Changing how the capital market works in the fourth industrial age
The ever-changing nature of the financial markets, the complexity of new products, the lack of past data, the challenges of geography, and the threat of cybercrime are all big problems for both large investment banks and smaller banks. Even though the risks of financial markets are well known, the banking industry might be able to meet the growing needs of this changing world by using new methods, models, and tools. Also, optimised processes and easy-to-use technologies could be used to meet the increasing demands of regulatory authorities and ensure strict compliance. Investors and making money depend on how open and efficient a business is. This article details how the newest technologies can be used to run capital-market activities more efficiently.
Industry 4.0 is a significant change in the industrial field. It comprises artificial intelligence (AI), big data, and automation. Regarding how capital markets work, their transformational effects lead to automatic trading, data-based decisions, better risk management with real-time analytics, and personalised investment strategies that make customers happier. Still, it needs strong protection measures and regulation changes to deal with the problems these innovations create.
Industry 4.0 is a term for the Fourth Industrial Revolution, mostly about new technologies and uses in manufacturing and the supply chain. Many of the ideas and technologies of Industry 4.0 can also be used for financial uses. As financial products and markets get more complicated, it's more important than ever to simplify processes and use technologies from Industry 4.0. Even though it might be easy to run a small bank, growing the business and adding cutting-edge technologies could lead to significant operational costs. So, any new change must go through careful analysis and decision-making, with a focus on Industry 4.0 solutions that offer integrated platforms to manage multiple asset classes efficiently, improve data-driven decision-making, and give staff the training they need to use these advanced technologies to their fullest potential and deal with unexpected events. Adopting the ideas of Industry 4.0 can help financial institutions stay competitive in a changing market and meet the needs of investors and other market players.
Here are some of the tools that help make Industry 4.0 work. They can all be used to ensure that financial forms are better automated and processed in a single step.
Exchange of info that is safe and reliable
It's all about info in the world we live in now. The amount of data used in all kinds of applications continues to grow faster and faster. Data must be sent quickly, kept the same, and safe from people who shouldn't have access to it. Data is sent in files and through message queues for use in the supply chain and the financial world. Files work well for big moves that can be done at different times. Banking applications can share a single file with millions of payment transactions for payment processing. Other transfer methods can be used to send and receive files. Value-added networks, or VANs, are often used to link up thousands of companies in the supply chain. The SWIFT (Society for Worldwide Interbank Financial Telecommunication) network is the primary equivalent to the EDI (Electronic Data Interchange) VANs used in supply chains for financial uses.
Messages work well for real-time conversations. Recently, APIs (application programming interfaces) for synchronous transfers, especially for supply-chain apps, have been made available. Messages and APIs work well for smaller amounts of info.
A lot of information
In Industry 3.0, data had to be set up in a way that made sense for the programme. Industry 4.0 removes this rule and uses a lot of unorganised data instead. A data warehouse can store structured data to be processed quickly and in large amounts. A data lake can be used to store both structured and unstructured data for apps that need to analyse all of the data but don't need the level of performance that transaction-processing systems usually need. We've just recently added the idea of a "data lakehouse," which adds features to keep a "data lake" from turning into a "data swamp."
Intelligence made by machines
With the help of artificial intelligence, you can handle a lot of data from a data lake or lakehouse. It lets people talk to computers in their natural languages and can even recognise speech. AI can find trends and make connections between different data sources; this gives us new insights into financial markets and processes that could be used for risk management and, in the future, automated trades. AI is often used to spot problems in supply chains and can also be used in financial applications to do the same thing. AI could, for example, predict deals that are likely to fail so people involved in the trade could step in and stop them from falling.
Use of instruments
IoT (Internet of Things) technology is used in Industry 4.0 to connect and track the sensors and machines used in manufacturing. Similarly, software tools can also be used as instruments. Technologies like Kubernetes can keep an eye on separate software processes, replace failed cycles automatically, and scale up processing to meet changes in demand. AI can keep track of essential data and react to events that are out of the ordinary. This lets humans and machines work together to solve problems. For example, many market players will want to know if the price of a specific type of security starts going up or down very quickly.
The money markets
Let's get into the nitty-gritty of the trade-lifecycle tasks that investment banks often choose to outsource.
