Global capital markets players are showing remarkable resilience navigating an increasingly complex environment, shaped by the confluence of macroeconomic uncertainty, geopolitical shifts, and rapid technological advancements. Heightened regulatory divergence, uneven regional growth, productivity expectations, and evolving client demands are creating a landscape that demands proactive adaptation driving firms to reevaluate their strategies.1 Meanwhile, disruptive forces – ranging from the accelerated pace of innovation to changing competitive dynamics – are unlocking opportunities to reshape how markets operate.
As these dynamics unfold, capital markets participants should actively respond to a set of critical themes reshaping the industry. From addressing emerging risks and capitalizing on innovation to tackling high operating costs and navigating evolving competitive dynamics, market participants must position themselves to thrive in a future defined by transformation and interconnectedness.
At the heart of this evolution are five themes that will define the trajectory of the industry in 2025 and beyond:
Divergence in Regulation
Regulatory landscapes are becoming increasingly fragmented across jurisdictions, challenging firms to balance compliance with operational efficiency. Diverging rules on data privacy, financial reporting, and trading practices require adaptive strategies that can scale globally while addressing regional nuances.
Securities Market Modernization
A key wave of market evolution currently underway is the modernization of securities infrastructure, from clearing and settlement systems to accelerated settlements and the issuance of digital-native assets. Regulatory reforms and market demand for transparency are accelerating this shift.
Platform Modernization
To meet the demands of an ecosystem increasingly driven by speed, efficiency, and data-centric decision-making, trading platforms must evolve. Investments in cloud-native solutions, AI integration, and user-centric designs are enabling the transformation of trade execution and management.
Interoperability
The backbone of these advancements is interoperability - ensuring that disparate systems, applications, and datasets work seamlessly together. By breaking down silos and enabling real-time data flow, firms can unlock efficiency gains, improve risk management, and enhance client experiences.
Evolving Market Dynamics
The competitive landscape of capital markets has undergone a significant transformation, with nimble trading firms reshaping the industry. Leveraging advanced technology these firms have surpassed traditional investment banks in trading volumes and profitability. For traditional banks to remain competitive, embracing technology, and fostering innovation are essential strategies in navigating the evolving financial ecosystem.
These themes are not isolated. They form a dynamic ecosystem of challenge and opportunity, where each trend amplifies the potential of the others. The opportunities are vast, but so are the challenges.
The conclusion of 2024 brought an end to the biggest election year in history and with it more clarity on the governmental vision and direction ranging from the United States and the UK to South Africa, India, and the European Parliament. The direction of travel and global regulatory themes are emerging.
In the US, President Trump has moved swiftly to make good on his pre-election promise to reduce the volume and scope of regulation. On January 31, he signed a new Executive Order that requires that “whenever an agency promulgates a new rule, regulation, or guidance, it must identify at least 10 existing rules, regulations, or guidance documents to be repealed”.2
In the UK, the Government's emphasis on economic growth may have an increasing impact on regulatory policy and posture. In order to reinvigorate incoming investment, the UK wants to create a less onerous capital-raising environment. The Financial Conduct Authority (FCA) now focused more on its secondary aim of facilitating growth and competitiveness means ‘do no harm’ is no longer the only consideration in the cost/benefit analysis.3
All of this creates the need for global firms to be able to navigate the regulatory priorities that emerge. As an example of this, while it is not the primary driver, HSBC’s announced restructuring may position them to be more flexible to local regulatory drivers.4
However, regulators remain vigilant about systemic risks, especially amid persistent inflation, elevated interest rates, substantial government borrowing, and ongoing geopolitical tensions. The International Monetary Fund (IMF) highlights that geopolitical tensions can disrupt supply chains and commodity markets, leading to increased inflation and reduced economic activity, which in turn affect financial stability.5
In France, efforts to reduce the fiscal deficit have led to political instability. Political uncertainty is not only restricted to France, with its current minority ruling, but also holds true for past strongholds like Germany and might accelerate in countries such as US and UK, where recent elections have brought temporary stability.
