The vast majority of banks, broker dealers and asset managers have partially or completely reshaped their operating models, buying behavior and capital/fund allocations over the past two years

That’s according to Deutsche Bank’s Global Securities Services unit, which quizzed 200 firms this summer on their view of capital market regulations, technology and emerging markets.

The study, conducted in partnership with the FT, found that regulatory change remains a burden for many, but the right regulations are being welcomed.

The most beneficial regulations were cited as Basel IIl, Solvency II with FATCA voted as the least advantageous.

Meanwhile, technology threatens to disrupt the market as a whole and – in the case of blockchain – that disruption may be coming sooner than many think.

Nearly 90% reckon blockchain and distributed ledger technology will have an impact on the market for securities services.

Close to 80% believe blockchain will be actively used within the next six years while 38% reckon it could reduce the cost of providing securities services by more than 20%.

And emerging markets that have been the most active in developing their capital markets are expected to return to form.

Nearly two-thirds of investors are optimistic that emerging markets will return to the growth rates seen during the boom of the last decade.

Deutsche Bank execs give their views

“As our clients expand their investment guidelines, as they expand their investment horizon, they’re looking for yield,” said Tim Smollen, global head of agency lending at Deutsche Bank.

“And to find that yield they’re turning to markets like India, China, Brazil and Indonesia as well. 

"When a client buys assets in a new market, it prompts a number of questions: does that country allow for securities lending? And is the infrastructure in place to allow it?”

Deborah Thompson, Deutsche Bank’s head of custody and clearing, said the survey gave a “unique opportunity” to draw out a number of trends in the investor services market.

“Above all, the survey reinforces the impression of ongoing, fundamental changes across both the buyside and sell-side.”

David Rhydderch, head of alternative fund services, added that three things stood out for him in the survey results.

“First is the overall impact of new regulations on fund services, second are the opportunities for new data management solutions and third is the growing importance of cybersecurity in the funds business.”

The CIO of a US pension fund who took part in the study said the two IT risks that blockchain technologies would help with in particular are cybercrime and systems.

“The number of cyberattacks has gone up significantly and client data that is under threat from a third party is assuredly a problem,” the individual added.

Securities lending

Deutsche Bank's Smollen added that clients are starting to look at securities lending on a stand-alone basis, treating Deutsche Bank like an investment manager and saying: “Okay, I am going to pick you based on your performance. I am going to benchmark you on an annual basis and, in two or three years, I’m going to go through the whole process again.”

Regulations are also driving the trend towards the unbundling of the various services traditionally forming part of a single custody relationship.

“We have spent a lot of time ensuring that we know our cost of capital, including the cost of any indemnification, and we look at it on a counterparty by counterparty basis, so we can assign that cost back to each client," Smollen added.

"As regulations change and the cost of capital potentially goes up, you’re going to see some lending agents having to get smaller. Some lending agents will potentially have to change their fee splits to cover their cost of capital.

"One of the most interesting survey results concerns the opportunities for third-party collateral managers – 77% of institutional investors say they would consider third-party collateral management, which aligns with what we are hearing in the marketplace."