Lifecycle of a trade
The trade lifecycle includes all the steps and events that happen when a deal is made. It starts when the trade is decided on and put into action, and it goes on until the final payment, during which time many vital factors are closely watched. Investment banks need to be good at trade management because they handle a lot of deals every day, and any mistakes in trade economics could cost them a lot of money. So, it's essential to set up a strong network and clear lines of communication between the front, middle, and back offices to keep things running smoothly and meet the needs of more prominent clients, which can help the business grow.
Trade start-up, trade completion, and trade capture
In the world of Industry 4.0, it is the job of financial banks to make trades on behalf of their clients. Traders use advanced technologies and automation to do essential jobs like checking cash and currency balances, figuring out position sizes and prices, and planning hedge strategies. In addition, they look at the chances of making a profit and the margin needs, using data-driven insights to make good decisions.
Once a deal is made, cutting-edge technologies must be used to record the data. This includes keeping track of trade economics and making it possible for investigations, studies, and reconciliations to go smoothly. The data, tool, and/or application that traders use must be easily shared with other relevant teams, like the middle and back offices, risk and legal teams, and so on. Because of this, trade capture is the most essential part of the following steps, which include validation, proof, settlement, and reconciliation.
Verification and growth of trade
Trade enrichment improves recorded trade data by adding extra information. This makes sure that transactions go smoothly throughout the lifecycle of a trade. Industry 4.0 is progressing, so investment banks use cutting-edge systems and technologies to make trade-enrichment processes run more smoothly. This proactive method helps reduce mistakes and gives banks useful information like cash-flow projections, predictive analyses, and other reliable data that can help them make intelligent decisions.
Confirmation of trade
After trade data is collected, all players in the trade, primarily buyers and sellers, must confirm the data. This is a legal requirement. Investment banks can use technology to simplify the confirmation process as part of their risk management and compliance efforts. This will save money, time, and work that can be used to look into disagreements or make changes.
Dealing with trade
With the help of Industry 4.0 applications, the settlement process ensures that all contractual responsibilities are met smoothly and that all parties involved in a trade get what they are owed. Once the details and economics of a deal are finalised, the settlement process begins. Modern technologies help the process go smoothly. Settlement cycles last for different amounts of time-based on the types of instruments and exchanges involved. Industry 4.0 makes settlement processes faster and more organised.
Settlements can have many steps, such as matching and confirming, giving orders to custodians and clearing houses, delivering security, paying cash, netting payments and deliveries, and ensuring the end. All of the above processes involve a lot of data trades between different parties, which can be sped up with automation. Instead of spending their time and skills on various data reconciliations, bank professionals could use their time and talents to do things that add value.
Making peace
Reconciliations cover a wide range of tasks for investment banks, and there are different ways to do them. If technology is used well, most reconciliations could be done away with.
Some ways that compromise could be used:
Price and position reconciliation is when buyers and sellers match the deal prices and amounts. Some differences could be due to what companies do, which can be looked into more.
Market-value reconciliation: Sometimes, when figuring out the market value of an object, different banks use different sources of reference data, which can lead to significant differences in the books. This needs to be matched up so that there are no future problems with payments or deals. If necessary, the maths must be talked about and decided upon.
Reconciling internal systems: An organisation may have multiple internal systems that feed data for further statistical or market research. Intercompany systems and legal bodies are regularly matched to ensure that all books are clean and that no source is missing data; this also gives inspectors something to look at. The important thing here is to have a technology system that is easy to use.
There may be many more reconciliations, depending on things like the trade's country of origin, regulatory requirements, audit-specific needs, and internal versus external data reconciliations to make sure everything is correct and complete; this shows how important it is for investment banks to have robust technology platforms to avoid mistakes and extra work.
In the end,
In conclusion, the complexity of new goods, the need for historical data, the challenges of geography, and cyber threats make it hard for large investment banks to do their jobs. But if the banking business uses new methods, models, and technologies, it will be able to meet the growing needs of a changing world. Integrating AI, big data, and automation, which are all part of Industry 4.0, can change the way capital markets work by allowing automatic trading, data-driven decision-making, and personalised investment strategies that will make customers happier. Even with these possibilities, the problems that these innovations bring must be solved with solid cybersecurity measures and regulatory changes. Overall, the principles of Industry 4.0 offer a hopeful way for financial institutions to stay competitive, meet the rising needs of investors, and deal with the complexity of a constantly changing landscape.