This political turmoil underscores the challenges policymakers face in balancing fiscal responsibility with political stability. Such uncertainties contribute to market volatility, as investors react to both economic policies and geopolitical developments. The European Central Bank (ECB) notes that geopolitical risks can lead to increased inflation and decreased industrial production, further complicating the economic landscape.6
Therefore, while deregulation – and simplification of regulation – may offer short-term economic benefits, it must be carefully calibrated to avoid exacerbating systemic vulnerabilities in an already volatile global environment.
Further, a rapidly evolving technology landscape means that applicable regulations will evolve too. First iterations of regulation on emerging technologies can be seen with regards to crypto assets (MICA) or Artificial Intelligence.7,8 T+1 settlement in the EU is not as straight forwards as it is in the US given the complexity of the ecosystem, and with APAC working towards instantaneous settlement, global firms will have to actively think about compliance and resilience while searching for new growth opportunities.
Positively, 2024 brought a rewrite of Transaction Reporting rules from several regimes. This will continue into 2025 with CSA, HKMA, CFTC and later MIFID III on the horizon.9, 10, 11, 12 While firms have benefited from efficiencies gained from greater harmonization across regimes, can this trend continue in a world where nationalist and protectionist views are gaining prominence?
Environmental, Social and Governance (ESG) reporting is arguable ripe for similar harmonization given the increasing scope and complexity of regulations, however, differing outlooks on ESG across geographies are becoming starker. The approach from the EU being one of proactive regulation is in stark contrast to US Federal and State legislatures, with some states passing anti-ESG legislation in anticipation of Federal mandates. Opinions on ESG are more polarizing in the US, making alignment internally, never mind internationally, that much more challenging.
Regulators are starting to aim for greater alignment and minimize divergence. For example, the UK wants to simplify its reporting ask by asking for data once and using it for the different intended purposes of SFTR, MIFID, EMIR, targeting equivalence with the EU.13
Global regulatory divergence needs to be factored into strategic decision making, business models and technology investment strategies with agility.
Firms that successfully navigate the current wave of market evolution and the coming period of investment will dominate the securities markets for a generation.
Following the global financial crisis, infrastructure and platform development in financial markets focused on derivatives markets, with the introduction and implementation of post-crisis regulations like the Dodd-Frank Act and the European Market Infrastructure Regulation (EMIR). The implementation of structural changes and new regulatory obligations such as client clearing of OTC swaps, transaction reporting compelled the industry to prioritize the derivatives market.14
During this period securities markets received comparatively less attention, despite areas of significant product innovation, for example in the Exchange-Traded Funds (ETF) market, which experienced substantial innovation and growth. (In 2008, the US Securities and Exchange Commission approved the first actively managed ETFs, marking a significant development in the ETF landscape and by 2018, the global ETF market had grown to over $5.3 trillion, from $700 billion before the crisis.15)
Many financial institutions sought cost reductions in middle and back-office processing through labor arbitrage, such as outsourcing operations to regions with lower labor costs. While this approach achieved short-term cost savings, it often lacked accompanying structural investments in processes and systems. This reliance on labor arbitrage without technological upgrades led to an "efficiency cul-de-sac," where low unit costs were achieved, but opportunities for transformative change and long-term efficiency gains were impeded.
Today, several factors are converging to drive significant investment and structural changes in the securities markets driven by regulatory changes, technological advancements, and the need to modernize existing infrastructures.
Regulation
Innovation
Future Considerations:
Collectively, these trends will drive a period of transformation in securities markets, bringing both opportunity and risk to incumbent institutions – and the previous period of investment in derivatives markets has lessons for how best to plan and execute this market evolution.
The key success factor in optimizing investment and capturing benefits will be taking an integrated approach to building a next-generation platform for securities businesses, rather than as a series of piecemeal initiatives. Compartmentalizing larger investments into smaller, more focused pieces unified by a well-defined strategy and vision, will allow firms to manage costs more effectively and gain incremental benefits without overcommitting to extensive, all-encompassing projects.
