As the impact of the coronavirus (COVID-19) pandemic rattles markets across the globe, the banking and securities trading sector is ramping up investments in technology, to improve their resiliency.
The impact of the pandemic has claimed the lives of over 184 000 people, with a current infection rate of over 2.6 million, and recoveries at more than 724 000.
The pandemic has resulted in weaker financial markets in SA and globally, with the Johannesburg Stock Exchange All Share Index seeing a 16% decline from the start of the year, according to financial services firm Sasfin.
Financial shares are among the hardest hit – 40% down – while listed property is down 45%. Offshore equity markets are also weaker.
As cross-sector organisations around the world feel the impact of the coronavirus outbreak on their operations, securities trading industries, private equity firms and banking services are increasingly investing in technologies to improve operations. However, there is still a huge untapped market for IT services firms operating in compliance-related technologies, according to research firm Gartner.
“The banking and securities industry has experienced significant volatility since the start of the coronavirus outbreak, particularly in investment services,” says Moutusi Sau, VP analyst at Gartner.
“As we saw with the closure of the New York Stock Exchange trading floor, it’s likely that electronic trading will become more prevalent. Roles that have always been delivered from an office location due to security and compliance concerns are now being considered for remote working.”
This shift, notes Sau, will see significant technology investment, with technology and service providers selling surveillance and compliance tools having huge opportunities in investment services.
Most businesses in the financial services sector have been treated as essential services and remain in operation during the lockdown periods across the globe. Many coronavirus contingency plans in the sector require huge dependency on technologies such as artificial intelligence, big data, robotic process automation and blockchain. Remote work and financial services firms should seize the opportunity to bolster their policies, and adequately prepare for future workplace, employee and client needs, adds Gartner.
Last month, the Johannesburg Stock Exchange (JSE) said it had implemented several business continuity management practices to ensure uninterrupted trading, including introducing virtual annual general meetings on all the securities listed on its various markets.
Top tech priority
Peter Takaendesa, head of equities at investment firm Mergence, says while most of the services provided by financial investment firms can be transacted electronically, the sector has not been immune to the economic and social impact of COVID-19.
“Weaker financial market returns and slower new business growth will affect most companies in this sector. Technology investments that enable employees to work from home and clients to transact online will experience significant usage growth as they receive higher priority over the mid-term. These include SaaS office applications, unified communication tools and remote monitoring technologies that enable the markets to run successfully,” notes Takaendesa.
He adds that unlike the New York Stock Exchange trading floor system, the South African trading system migrated to electronic trading systems a long time ago and there is no need for local traders to rely on the JSE physically to trade.
Financial investment firms’ transactions have therefore largely been based on technology platforms and this is one of the reasons the sector remains a key customer for technology vendors, he continues.
“However, some technologies of a capital nature, such as those related to expansion projects or reliant on new infrastructure builds, may be delayed as many businesses are cutting operating costs and capital expenditure budgets to preserve cash,” explains Takaendesa.
Nesan Nair, senior portfolio manager at Sasfin Securities, says operationally, most investment services firms have adjusted very quickly to the lockdown regulations, through their inherent adoption of technology.
“We are seeing more documents signed electronically, and meetings and seminars are hosted virtually for client engagement purposes. Fraud and regulatory compliance is a huge cost to the industry, as the more secure and efficient firms have the lowest risks. Service providers selling surveillance and compliance tools have great opportunities during this time,” notes Nair.
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