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9th April 2024 | Insights

What are the top trends in FCMs’ front-office investment?

With rising costs, regulatory complexity and increased client demands, the Future Commission Merchant (FCM) front-office is an arena of constant change.

Execution desks have to invest in their technology infrastructure in lock-step with a variety of client demands and operational and regulatory requirements, while keeping their services as price competitive as possible.

This is playing out in an environment of constant cost concerns, with desks facing rising expenses from factors ranging from regulation to market data.

To explore the challenges of building and maintaining competitive front-office offerings in the current climate, Acuiti partnered with Broadridge to survey or interview senior front-office executives at 38 of the major FCMs.

The results of the study are presented in full in the State of the Market: FCMs Front-Office and identify four core themes from a market that is increasing investment budgets in the front-office in order to boost operational resilience and efficiency and meet the challenge of competition.

  1. Competition is growing and likely to increase, technology will provide an edge

Competition has been intense for FCMs execution services. This has resulted in significant fee compression. With little left to cut in terms of fees, FCMs are seeking to differentiate themselves through customer service and value adds.

The new challengers to traditional FCMs include newly launched firms, some crypto native firms expanding into traditional markets, and others that started out with a focus on retail and are moving into institutional markets. In addition, FCMs face growing competition from non-bank liquidity providers who have already made significant inroads in ETFs and equities and are growing their offerings in listed markets.

Most of these new challengers operate advanced and recently built technology stacks. FCMs will be able to compete through advanced customer service and market knowledge but technology investment will be key to remaining competitive and enhancing their customer service.

  1. Data fragmentation is hampering efforts to increase operational efficiency

The breadth and quality of third-party offerings is a major boost to FCMs. However, more than seven in 10 face significant challenges in managing data between platforms. This is hampering front-to-back efficiency but also preventing firms from achieving real-time risk and position management.

While most firms said that their levels of front-to-back efficiency was good, most still rely to some extent on manual processes for addressing trade breaks. If firms are to fully optimise trade workflows, data integration will need to improve.

  1. FCMs are targeting platform consolidation

To reduce costs and streamline technology, almost half of FCMs are looking to consolidate OMS across asset classes. This will require upfront investment but will ultimately result in simplified operations and lower costs. The move to cross-asset OMS is being enabled by the increased sophistication of third-party offerings, but challenges still remain in widespread asset class consolidation. Most firms that were looking to consolidate were doing so only to a limited extent at this stage.

  1. Operational resilience and DORA is requiring investment in back-up systems

While firms are looking to consolidate platforms, they are also facing a seemingly contradictory goal of investing in back-up systems both to assuage operational resilience concerns and to meet the requirements coming with DORA. DORA is already having a major influence on how firms approach OMS/EMS investment and this is likely to grow as the implementation date approaches in 2025.

Download the full report “State of the Market: FCMs’ Front-Office” here: https://www.acuiti.io/state-of-the-market-fcms-front-office/