Consideration should be given to how to use investment to drive simplification of front-to-back processing, optimized management of data, and flexibility and ease of change of future platforms. Against a background of rapid technological change and uncertainty it is key to maintain option value in technology and build decisions, to enable incorporation of future innovations in a multi-year innovation strategy.
The institutions that navigate this cycle most effectively can establish sustainable market advantages in the coming modernized securities markets; those that do not will see their positions deteriorate as competitors reap benefits of successful investment, and the market share of non-bank trading firms continues to increase.
Financial institutions are increasingly compelled to modernize their core technology infrastructures to achieve more flexible and cost-efficient system architectures. This necessity arises from the limitations of bespoke, monolithic systems – often over two decades old – that are challenging to maintain, difficult to enhance, and costly to operate. Modernization offers strategic advantages, including resource sharing, reduced costs for entering new markets, enhanced trading capabilities, and improved operational efficiency.
Technology modernization is not a one-time initiative, but a continuous improvement process aimed at meeting current strategic objectives while future-proofing systems. Key focus areas include:
A holistic approach to modernization extends beyond technology, encompassing business model overhaul enhancing user experience, enabling growth initiatives, and focused on efficiency and resilience. Intuitive front-end designs tailored to the needs of traders, risk managers, and operations teams facilitate decision-making and enable interface customization based on individual preferences.
People and processes are critical to successful modernization. The complexity of the challenge is such that it requires many different skillsets and perspectives and instead of working as large, integrated units by deploying highly adaptable and modular multidisciplinary teams. This approach to team composition enhances agility and cost efficiency, as resources can be scaled up or down based on strategic requirements.
Senior leadership plays a pivotal role in driving digital transformation. Their commitment ensures that modernization initiatives align with the organization's strategic objectives and receive the necessary resources for successful implementation.
Organizational silos can impede change by fostering resistance and hindering collaboration across departments. These silos often lead to misaligned objectives and communication barriers, which can stall modernization efforts. Breaking down these silos is essential for fostering a collaborative environment conducive to transformation.
Implementing modern development practices such as DevOps and Continuous Integration/Continuous Deployment (CI/CD) can mitigate the risks associated with organizational silos. These methodologies promote collaboration between development and operations teams, enhancing accountability and visibility. By automating processes and facilitating continuous feedback, DevOps and CI/CD streamline collaboration and accelerate the delivery of high-quality software.
Finally, a robust test automation framework adaptable to varying project scopes - whether business-as-usual, interface adaptation, or upgrades - empowers technology teams to deliver more effectively.
Interconnectivity and interoperability are pivotal outcomes of successful modernization in capital markets. By adopting cloud technologies, firms can dismantle data silos, enabling seamless information flow across departments and systems. This integration fosters collaboration and enhances decision-making processes.
By strategically modernizing technology, capital markets firms enhance agility, improve operational efficiency, and seize new opportunities.
Interoperability in capital markets – the seamless integration of systems, data, and processes across a complex network of participants – encompasses both the technical ability for systems to communicate effectively and the strategic alignment needed to ensure workflows remain efficient and adaptive. Addressing fragmentation issues requires a concerted effort to modernize technology stacks, streamline applications, and adopt unified standards to enhance interoperability and operational efficiency.
Historically, achieving true interoperability has been elusive. Legacy infrastructure, proprietary standards, and a lack of collaboration among market participants have created significant barriers.
The push for interoperability gained momentum in the late 2000s with the rise of electronic trading and the increasing globalization of financial markets. Despite these advancements, the industry remains burdened by fragmentation, with firms often relying on a maze of siloed applications and bespoke integrations. As the pace of innovation accelerates and the demand for agility grows, interoperability has evolved from a desirable feature to an essential capability for firms looking to remain competitive in today’s rapidly changing landscape.
