Market Analysis and Statistics

G00210122

Market Insight: Investment Banking and Capital

Markets Primer, 2011
Published: 26 January 2011

Analyst(s): Kristine Pfeiler

This research is a companion to the investment services primer (see "Market

Insight: Investment Services Primer, 2010") as it provides an in-depth
analysis into the subvertical industry of investment banking and capital
markets also known as the sell side. It is one of a series of industry primers.
Industry managers in marketing, sales, product management, or services
targeting or working in this sector will gain a top-level view of the sector's
business trends, IT investment priorities, inhibitors, IT spending, go-tomarket messaging guidelines, and key influencers. IT investments are a top
focus for both the business and IT due to their criticality in ensuring
compliance with new regulations, their enablement of expansion, and a
higher scrutiny on costs as the investment banking and capital markets
firms face tightening profit margins and a volatile economic environment
affecting capital markets revenue streams.

Key Findings

Ensuring compliance with regulations continues to be a top focus in 2011. Regulations will
impact this sector most in derivatives, trading analytics and revised and/or additional regulatory
reporting.

Additional market trends driving strategic and tactical technology investments include
continued merger and acquisition (M&A) activity within the sector, geographic expansion and
product expansion.

Firms continue to focus on cost containment and reduction, favoring operating expenditure
(opex) over capital expenditure (capex) while trying to prepare for regulations and make
strategic investments to grow the business.

Key messaging themes include regulatory compliance, operational efficiency and control,
technology as innovator, and cost containment and structure. Marketing messages must still be
targeted to each area within the sector in which the messaging theme takes on a specific flavor.

Recommendations

Product or industry marketing: Refine overall industry messaging to be specific for each
targeted subsegment; not all IT spending drivers have the same priority or the same impact. For
example, the regulatory impact for a derivatives trader is very high, causing a transformation of
the settlement and clearing processes, while the investment banker feels the regulatory impact
through restricted activities in principal investing and higher capital requirements likely resulting
in long-term, fundamental business model and organizational changes, rather than immediate
process changes.

Sales: Position new products in mature markets as a gradual evolution rather than a "rip and
replace" where possible. Provide a road map for the client, highlighting features such as
service-oriented architecture (SOA) or interoperability that help migrate a firm to a more open,
flexible IT landscape to combat the rigidity of legacy IT environment, which can be a major
inhibitor as firms present a complex myriad of applications tied together with many
interdependencies.

Product management: Embrace alternative pricing structures that reduce initial capital
investment and favor opex over capex as new regulations are also expected to adversely
impact a firm's bottom line with requiring higher capital requirements and increasing the cost of
risk.

Table of Contents
Analysis..................................................................................................................................................3
Introduction......................................................................................................................................3
Investment Banking and Capital Markets Industry Overview.............................................................3
Segmentation and Organizational Structure......................................................................................4
Business Priorities and Key Technology Inhibitors and Drivers..........................................................7
Key Drivers of IT Spending..........................................................................................................7
Key Inhibitors of IT Spending......................................................................................................9
Investment Banking and Capital Markets Solution Map....................................................................9
Solution Areas..........................................................................................................................11
Capital Markets (Sales, Trading, Research)...............................................................................11
Background and Context.....................................................................................................................12
The Impact...........................................................................................................................................12
IT Spending and Forecast...............................................................................................................12
Assumptions for Sizing the Market............................................................................................12
Assumptions for Growth...........................................................................................................13
Forecast...................................................................................................................................13
Buying Centers, Messaging Map and Key Influencers.....................................................................15

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Buying Centers and Messaging Map........................................................................................15

Key Influential Groups...............................................................................................................18
Conclusion...........................................................................................................................................20
Short Term.....................................................................................................................................20
Long Term......................................................................................................................................20
Recommended Reading.......................................................................................................................20

List of Tables
Table 1. Organization Structure Within Investment Banking and Capital Markets Firms...........................6
Table 2. Investment Banking and Capital Markets Solution Map...........................................................10
Table 3. Investment Banking and Capital Markets IT Spending Forecast (Billions of Dollars).................14

List of Figures
Figure 1. Investment Services Industry Segmentation.............................................................................5
Figure 2. Investment Banking and Capital Markets Messaging Map......................................................17
Figure 3. Key Influencers......................................................................................................................19

Analysis
Introduction
The objective of this document is to provide technology and service providers targeting the
investment banking and capital markets industry with a foundational understanding of the industry.
It is intended for industry marketing and product management roles, as well as customer-facing
sales and service professionals seeking insight into industry segmentation, organizational structure,
market trends, IT spending, buying centers and messaging guidelines.

