Money Matters

Impact Of Pandemic On Capital Markets

…And what CMI providers need to think about going forward

BNY Mellon data gathered and released in a new paper titled “Capital Markets Infrastructure: What is the New Normal after COVID-19?”

NEW YORK, Oct. 8, 2020 /PRNewswire/ — BNY Mellon today released its paper, developed leveraging data provided by SWIFT, entitled “Capital Markets Infrastructure: What is the New Normal after COVID-19?”. The paper assesses the impact that the COVID-19 pandemic had on the world’s capital markets infrastructure (CMI), and what CMI providers need to think about going forward.

The CMI consists of all of the components that make the flow of money across global financial markets possible. While CMI providers traditionally were exchange complexes, clearinghouses and depositaries, the landscape of providers has broadened to include many critical elements, such as: global trading access and connectivity, data and analytics, process efficiency, and regulatory, risk and compliance management.

In addition to disrupting people’s health, lives and jobs, the COVID-19 pandemic ended the 11-year U.S. stock market bull run. It also prompted the most extreme stress event since the 2008 global financial crisis with the quickest draw-down on record. The paper points out that message volumes in March 2020 were four times normal levels while transaction sizes slumped by 46% during the first half of 2020. However, CMI providers remained resilient despite sharply increased trading volumes, helping to absorb the massive shocks and strengthen the overall capital markets community.

The COVID-19 crisis and consequent market volatility has played out against a backdrop of a fast-changing financial services environment. The surge of pandemic-driven digitalization, combined with central bank and regulatory intervention, competitive dynamics and evolving investor behavior, are driving a transformation of various financial services segments, including:

  • Asset managers: Scale and AUM are increasingly important; advanced analytics, digital engagement and targeted wholesaling can create distribution advantages. Passive strategies continue to gain ground over active strategies, as investors demand transparent and low-cost products.
  • Asset owners: Pension trends, such as the transition from defined benefit to defined contribution plans, have increased allocations to private markets. Asset owners are prioritizing resilience and the ability to operate remotely.
  • Alternatives: Consolidation continues as the largest managers dominate fundraising and investors’ hunger for uncorrelated returns fuel alternative manager product growth.
  • Banks, brokers, dealers and advisors: Outsourcing is on the rise to counter revenue and expense pressures, as players drive to bolster balance sheets by reducing inventories, adopting agency models, and optimizing liquidity, funding and collateral.
  • Insurance: Changing customer needs (e.g. retirement security, usage-based insurance, digital advisory etc.) continue to push businesses to evolve.
  • Corporate and technology: There is an increased demand for liquidity, credit and working capital, with the potential for big tech to embark on tactical and strategic acquisitions.

As we look ahead and learn from the COVID-19 market dislocation, financial markets and CMI interaction will continue to evolve with a focus on:

  • Streamlined communications to ensure that communication is transparent, frequent and fluid among client and regulatory communities.
  • Enhanced collaboration between asset managers, brokers, dealers, advisors and insurance funds to better withstand the shocks of volatility.
  • Standardized data across the entire trading process, to ensure crisis and regulatory reporting and compliance expectations are met, to protect both clients and firms, and to ensure the industry is operating at an accelerated and efficient pace.
  • Business and market resiliency as financial services companies continue to reevaluate and stress-test their processes and systems.

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About BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of June 30, 2020, BNY Mellon had $37.3 trillion in assets under custody and/or administration, and $2.0 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.