The financial markets ecosystem is characterized by fragmentation, with firms often operating numerous siloed systems. A study by Okta Inc. revealed that large enterprises deploy an average of 129 applications, a 68% increase over four years.26
This proliferation of applications can hinder data flow, operational insight, and customer experience. Legacy infrastructures and disparate standards exacerbate these challenges. Fragmented data sources necessitate multiple contractual relationships and models, increasing complexity and operational inefficiencies.
Additionally, the lack of standardized data management practices impedes seamless integration across systems, further complicating efforts to achieve operational coherence.
The opportunity lies in shifting from rigid systems to dynamic, API-driven frameworks that prioritize seamless integration and adaptability. Conceptually, firms can adopt microservices, where modular applications interact fluidly, reducing complexity and empowering end-users with unified workflows. The payoff is clear: streamlined operations, enhanced transparency, and the ability to rapidly pivot in response to evolving market conditions.
Geopolitical and economic uncertainties add urgency to this transformation. With global capital markets grappling with heightened geopolitical tensions, uneven regional recoveries, and shifting interest rate environments, the ability to synthesize and act on real-time data is no longer optional. Interoperability is a critical enabler, fostering agility and resilience in a volatile world.
Generative AI enters this landscape as both a catalyst and a challenge. While its applications in areas like trade surveillance, code generation, and risk monitoring are promising, its most transformative potential lies in addressing interoperability barriers.
By leveraging GenAI's capabilities to aggregate, analyze, and synthesize diverse datasets, financial firms can establish interconnected ecosystems that enhance decision-making and operational efficiency. AI-driven solutions can integrate data from multiple sources into a unified interface, enabling decision-makers to operate seamlessly across platforms.
However, the journey is not without hurdles. Regulatory compliance, ethical oversight, and transparency are paramount in a highly regulated industry. Firms must establish rigorous checks and balances, ensuring human oversight of AI-driven models and mitigating risks associated with automation. In parallel, a robust data foundation – complete with verified, high-quality inputs – is essential. Without it, even the most advanced AI solutions fall short.
While the vision of seamless interoperability and transformative AI may seem ambitious, the momentum is undeniable. Industry adoption cycles are compressing, and the demand for connected, intelligent systems has never been greater. A survey by NVIDIA highlights that 98% of financial services professionals consider increasing AI spending critical to their business success, underscoring the industry's commitment to integrating advanced technologies to identify growth opportunities, and enhance operational efficiency and customer experience.27
This convergence is driving the demand for interconnected, intelligent systems capable of delivering seamless and innovative financial solutions. For firms willing to invest in foundational capabilities and address ethical and regulatory imperatives head-on, the next wave of innovation offers unparalleled competitive advantage.
Technology has also lowered barriers to entry, enabling non-bank entities to disrupt traditional financial services. High-tech trading firms like Jane Street, Citadel Securities, and DRW have capitalized on advanced electronic trading technologies to capture significant market share from established banks.28
The competitive landscape of capital markets has undergone a profound transformation over the past decades. Traditional investment banks, once the uncontested giants of trading and market-making, are increasingly being challenged by nimble trading firms. These new entrants leverage advanced technology, face fewer regulatory constraints, and operate without the legacy barriers that often hamper larger institutions. This shift signifies not just a change in market participants but a fundamental evolution in how capital markets function.
Several trading firms have emerged as dominant forces in the industry, effectively reshaping the trading landscape, key examples include:
The 2008 financial crisis led to significant regulatory reforms, notably the Dodd-Frank Act and the Volcker Rule, which imposed stricter capital requirements and restricted proprietary trading by banks. These measures are aimed to enhance financial stability but also limited traditional banks' trading activities. In contrast, proprietary trading firms like those named above capitalized on these changes. Leveraging advanced electronic trading technologies and sophisticated strategies, they expanded their market presence, often surpassing traditional investment banks in trading volumes and profitability. This shift underscores the transformative impact of regulation, technology, and innovation in reshaping the financial markets landscape.34
Opponents of the regulations for banking organizations have alleged that strengthening capital requirements for large banking organizations will increase systemic risks by shifting financial activity to the lightly regulated nonbank sector. Similar discussions are again featuring in the debate around the Basel End Game.35
Regardless of the outcomes of this debate, as Don Wilson of DRW recently noted, regulators' desire to limit risk within heavily regulated entities presents a clear opportunity for firms like his to fill the void left by banks.36
Technological advancements have been pivotal in enabling trading firms to execute trades with unprecedented speed and efficiency. The electronification of markets, high-frequency trading (HFT), and sophisticated algorithms have transformed trading dynamics.