Investment Banking and Capital Markets Industry Overview

Gartner defines the investment services industry using standard industry classification codes
(NAICS rev. 4 or SIC) and includes securities, commodity contracts and other financial investments
and related activities (NAICS 523, SIC 621,622) and funds, trusts, and other financial services
institutions, including banks, asset managers and exchanges. This primer focuses on a subvertical
of the investment services industry the investment banking and capital markets sector. The
investment banking and capital markets industry includes two primary activities of raising capital for
corporations, governments and other institutions and financial advisory services, such as M&As,

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capital restructuring, and buyouts. Adjacent or supporting activities for these primary functions
conducted by investment banks include market making and research.
Top players in the industry are global, large universal banks or bank holding companies with
investment banks subsidiaries within the universal bank. Global leaders include Bank of America
Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Morgan
Stanley and UBS. Additional business models found in the industry include pure-investment banks,
boutique advisory firms, and broker-dealers. Pure-investment banks are not associated with, or a
part of, a commercial bank but conduct the primary activities of capital raising and advisory
functions. Example firms using this business model include Brewin-Dolphin and Lazard Capital
Markets.
Boutique advisory firms provide advisory investment bank functions but do not underwrite or
perform market distribution or market making. These firms are often smaller than the other models.
Example firms include Duff & Phelps and McColl Partners. Brokers and broker-dealers provide
access to markets and perform transactions but not underwriting or advisory functions. Although
most investment banks are also broker-dealers, some pure brokers exist such as Investment
Technology Group and Jones Trading. Although different firms may pursue a certain model or a
combination of models, the most-critical information for technology and service providers (T&SPs)
to understand about a firm in this industry sector is which functions the firm provides, because this
finding is one of the main factors influencing the firm's technology needs.

Segmentation and Organizational Structure

As previously defined in Gartner's primer on the investment services industry (see "Market Insight:
Investment Services Primer, 2010"), Gartner has segmented the investment services industry into
four sectors illustrated in Figure 1.

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Figure 1. Investment Services Industry Segmentation

Investment Services

Investment Banks/
Capital Markets

Asset Managers/
Institutional
Investors

Investment Advisor/
Wealth Manager

Exchanges,
Agencies and
Services

Investment Banking,
Securities Dealing
(NAICS 52311/52313,
SIC 621,622)

Asset Management
(NAICS 52392,
SIC 621)

Investment Advice
(NAICS 52393,
Sic 628)

Securities and
Commodity Exchanges
(NAICS 52321,
Sic 623)

Brokerage Houses
(NAICS 52312/52314,
SIC 621,622)

Private Equity/
Venture Capital
(NAICS 52392,
SIC 621)

Transfer Agency
(NAICS 52399,
SIC 6289)

Clearinghouse
Services
(NAICS 52399,
SIC 6289)

Prime Broker
(NAICS 52312,
SIC 622)

Hedge Funds
(NAICS 52391,
SIC 621)

Custody Services
(NAICS 52399,
Sic 6289)

Insurance and
Employee
Benefit Funds
(NAICS 5251)

Reference/Market
Data Providers
(NAICS 52399,
Sic 6289)

Other Investment
Pools and Funds
(NAICS 5259,
SIC 628)
Source: Gartner (January 2011)

Within investment banking and capital markets institutions, the front-office organizations are aligned
by services or product areas at the top of the organization. Typical departments and related
activities are shown in Table 1. Additional middle-office and back-office functions are also within the
firm; some of these functions are grouped organizationally with the same structure as the front
office, while other more administrative functions are across the entire firm.

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Table 1. Organization Structure Within Investment Banking and Capital Markets Firms
Department

Areas

Activities

Investment
Bank

Industry
Coverage
Groups

Investment bankers create financial advisory relationships with

corporate and government entities to advise and sell services by
pitching deals. These bankers are arranged by industry (e.g.,
healthcare).

Product
Groups

Product specialist bankers create financial advisory relationships

with corporate and government entities to advise and sell specific
products. Example product areas:

Debt markets finance

Capital
Markets

Research

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Equity markets

Corporate finance

Project finance

Public finance

Structured finance

M&As

Advisory

Private placement

Fixed Income
or Debt Capital
Markets

Various roles within debt capital markets facilitate the distribution of

the securities and products.
Syndicate places into market investment bank deals for debt capital
markets.
Sales creates relationship with institutional investors for primary and
secondary market.
Traders own the P&L for the trading inventory, provide liquidity and
make markets by conducting transactions with the investor
community.

