Role of Technology in Shaping Capital Markets

Gone are the days when the brokers and traders crowded in the early morning hours shouting their buy and sell orders on the floors of the stock exchange. This on-the-floor trading went on for several years till the market deregulation happened. Suddenly brokers and traders who used to rely on fast reflexes were now dependent on computer programs.

Fast forward to 2023; Technology and capital markets have become synonymous. It has dramatically benefited all the players in the ecosystem, such as corporations, institutions, investment banks, accounting firms, and traders. Technology has eased their business operations and enabled them to scale with incredible compliance.

Technology has profoundly impacted Capital Markets business regarding how companies operate and interact with customers. The role of technology has helped financial institutions make more informed decisions, improve operational efficiency, and better serve their customers.

It played a key role by minimizing transaction time, lowering transaction costs, better compliance, and empowering consumers. Electronification or dematerialization simplifies the buying, selling, and transferring of shares. It secured the investors from any theft and made it cost-effective.

Every aspect of the Primary market, secondary market, clearing, and settlement is transformed by leveraging technology. For example, after introducing eMandate for IPO.. physical form submission is becoming history. Approximately ~7.5 million (July 2022 NPCI Data) requests were created using the UPI digital framework in India. Advancement in mobile technologies has led to greater adoption of such technologies.

As computing power grows exponentially more powerful and inexpensive, trading in secondary markets has been transformed. The exchanges have adopted electronic systems for order delivery and automatic execution and have automated many other functions.

Brokers/dealers and institutional investors use robust computer systems and sophisticated applications to manage positions, order flow, and risk. Various technologies are being used to electronically receive market data, research reports, and company information.

The Internet and Internet technology enhances communication for most markets and market professionals. In the case of individual investors, the Internet provides information flow and touch similar to those available for institutional investors and market professionals.

New-age technologies are further re-scripting the future of capital markets, and technology is considered a key driver for the industry to evolve for the next few years. Emerging technologies such as artificial intelligence, machine learning, and blockchain are being increasingly adopted in the capital market to improve efficiency, reduce costs, and enhance decision-making. In addition to the above, natural language processing (NLP) is used to analyze structured and unstructured data, such as news and social media, to predict stock price movements.

Advanced analytics, such as machine learning and artificial intelligence, has enabled financial institutions to identify better and manage risks, improving the market’s overall stability. Machine learning algorithms are also currently being used to analyze large data sets to identify and help financial institutions make more informed decisions. The use of blockchain technology and other digital identity solutions is also being improved to improve the customer onboarding process and reduce identity fraud.

Cloud, open architecture, artificial intelligence, advancement in mobile computing, blockchain, and IoT have a credible impact on capital markets. Traditional capital market firms have seen fierce competition with financial technology firms.

Distributed ledger or blockchain technology has captured the attention of many in the financial sector, including those active in payment, clearing, and settlement, with its promise of greater efficiency and higher resiliency. With the ease of access to technology, new market competitors are entering the market, thus increasing opportunity and competition but significantly leading to a more diverse range of investment options. With the continued growth of technology, the breadth and depth of markets will only grow and benefit the spectrum of players in the Capital Market sector.

Authored by: Karunya Sampath, CEO & Co-founder of Payoda Technologies