As one of the world's leading market makers, Citadel Securities executes over $400 billion in trades daily. The firm utilizes advanced algorithms and predictive analytics to facilitate seamless trading across various asset classes. Their quantitative research team develops sophisticated models that drive systematic trading, leveraging large-scale datasets to identify market signals with predictive power.37
Renowned for its technological prowess, Jane Street emphasizes automation and the development of in-house software, including critical trading and risk management systems. The firm employs advanced tools and machine learning techniques to analyze large datasets, enabling them to handle complex and less liquid financial instruments effectively.38
Traditional banks have faced challenges adapting to this evolution. Regulatory constraints have limited their risk-taking abilities, and the prohibitive costs associated with technological upgrades have made it difficult to compete with more agile firms. Banks have shifted focus to services that trading firms do not typically offer, such as underwriting new securities, providing advisory services, and extending financing to clients. The Financial Stability Board indicated that where bank have withdrawn, other market participants have stepped in.39
The rise of non-bank trading firms has attracted regulatory attention due to concerns about systemic risk and market stability. The opacity of privately held firms makes it challenging for regulators to assess potential risks fully. Some industry observers worry that the concentration of market share among a few firms could pose risks if one were to fail. However, proponents argue that these firms enhance market efficiency and liquidity. They emphasize that, unlike banks, these firms do not hold customer deposits.40
As the financial landscape continues to evolve, both new and established players will need to navigate the complexities of innovation, competition, and regulation. The future of capital markets will be shaped by how these dynamics play out, potentially leading to a more efficient and resilient financial system.
For traditional banks, adapting to this new environment is imperative – by embracing technological advancements and rethinking their business models, they can reposition themselves competitively. This requires not only investment in technology but also a cultural shift towards innovation and agility.
Banks can also capitalize on their strengths – such as their global reach, deep client relationship and comprehensive service offerings – to provide integrated solutions that trading firms cannot easily replicate. By offering value-added services that combine technology with personalized expertise, capital markets firms can differentiate themselves in the market.
The future of capital markets hinges on a delicate balance between innovation and resilience. As technological advancements redefine the competitive landscape, firms must embrace transformative strategies to stay ahead.
As we commence 2025, global capital markets stand at a transformative crossroads, shaped by an intricate interplay of technological innovation, regulatory shifts, and evolving market dynamics. To thrive in this environment, industry participants must adopt forward-looking strategies that harness disruption as an opportunity rather than a challenge.
The industry is moving towards a future defined by agility and resilience. Modernization of securities infrastructure and trading platforms, coupled with enhanced interoperability, promises to unlock unprecedented efficiency, transparency, and risk management capabilities.
However, the fragmentation of regulatory landscapes underscores the need for adaptive and scalable compliance frameworks. Industry participants must navigate divergent global priorities while anticipating and mitigating risks in areas such as cybersecurity and GenAI.
Moreover, the shifting competitive landscape, marked by the rise of nimble, technology-driven trading firms, compels traditional players to reimagine their operating models. A renewed focus on technological investment, client-centric innovation, and integrated solutions will be crucial for sustaining relevance and capturing market share.
The future of capital markets lies in achieving a harmonious balance between innovation and stability. By embracing transformative technologies, fostering collaboration across ecosystems, and aligning strategies with global opportunities, industry leaders can position themselves to not only weather disruption but to shape it. This journey demands vision, adaptability, and a steadfast commitment to creating a more interconnected, efficient, and resilient financial ecosystem.
Capital markets participants must act decisively – the question is no longer ‘if’ change will come, but ‘how fast’ they can lead it.