Equity or Equity
Capital Markets

Various roles within equity capital markets facilitate the distribution of

the securities and products.
Syndicate places into market investment bank deals for equity capital
markets.
Sales creates relationship with institutional investors for primary and
secondary market.
Traders or sales traders own the P&L for the trading inventory,
provide liquidity, and make markets by conducting transactions with
the investor community.

Fixed

Fixed-income security analysts are typically industry-focused and

possibly asset-class-focused. Main activities include analyzing and
publishing reports on issuers of debt.

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Equity

Equity security analysts are typically industry-focused. Main activities

include analyzing and publishing reports on issuers of equity.

P&L = profit and loss

Source: Gartner (January 2011)

Each department's client base, activities, products or services delivered affect the culture as well as
the technology needs, and typically, but not always, a vendor will dominate in one area but not all.
T&SPs targeting and selling into this sector should understand the nuances between areas. If a
vendor holds strength in one area, that does not preclude penetration opportunities elsewhere.
Developing a well-defined targeting strategy based on a thorough understanding of the various
segments within investment banking and capital markets is advised. Each area is highly specialized;
reference clients are much more valuable when in the same area than general reference clients
across the investment banking and capital markets industry. Within the front and middle office and
some segments of the back office, retail banking and other financial services reference clients or
examples are not as strong as those from within the investment banking and capital markets
industry.

Business Priorities and Key Technology Inhibitors and Drivers

Key Drivers of IT Spending
Top drivers for IT spending across the investment banking and capital markets sector are regulatory
compliance. including risk management practice improvement and operational efficiency, as
indicated through Gartner surveys, client inquiries, industry discussions and secondary research.
The remainder of drivers all focus on growth through expansion, innovation and acquisition, which
will be more specific to an individual firm:

Increasing Regulation Although there is uncertainty about how regulations will play out with
specific lines of business or how they might impact market structure, new regulations are
certain to positively impact IT spending in 2011 as firms gear up to address these new
regulations. Being in compliance and showing compliance will require investment in IT
solutions, thus creating opportunities in both solutions and services. It is important to note than
many of the intended regulations are still in definition phase in the regulatory bodies that must
create new regulations and enforce the intent of initial acts. Many of the regulations will also
have transition periods in which a firm is granted a specific time period to meet new
requirements, and regulators also have the ability to grant extensions in certain cases.

Restricted Activities Regulations such as the Dodd-Frank Act and specifically the
modified Volcker Rule will restrict the activities of an investment bank within a bank holding
company in areas such as principal investing. Although riskier than other activities, principal
investing and trading have been a source of high profits for investment bank and capital
markets firms. Investment banks will need to classify trading activity to distinguish between

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activity for the purposes of providing liquidity or market making acceptable activities
versus principal investing or proprietary trading a restricted activity.

Derivatives Many of the new regulations target the derivatives markets, including
mandatory trade execution of swaps on an exchange or swap execution facility and
mandatory clearing for listed swaps. These regulations will cause capital markets firms and
others in the derivatives market to revise processes and solutions to work with new
processes. The new regulations have also created new business opportunities with
Goldman Sachs, Bank of America, Citigroup, Deutsche Bank and JP Morgan Chase to help
clients clear trades through clearinghouses. Bank of America was the most recent to
announce a new line of business in September 2010, Global Futures and Derivatives
Clearing Services, predicting substantial growth in the OTC derivatives clearing market.

Capital Requirements and Risk Management Although the biggest impact of new
capital requirements and related changes is the negative impact on a firm's bottom line,
new capital requirements in Basel III will require firms to revise their reporting to meet new
regulations. Additional focus on risk management and achieving excellence in risk
management and operational controls continue through 2011, as firms address risk
management issues exposed during the financial crisis.

Systemic Risk Additional requirements for reporting will likely required for those
firms deemed "too big to fail." This new reporting will create new data management
requirements. The intent of this regulation is to understand targeted, material risks from
interconnectedness of the largest global institutions. Within the US, two new regulatory
bodies have been formed, the Financial Stability Oversight Council and the Office of
Financial Research, to address how to monitor this risk and what new requirements, if
any, will be required. In Europe, the decision to create the European Systemic Risk
Board (ESRB) was made in December of 2010.

