Transfer Pricing Associates

I-banks Cutting Costs

post Thursday February 14, 2013


As compliance costs continue to increase as trading volumes fall, investment banks are cutting costs wherever possible. One area that has seen considerable contraction is the technology that is used by investment banks to trade. Over the last few months, banks such as JP Morgan Chase and Deutsche Bank have actively worked to reduce the costs of the platforms that they use.

JP Morgan recently integrated a new trading platform that has combined approximately 30 current platforms into one streamlined program. The goal of this change is to reduce the development and maintenance costs associated with the technology. One driver of this move is the expected increases in compliance expenses related to the 14,000 plus regulations that are being introduced by Basel III, Emir and the Dodd-Frank act. According to Jamie Dimon of JP Morgan, it is estimated that his bank will be spending upwards of $3bn (US) on people and systems to align with the new regulations. As these costs continue to spiral out of control, banks are forced to eliminate expense anywhere possible.

In the past, large expenditures on technology were justified by the banks to keep the intellectual property related to their investment strategies protected. Contrary to this argument, most software experts claim that the underlying components, aside from the algorithms, are largely similar to competitors and that the infrastructure behind most of the technology is rarely significantly unique.  

Another main area of consolidation and outsourcing among investment banks has been testing of platforms and some trade execution. Because there is a growing need for outsourcing and cutting costs, this is new area of expansion for technological companies. Companies like Fixnetix and Broadway Technologies have sought to develop products to meet the need of cutting costs in these areas of the bank’s value chain.  

As global financial markets continue to slowly recover from the economic crisis, companies that are able to trim the proverbial fat form their balance sheets will be most competitive.

Source:Financial Times

Image source: Free Digital Photos

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