1 https://www.ft.com/content/1201f834-6407-4bb5-ac9d-18496ec2948b
2 https://www.whitehouse.gov/fact-sheets/2025/01/fact-sheet-president-donald-j-trump-launches-massive-10-to-1-deregulation-initiative/
3 https://www.fca.org.uk/about/what-we-do/secondary-objective
4 https://www.ft.com/content/8943fb7f-f13a-44fb-b3de-98de3dce981e
5 https://www.imf.org/en/Blogs/Articles/2023/04/05/geopolitics-and-fragmentation-emerge-as-serious-financial-stability-threats
6 https://www.ecb.europa.eu/press/financial-stability-publications/fsr/special/html/ecb.fsrart202405_01~4e4e30f01f.en.html
7 https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica
8 https://www.europarl.europa.eu/topics/en/article/20230601STO93804/eu-ai-act-first-regulation-on-artificial-intelligence
9 https://www.securities-administrators.ca/news/canadian-securities-regulators-announce-changes-to-derivatives-data-reporting-standards/
10 https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2024/20240926e3a1.pdf
11 https://www.cftc.gov/PressRoom/PressReleases/8902-24
12 https://www.esma.europa.eu/trading/mifid-ii-and-mifir-review
13 https://www.fca.org.uk/publication/discussion/dp24-2.pdf
14 https://www.fsb.org/uploads/P290617-1.pdf
15 https://www.etf.com/sections/news/30-etf-milestones-over-30-years
16 https://www.sec.gov/newsroom/press-releases/2023-29
17 https://www.thetradenews.com/uk-t1-taskforce-publishes-recommendations-ahead-of-proposed-2027-switch/
18 https://www.sec.gov/newsroom/press-releases/2023-247
19 https://www.sec.gov/files/rules/final/2023/34-98737.pdf
20 https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/digital-operational-resilience-act-dora
21 https://ir.cboe.com/news/news-details/2024/Cboe-Clear-Europe-Secures-Regulatory-Approval-to-Launch-Securities-Financing-Transactions-Clearing/default.aspx
22 https://www.ft.com/content/4c3ebc9f-d447-466a-8816-d4a166143029
23 https://www.cboedigital.com
24 https://www.marketwatch.com/story/stock-trades-must-now-settle-in-just-one-day-heres-why-wall-street-should-move-even-faster-46f4eea2
25 https://www.ft.com/content/fc41c6fe-2a34-48fd-ac94-68bd08c5bdff
26 https://www.wsj.com/articles/employees-are-accessing-more-and-more-business-apps-study-finds-11549580017
27 https://blogs.nvidia.com/blog/financial-industry-ai-survey/
28 https://www.ft.com/content/9439108d-4fe3-4fc2-b040-da9412f1ba0b
29 https://www.ft.com/content/4001099b-12a9-4a3f-bf21-7333e88b536d
30 https://www.ft.com/content/88ba9e42-09c2-480a-8b21-43051707f84d
31 https://www.bloomberg.com/news/articles/2024-12-02/jane-street-reaps-14-2-billion-in-first-nine-months-of-trading
32 https://www.ft.com/content/e7c88737-f972-438f-a7ac-1af358a85f07
33 https://www.ft.com/content/2948dca2-20f5-4a55-a222-2f1b1505b149
34 https://www.fxstreet.com/analysis/the-rise-of-prop-trading-firms-a-new-era-in-the-financial-markets-202403220541
35 https://democrats-financialservices.house.gov/uploadedfiles/hhrg-118-ba20-wstate-kressp-20240131.pdf
36 https://www.ft.com/content/4001099b-12a9-4a3f-bf21-7333e88b536d
37 https://www.citadelsecurities.com/our-teams/quantitative-research-team/
38 https://www.janestreet.com/what-we-do/overview/
39 https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/post-2008-reforms-made-big-banks-safer-but-resolution-barriers-remain
40 https://democrats-financialservices.house.gov/uploadedfiles/hhrg-118-ba20-wstate-kressp-20240131.pdf