Operational Efficiency Profit margin pressure and an elevated focus on risk management
will drive firms to pursue projects that improve business processes, resulting in operational
efficiency gains, better risk management capabilities and improved operational controls.
Business process improvement initiatives, risk analytics, back-office process improvements,
end-to-end product flow process improvements, and an emphasis on data management,
including market and reference data, are all areas firms are pursuing.

Continued M&As Since the 2008 crisis and recession, M&As in the financial services sector
have been increasing. In 2010, the industry witnessed 263 transactions. The trend is expected
to continue in 2011, as additional firms merge to strengthen balance sheets or divest noncore
businesses. Mergers require substantial integration projects involving business planning,
complex program management and project management, technology analysis, IT portfolio
rationalization, system integration and potentially decommissioning or the purchase of new
products when neither platform nor application meets the requirements of the new business.

Global Economy Expansion and Growth Market Opportunities After the crisis and the
recession, investment banking and capital markets firms' belief in the global economy and
emerging markets as a key part of their growth strategy was further strengthened. Global
economic expansion is increasing the prospective client base for global companies with sizable

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market capitalization. Emerging or growth markets continue to build their contribution to the
revenue mix of investment bank and capital markets firms. Both trends present opportunity for
growth and both trends will increase flow and volume globally. Many firms cite expanding the
geographic and product presence as key drivers for revenue growth in 2011. Higher transaction
volume, as well as new offices and additional hiring, is anticipated as firms undertake
expansion.

Increasing Role of Technology Technology is not just supporting the business of

investment banking and capital markets but has also become a core part of the product
offering. Innovations in technology can be products themselves, such as high-frequency
trading, or enable bifurcated product strategies in the case of high-touch and low-touch
offerings within a single business line. Within the industry, an important differentiation a firm can
have is the firm's ability to quickly respond to the market and changing customer needs with the
right systems, products and services. Firms will seek to exploit technology innovation to
achieve differentiation. Example areas of focus include ever-faster improvements in low latency,
as emerging markets offer high-frequency trading, analytic and hardware acceleration to
increase processes such as pricing and valuation, and real-time information around risk.

Key Inhibitors of IT Spending

Some of the same factors that are pushing technology spending are also acting as inhibitors.

Increasing Regulation Regulations are impacting IT spending negatively in two ways:

Negative impact on profitability reduces overall funds available for IT spending. Investment
bank and capital markets firms are bracing for the continued evolution of capital
requirements and leverage ratios that are expected to raise the cost of capital and risk,
dragging down profits for the industry. T&SPs should expect to see increased justification
required for IT spending and higher levels of scrutiny on how each IT dollar is spent.

Continued uncertainty as regulations are drafted, revised and implemented creates shortterm focus and hesitancy on long-term commitments. T&SPs should expect to see longer
sales cycles and a more difficult sell in long-term commitments.

Legacy Technology Investment Investment banks and capital markets firms have been
aggressive adopters of technology and, therefore, have significant investments in legacy
business applications and infrastructure, making new solutions and technologies more difficult
to embrace and adopt. Integration to aging applications and infrastructure can also add to
implementation costs as well as implementation risk. T&SPs position new products as gradual
evolution rather than a "rip and replace" where possible. In addition, they should highlight the
features of an offering that will help migrate a firm to a more open, flexible IT landscape.

Investment Banking and Capital Markets Solution Map

Solution areas within an investment banking and capital markets firm are grouped within the
categories of front office, middle/back office, enterprise and communications. Front-office
applications are there to support the business activities of investment bankers, relationship

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managers, sales, traders and research analysts, as well as client-facing support or corporate areas,
such as individuals in client services, marketing, and events. Middle-office and back-office solutions
include operations such as clearing and settlement, finance, risk management, static data and
compliance. Enterprise solutions support general business activities, such as HR, procurement, as
well as infrastructure needs, such as storage, security and collaboration. Communications includes
network and telecommunications needs. The Table 2 solution map represents a graphical
presentation that explains how the market's IT landscape is perceived in terms of the major
business functions in each area of business activity. Although the solution map segments solution
areas within a functional business area, such as capital markets to front office and middle/back
office, the rise of straight-through processing (STP) as a discipline enables automation of the full
trade process from the front office to the back office, eliminating manual handoffs and rekeying
between systems.
Table 2. Investment Banking and Capital Markets Solution Map
Segment

