BNY Mellon Report Assesses the Impact of the COVID-19 Pandemic on Capital Markets
BNY Mellon has released a paper titled "Capital Markets Infrastructure: What is the New Normal after COVID-19?" analyzing the pandemic's effect on capital markets infrastructure (CMI). The paper highlights that COVID-19 ended the U.S. stock market's 11-year bull run and caused unprecedented market stress, with trading volumes increasing while transaction sizes fell by 46%. Despite challenges, CMI providers remained resilient. The report discusses shifts in financial services, emphasizing streamlined communication, enhanced collaboration, and the need for standardized data to bolster market resilience.
- CMI providers displayed resilience during increased trading volumes.
- The report highlights structural changes in financial services driving efficiency.
- The U.S. stock market bull run ended due to the pandemic.
- Transaction sizes dropped by 46% in early 2020, indicating market distress.
NEW YORK, Oct. 8, 2020 /PRNewswire/ -- BNY Mellon today released its paper, developed leveraging data provided by SWIFT, entitled "Capital Markets Infrastructure: What is the New Normal after COVID-19?". The paper assesses the impact that the COVID-19 pandemic had on the world's capital markets infrastructure (CMI), and what CMI providers need to think about going forward. The CMI consists of all of the components that make the flow of money across global financial markets possible. While CMI providers traditionally were exchange complexes, clearinghouses and depositaries, the landscape of providers has broadened to include many critical elements, such as: global trading access and connectivity, data and analytics, process efficiency, and regulatory, risk and compliance management.
In addition to disrupting people's health, lives and jobs, the COVID-19 pandemic ended the 11-year U.S. stock market bull run. It also prompted the most extreme stress event since the 2008 global financial crisis with the quickest draw-down on record. The paper points out that message volumes in March 2020 were four times normal levels while transaction sizes slumped by
The COVID-19 crisis and consequent market volatility has played out against a backdrop of a fast-changing financial services environment. The surge of pandemic-driven digitalization, combined with central bank and regulatory intervention, competitive dynamics and evolving investor behavior, are driving a transformation of various financial services segments, including:
- Asset managers: Scale and AUM are increasingly important; advanced analytics, digital engagement and targeted wholesaling can create distribution advantages. Passive strategies continue to gain ground over active strategies, as investors demand transparent and low-cost products.
- Asset owners: Pension trends, such as the transition from defined benefit to defined contribution plans, have increased allocations to private markets. Asset owners are prioritizing resilience and the ability to operate remotely.
- Alternatives: Consolidation continues as the largest managers dominate fundraising and investors' hunger for uncorrelated returns fuel alternative manager product growth.
- Banks, brokers, dealers and advisors: Outsourcing is on the rise to counter revenue and expense pressures, as players drive to bolster balance sheets by reducing inventories, adopting agency models, and optimizing liquidity, funding and collateral.
- Insurance: Changing customer needs (e.g. retirement security, usage-based insurance, digital advisory etc.) continue to push businesses to evolve.
- Corporate and technology: There is an increased demand for liquidity, credit and working capital, with the potential for big tech to embark on tactical and strategic acquisitions.
As we look ahead and learn from the COVID-19 market dislocation, financial markets and CMI interaction will continue to evolve with a focus on:
- Streamlined communications to ensure that communication is transparent, frequent and fluid among client and regulatory communities.
- Enhanced collaboration between asset managers, brokers, dealers, advisors and insurance funds to better withstand the shocks of volatility.
- Standardized data across the entire trading process, to ensure crisis and regulatory reporting and compliance expectations are met, to protect both clients and firms, and to ensure the industry is operating at an accelerated and efficient pace.
- Business and market resiliency as financial services companies continue to reevaluate and stress-test their processes and systems.
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About BNY Mellon
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries. As of June 30, 2020, BNY Mellon had
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SOURCE BNY Mellon
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