformation calls for banks to look at data modernization through an organizational lens, so they can launch and scale new product lines.

Structured products challenge operations infrastructure

The combination of various underlying assets such as loans, mortgages, and receivables into tradable instruments are increasingly instrumental to bank strategies for regaining market share from private credit and optimizing their balance sheets. Asset-backed securities, mortgage-backed securities, and significant risk transfers challenge Swiss cheese enterprise architecture, which lacks the specialized data models needed for the hundreds of unique attributes needed for swaps or complex loans. Modern structured products often involve sticky transactions ranging from $10 billion to $30 billion. Banks need the ability to do intraday funding to cope with the constant volatility in bank balance sheets. This type of balance sheet optimization in funding a bank’s trading book in the most dynamic, opportunistic manner doesn’t happen without a unified operating platform that serves up real-time collateral inventory and valuation data.

Rising client expectations

When a client inquires about a settlement break, an operations professional in a fragmented environment must often call three different desks just to gather basic intelligence. In contrast, modernized firms use AI and unified data layers to resolve issues in minutes, providing a white glove experience that legacy systems cannot replicate. Large institutional clients, who often pay between $10 million and $100 million in annual fees, are increasingly unwilling to accept the limitations of legacy systems that provide information only once per day.

Clients are operating with shortened settlement cycles and asking for true intraday P&L — including all accruals for financing, audits, legal fees, and management or incentive fees — rather than flash P&L. Some buy-side firms expect an Amazon-like experience for their standing settlement instructions (SSIs), asking bank systems to automatically apply SSIs and facilitate repeat functionality when trading securities. In short, sell-side clients expect tailored business insights and responsiveness to their own evolving business models.

A big-picture call to modernize legacy banking systems

As sell-side institutions embark on their infrastructure modernization journeys, they will find they are able to swiftly onboard new clients, product lines, or tradeable assets like crypto, structured products, or private markets vehicles. Their newly unified operating infrastructure — a centralized data foundation working in concert with a front-to-back operations platform — will handle booking, risk, compliance, and reporting seamlessly as institutions bring in new business and greater data volumes.

Systems modernization delivers operational efficiency gains of 20%–35%, increased revenue from faster speed-to-market, and 20%–40% cost savings from sunsetting legacy systems and the associated upkeep and upgrade costs.^vii Translation: pure competitive edge.