Front Office

Middle/Back Office

Investment
Banking

CRM, deal management, pitch book,

marketing, customer profitability, client
analytics, market data, product
development, product origination,
syndication, portfolio management

Risk management, regulatory reporting,

reference data management, portfolio
management (BO), corporate actions,
compliance, fee billing, regulatory
reporting

Capital Markets

Contact center, pretrade compliance,

account setup and management, trade
platform and execution, ECN, trade
analytics, derivatives management,
pricing, risk, product development,
product origination, syndication, portfolio
management, sales order management
and routing, investor performance
analytics, sales attribution, commission
Research only:
Conference/event management, content
management

Risk management, reference data

management, market data
management, portfolio management
(back office), corporate actions,
compliance, fee billing, payment
processing, reconciliation, transfer
agency/record keeping, custody,
securities lending, post-trade
compliance, trade/confirm matching,
clearing and settlement, regulatory
reporting

Enterprise
Communications

Telco services and equipment, IM, e-mail, mobile, mobile services, Web
conferencing
Trading only turrets, squawk box

Administrative and
Enterprise
Operations

Cash management, finance and accounting, HR, procurement/vendor mgmt., app

servers, storage, OS, DBMS/Data Warehousing, MDM, BPM, workflow, business
continuity, security, e-mail, collaboration, document and imaging management,
portals, middleware

Source: Gartner (January 2011)

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Solution Areas
Investment Banking

Front Office The front office consists of senior management, bankers, analysts and junior
resources. Client coverage in investment banking is most often industry-based, requiring
bankers to be highly mobile as they cover an industry regardless of geographical area or across
a broad geographic region, such as North America or Europe. Front-office solutions focus on
CRM, require the use of industry data by providers such as deals in market and league tables,
and focus on facilitating and managing deals. Comprehensive industry, competitive and client
insight rely heavily on strong analytics and external data.

Middle/Back Office The middle and back office in investment banking provide front-office
support services in the areas of market data, industry research, document production, graphic
services and expense billing. Risk management and compliance functions require solutions to
manage risk across products and meet regulatory reporting requirements.

Capital Markets (Sales, Trading, Research)

Front Office The front office consists of senior management, bankers, syndicate, traders,
institutional sales, research and others such as marketing and events. Technology needs vary
by user base:

Syndicate supports the deal flow once mandated through completion, including solutionsupport activities, such as deal structuring, marketing, pricing, capturing indications of
interest, capturing orders, final pricing, issuance to market and closing the deal. Syndicate
collaborates a great deal with the investment bankers, lawyers, client, ratings agencies, and
other external parties.

Trading is a high-technology use group requiring low latency information on market data
and trade transactions. Multiple trading systems can be found in one shop to support
multiple product types equities, derivatives, commodities, bonds, structured bonds and
loans, for example. Demand for real-time analysis for pretrade risk analytics to post-trade
risk analysis is extremely high; regulations such as Market in Financial Instruments Directive
in Europe have elevated this demand. Market data and external information is used
extensively in many activities throughout the trading floor.

Institutional sales sell to institutional investors requiring solutions that support client
management, information insight regarding the market, past trades, holdings, research,
preferences and collaboration.

Research analysts cover issuing firms. Solutions typically include client management,
content management, publishing and event management.

The front office is technology-heavy requiring low-latency information and processing on

market data, trade transactions and often involve large amounts of data. The front office is
increasingly automated with electronic communication networks (ECNs), algorithmic trading
and other advancements in trading technologies becoming present in every shop.

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Middle and Back Office The middle and back office provide many services to support frontoffice activities including risk management, compliance and regulatory reporting, market data,
settlement, clearing, and cash management.

Communications
The investment bank and capital markets sector is an intense user of communications solutions.
Investment banking is a highly mobile workforce, while capital markets is a low-latency, highvolume, high-throughput business. Mobile applications are gaining increasing acceptance and
demand targeted for the banker, institutional salesperson and research analyst; mobile applications
targeted to the trader are less appealing because most traders, buy side or sell side, have
restrictions on where they can do a trade for surveillance and compliance reasons. Demand for
mobile applications targeted to external customers is beginning in areas such as institutional
research delivery, as seen in JP Morgan's research app for the iPad. Connectivity to exchanges,
custodians, clearinghouses and other industry-specific networks, such as Bloomberg, and
alternative trading networks (also known as ECN), such as BondDesk and ForEx, is critical for daily
operations. Communication solutions specific to trading include turrets and squawk boxes.
Administrative and Enterprise Operations
Administrative and enterprise operations support administrative functions including, but not limited
to, HR, finance and procurement as well as common infrastructure solutions, such as master data
management, reference data management, B2B gateways and messaging middleware.
Compensation systems are of high importance, as the industry is known for a high incentive-tobase ratio, as well as for competition for key resources among firms. Master data management and
reference data management are key focus areas to address and support new regulations and risk
management practices.

Background and Context

The investment banking and capital markets service industry faces many regulatory changes and
additions as it heads into 2011. In addition, firms must begin to make strategic investments to grow
and differentiate the business through expansion, potentially acquisitions, and product
innovation.

The Impact
IT Spending and Forecast
Assumptions for Sizing the Market
Gartner's quarterly IT spending forecast by vertical industry (see "Forecast: Enterprise IT Spending
for the Banking and Securities Market, Worldwide, 4Q10 Update") forecasts IT spending for the
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"banking and investment services" industry. This forecast provides detailed forecasts for the two
subverticals banking and investment services. For the purposes of this primer analysis, Gartner
has forecast the sector within investment services of investment banking and capital markets only.
The investment banking and capital markets forecast is a modeled forecast with constraints based
on the broader investment services forecast.
Gartner has applied a top-down model forecast approach that analyzes the investment banking and
capital markets sector revenue (excludes buy-side firm revenue and asset management revenue of
larger sell-side institutions) and estimates percentage of total sector revenue attributed to overall IT
spending across hardware, software, IT services, communications and internal services modeled
with industry growth rates. The model sourced sector revenue from annual reports of investment
banking and capital markets firms and 2010 regional industry revenue splits from Dealogic.

Assumptions for Growth

These assumptions factored into the growth of the investment banking and capital markets global
IT spending forecast:

Emerging markets may have faster growth rates due to faster expansion of investment banking
and capital markets activities.

As the model is revenue-based, principal investing revenue was included in the trading revenue
numbers, because they are not often split out within annual reports of investment bank and
capital markets firms. It is expected that this sector will reduce principal investing over time due
to regulations.

Forecast
Gartner projects the investment banking and capital markets IT spending forecast to grow from
$68.7 billion to $85.5 billion by 2014 with a 5% compound annual growth rate (CAGR). Table 3
highlights regional differences in the forecast.

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Table 3. Investment Banking and Capital Markets IT Spending Forecast (Billions of Dollars)
2009

2010

2011

2012

2013

2014

AGR (%)
2010

AGR (%)
2011

AGR (%)
2012

AGR (%)
2013

AGR (%)
2014

CAGR (%)
2010-2014

North America

35,035

36,157

37,603

39,483

41,576

43,696

3.20

4.00

5.00

5.30

5.10

4.85

EMEA

24,044

23,683

24,299

25,465

26,777

27,781

-1.50

2.60

4.80

5.15

3.75

4.07

9,618

10,502

11,269

12,171

13,083

13,986

9.20

7.30

8.00

7.50

6.90

7. 42

68,697

70,342

73,171

77,119

81,436

85,463

2.40

4.02

5.40

5.60

4.95

4.99

Asia/Pacific
and Others
Total

AGR = annual growth rate

Source: Gartner (January 2011)

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Buying Centers, Messaging Map and Key Influencers

Buying Centers and Messaging Map
Although most investment banking and capital markets firms have similar organizational structures
for the line of business, the IT organization and how it operates may vary from firm to firm.

IT embedded in the business Some firms embed IT into the line of business, making most
large IT investments both a business and IT buyer. Primary buyers can include the following
roles:

CIO or division information officer (DIO)

Line-of-business managing director/VP

Line-of-business COO or chief administrative officer (CAO) or designated "business

manager" role

Operations VP in the case of a back-office-driven investment

IT outside the business In other firms, IT is outside of the line of business in which the CIO
or DIO is the primary buyer.

In either organizational model, the business is often a decision maker. Most firms have a line-ofbusiness-specific COO, CAO or "business manager" position that deals with all areas and issues
not directly related to generating revenue on the desk client-facing, selling or trading. This
position can be a buyer decision maker as well but will look to IT for final sign-off and IT "fit" with
the existing and future IT environment. Compliance and risk often get involved and have influence
with regard to vendor risk or operational risk and regulatory compliance of proposed solutions.
Across the buying centers, the following key messaging themes in 2011 emerge.

Regulatory compliance Ensuring regulatory compliance within the mandated time frames is
extremely important. Messaging around industry experience, proven capabilities to meet
requirements within specific timelines, and implementation success tie well into regulatorydriven initiatives.

Operational efficiency and control Regardless of the business area, firms are looking to
improve business processes with the objective to improve efficiency impacting the bottom line
and improve control, thus reducing operational risk.

Technology as innovator Technology is viewed as a critical component to enable the

business strategies of expansion and growth, as well as defending market share through
continued differentiation.

Cost containment and cost structure Previous Gartner analysis for the broader investment
services industry indicates modest budget growth overall but also acknowledges that the
majority of budgets remain flat into 2011 (see "Market Insight: IT Spending Polarization Offers
Pockets of High Growth Within an Overall Flat Market"). Although firms must spend to meet

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new regulations, improve processes and support revenue growth, they will look to make the
most of the IT spending.
Although there are key messaging themes, it is important for T&SPs to craft marketing messages
that are specific to each role and area within the sector in which the messaging theme takes on a
specific flavor. Role-specific messages are illustrated in Figure 2. Take the next step to craft both
role- and sector-specific messages. Differences exist, for example, on what might be a focus for
operational efficiency from one department to another, such as fixed-income versus equities, or
between organizational areas, such as the front-, middle- and back-office focus. Another example
of how top-level messaging themes must become more targeted in execution is looking at the use
of technology to drive innovation or differentiation. Within investment banking departments,
technology can be exploited in the analytics areas to provide better information on clients to
strengthen relationships between the investment banker and the corporate customer, while on the
capital markets side, technology is exploited to offer a better quality of service to the customer,
such as the use of in-memory analytics to reduce cycle time of pricing, differentiating the trading
firm from the competition.

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Figure 2. Investment Banking and Capital Markets Messaging Map

CIO, Division
Information
Officer

CEO

COO, CAO

CFO, VP Finance

Managing Director,
Line of Business

Risk Manager,
Compliance

VP,
Procurement

Buyer
Role

Primary Buyer

Influencer

Buyer Decision
Maker

Influencer

Buyer
Decision Maker

Influencer

Influencer

Focus

IT

Business

Business

Cost Control,
Capital Planning

Business

Operational Risk

Operational
Efficiency, Risk

Key
Vendor
Message/
Themes

Focus on
strategic nature
of IT, fit with
future IT vision,
improving
internal prestige

IT as a force
to enable
strategy, product,
gain
differentiation
and maintain
operational
efficiency

Functionality,
speed of
implementation
total cost of
ownership, fit
with existing
landscape

Demonstrate cost
discipline, opex
vs.
capex

Functionality,
ease of use,
speed of
implementation

Focus on
improving
reducing or not
adding to
operational risk,
adherence to
regulations

Vendor risk,
cost, contracts

Impact on
Decision to Buy

High

Medium

High

Medium

High

Medium

Medium

Buyer Focus

Strategic/
Tactical

Strategic

Strategic/
Tactical

Strategic

Tactical

Tactical

Tactical

Goal of messaging varies according to the type of buyer. Vendors must target different buyers
at all touchpoints in the purchase decision cycle to influence the decision to buy.
Source: Gartner (January 2011)

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Key Influential Groups

Industry direction is influenced by multiple groups, such as the dominant firms, the regulatory
agencies, industry associations, standards bodies, and even social network groups (see Figure
3).For example, as the Commodities and Future Trading Commission considers ways to implement
centralized clearing, the Futures Industry Association (FIA), large firms, and exchanges are
proposing methods and alternative approaches. Future regulation will likely involve creating new
reporting entities to collect information and provide daily analysis, a change to a capital markets
firms regulatory reporting and potentially a change to the underlying trade infrastructure and data
warehousing to meet a new cadence of reporting. An influencer not seen much before 2010 is the
influence of social networking group on sites such as LinkedIn. These groups offer online and offline
opportunities to network. Common networking activities include discussing hot industry topics,
debating industry regulations, and requesting suggestions on technology solution options. Industry
participants can be influenced from trade journals, event and conferences such as SIFMA's annual
Technology Conference. Tech provider selection criteria can be directly influenced by key research
firms, dominant consulting firms and colleagues as well.

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Figure 3. Key Influencers

Regulatory Agencies

Industry and Standards

Associations
Many industry associations are instrumental in
setting industry standards.
Financial Product Markup Language (FPML)
Futures Industry Association (FIA)
Enterprise Data Management Council (EDM)
International Capital Markets Association
(ICAA)
Securities Industry and Financial Markets
Association (SIFMA)
Securities Industry Association (SIA)
World Federation of Exchanges (WFE)

Investment
Banking and
Capital
Markets
Decision
Maker

There are many country-specific regulatory agencies. Listed

are a few of the major regulatory bodies in the major markets.
Asia/Pacific
Australian Securities and Investment Commission (ASIC)
Australia
China Securities Regulatory Commission China
Securities and Futures Commission Hong Kong
Financial Services Agency Japan
Europe
Financial Services Authority (FSA) U.K.
EU Commission Europe
Federal Financial Supervisory Authority (BaFin) Germany
United States
Securities and Exchange Commission (SEC)
Financial Stability Oversight Commission (FSOC)
Office of Financial Research (OFR)
Commodities and Future Trading Commission (CFTC)

Publications
Bloomberg
Financial Times
Institutional Investor Magazine

Standards
Organizations

Research Magazine

Extensible Business Reporting Language (XBRL)

The Street.com

Financial Information Exchange (FIX)

Wall Street Journal

ISO Technical Committee No. 68

Wall Street Technology

Market Data Definition Language (MDDL)

Waters Magazine

SWIFT (industry co-op)

Social Network Groups

There are many industry- and technology-focused groups
on social networks such as LinkedIn. Examples include:
Electronic Trading Group
Low Latency for Trading Infrastructure
Security Pricing and Valuations
Quant Finance
Women in Financial Markets

Source: Gartner (January 2011)

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Conclusion
Short Term
Overall, the investment banking and capital markets sector faces "must do" IT investment to ensure
new regulation compliance, as well as continue to make process and technology improvements to
better risk management capabilities or improve operational efficiencies through process
improvement. Strategic investments are being made to support revenue growth though geographic
expansion or product expansion. T&SPs need to align their messaging and value statements to
these overall drivers of IT investment to capitalize on where growth in IT spending is predicted to
occur.

Long Term
Regulations will continue to impact technology spending at investment banking and capital markets
firms, as many regulations have yet to be finalized and will continue to take shape throughout 2011.
In addition, many new regulations will set the compliance date well into the future, allowing firms
time to address the new requirements; some transition periods are as late as 2019. Gartner expects
the balance of investments to shift from "must do" to more emphasis on growing the business
through geographic expansion and product innovation by 2012. Investment banking and capital
markets firms have always leveraged technology to support the business and drive innovation, such
as high-frequency trading. Firms will continue to exploit technology to deliver new products or
differentiate with faster or better-quality services. T&SPs targeting this sector must assess the
alignment between their current product offering and future product road map with the predicted
drivers of IT investment in the long term and realign service and product investments as necessary.

Recommended Reading
Some documents may not be available as part of your current Gartner subscription.
"Market Insight: Investment Services Primer, 2010"
"User Survey Analysis: North American Banking and Investment Services' IT Spending Budgets
Favors Software and Business Improvement"
"Forecast: Enterprise IT Spending for the Banking and Securities Market, Worldwide 3Q10 Update"
"Latest Survey Shows IT Investment Priorities for Banking and Investment Services Firms"

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Gartner, Inc. | G00210122

Acronym Key and Glossary Terms

Market
distribution

Market distribution is the reselling of securities to the market.

Market making

Market makers maintain bid and offer prices in a given security; they stand by,
ready to buy or sell at quoted prices.

Underwriting

The underwriter assumes the risk of buying a new issue of securities from the
issuing entity (corporation or government) and reselling the securities in the market.

Evidence
This document is one of a series of "industry primers" that provide a single, short document for
each industry, and consolidates visual and graphic views of that industry. The primer is intended for
industry managers wishing to gain a top-level view of key industry-specific business trends,
technology trends, executive concerns, leading T&SPs, IT investment priorities, go-to-market
messaging guidelines and key influencers.
Although some of the figures and tables included in this research have been presented in other
Gartner documents, consolidating them in this way provides a valuable snapshot of each industry.

This document is published in the following Market Insights:

Industry Market Strategies Worldwide

Gartner, Inc. | G00210122

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