1. October 19, 2017
Capturing the data & advanced analytics
opportunity in capital markets
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
2. 2
McKinsey & Company
Objectives of today's presentation
Present current trends in data and advanced
analytics in capital markets infrastructure
Discuss next big ideas in advanced analytics
for capital markets infrastructure
Answer your questions on data and advanced
analytics in capital markets infrastructure
3. 3
McKinsey & Company
The capital markets infrastructure industry comprises a diverse value chain
SOURCE: McKinsey
1 Settlement function of CSDs and ICSDs (not including settlement function of intermediaries like banks)
Activity Example players
Trade
facilitation/
execution
▪ Exchanges & alternative venues
▪ Inter-dealer brokers
▪ Dealer-client platforms
Clearing ▪ Exchange-owned Central Counter
Parties (CCP)
▪ Stand-alone CCPs
Custody &
settlement1
▪ Central and International Securities
Depositories (CSD & ICSD)
Information
services
▪ Data and analytics providers
▪ Credit rating agencies
Technology
infrastructure
▪ Order and execution management
system providers
▪ Safekeeping system providers
Security
services
▪ Corporate trusts and
fund administrators
4. 4
McKinsey & Company
Capital markets infrastructure providers have performed impressively
over the past few years
-2
2
7
7
8
9
10
11
12
15
18
Telecom
Utilities
Financials
Oil & Gas
Real Estate
Basic Materials
Consumer goods
Technology
Consumer services
Healthcare
Industrials
Ø 9
18
McKinsey CMIP
Index1
SOURCE: Capital IQ; Datastream; Company Filings; McKinsey
1 Datastream defined world level sector index on USD basis
2 CMIP index is market capitalization weighted TRS index on USD basis for 40 companies
Total return to shareholders1 last ~4.5 years
31st Dec, 2012 – 31st Aug, 20172
5. 5
McKinsey & Company
Current valuations reflect higher expectations on growth for inter-dealer brokers
and information service providers as compared to historical levels
SOURCE: Capital IQ; Datastream; Company Filings; McKinsey
1 Based on price as of 31 Aug 2017 and earnings estimates for FY2018 as per analysts’ consensus as of 31 Aug 2017
2 Assumed close to current or historical net income margins
3 Implied growth calculated from a DCF model with cost of equity ranging between 8.5-9.5%. After 2021, growth rate tapers gradually to the terminal value growth range. Terminal value growth ranges between 3-4% beyond 2031
4
-2
3
8
9-10
6-7
7-8
8-9
21x
Inter-dealer
broker
14x
McKinsey
CMIP Index
21x
Information
service
provider
Exchanges 21x
ESTIMATES
31st Aug 2017
Net income
margins
2017-212
Forward P/E multiples1
Implied next
5-year growth3
2017-21, %
Historical
growth
2012-16e %
ROE
2017-212
~40% ~12%
~20% ~25%
~7% ~9%
~25% ~17%
6. 6
McKinsey & Company
Five trends to shape the future of market infrastructure
1
2
3
4
5
Diversification across the value chain
Capital market infrastructure providers are expanding along the value chain and some are creating
diversified powerhouses
Buy side moving into the spotlight
Buy-side revenues have increased relative to sell-side revenues
Increasing demand for data and advanced analytics
Data & information services providers have become among the biggest and most important players in
capital markets infrastructure
The rise of fintechs
Innovation is occurring across the capital markets value chain with fintech players being attackers or
partners
Utilities as core service offerings
Infrastructure providers expressing interest in industry utilities, leveraging neutrality, scale, and new
technologies as banks increasingly seek to outsource under cost pressures
SOURCE: McKinsey
7. 7
McKinsey & Company
Industry leaders at our recent Capital Markets Infrastructure Roundtable identified data and advanced
analytics as the most salient theme that would shape the future of the industry
SOURCE: McKinsey Global Capital Markets Infrastructure Roundtable – February 2017
Diversification across the value
chain
1
Buy side moving into the spotlight
2
Increasing demand for data and
advanced analytics
3
8%
19%
27%
27%
19%
The rise of fintechs
4
Utilities as core service offerings
5
Which of the global themes do you see as being the most influential in shaping
the industry over the next 5 years? Choose up to 2 answers
8. 8
McKinsey & Company
Our framework to assess data & information services growth opportunities
SOURCE: McKinsey
Business model
▪ Proprietary IP
▪ Smart re-aggregation
▪ Re-distribution
Products and services
▪ News & research
▪ Data
▪ Analytics
▪ Indices & benchmarks
▪ Ratings
Asset class
▪ Equities
▪ Fixed Income
▪ FX
▪ Commodities
▪ Other (e.g. alternatives)
9. 9
McKinsey & Company
There are four core building blocks for a world-class data & analytics organization
1
Integrated roadmap for sequencing and execution
+
Strategic value creation Core capability elements
Prioritized use case / value delivery
▪ Articulate a cohesive data and
analytics vision/strategy and
construct a prioritized backlog of
high-impact analytics use cases
3 People & capability building
▪ Design target-state people model and organizational
structure; develop and hire talent in a “business back”
way
2 Platform, tech & data
▪ Architect and build a compliant and scalable
data/technology platform; draw upon internal and
public data sources and manage partnerships
4 Program & change management
▪ Track and assure value delivery from use cases;
execute on communications and change
management efforts to build cultural momentum
SOURCE: McKinsey
10. 10
McKinsey & Company
Across the industry, there are a number of use cases in advanced analytics already being put to use
Pre Trade Analytics
and Services
Client
Connectivity
Sales Trading Risk and Finance Operations
“Next Generation”
Exposure Management
Granular view of
exposures plus
automated trading
Automated Pitch Books
and other Routine
Analytics e.g., company
profiles, public and deal
comps, credit ratios
Lead Generation –
Automated axe
distribution, inventory
tracking, “next to buy”
Legal Contract
Analysis
extracting and
flagging key deal
terms
Trade and Trader
Surveillance
applying machine
learning
New Predictive
Signals for Trading
sentiment analysis,
satellite imagery
Simplifying
Reconciliation &
Break Analysis
applying machine
learning
Self Service Research
Tools – i.e. Kensho
simplifying bespoke
research requests
Sales Effectiveness
Profitability, resource
consumption, Scraping
call and calendar logs,
Lost deal tracking
Market Making
Alpha Relationship
between profitability,
time to hedge, basis
risk cross-asset
signals
Opening
Systems to
Clients
Increase client
stickiness,
integrate into
workflows
“Real Time” Balance
Sheet and Liquidity
Management
Relationship between
resource consumption,
revenues, market volatility
[multiple firms]
SOURCE: Interviews, Press search
11. 11
McKinsey & Company
Capital Market Infrastructure players can generate high
value-add advanced analytics solutions across the value chain
NOT EXHAUSTIVE
SOURCE: McKinsey
Revenue Risk Enablers Costs
Value lever in focus
3a
2a 2b 2c 2d
1a 1b
Capital markets infrastructure value chain
External
value
addition
Internal
‘enablers’
Potential advanced analytics use cases
1a Market liquidity prediction
1b Implicit cost of trading
2a Collateral liquidity prediction
2b Automated credit rating
2c Margin call prediction
2d Contract terms risk analytics
3a Payment instruction fraud detection
4a Sentiment indicators
4b Real time shareholder/trader insights
4c Best execution compliance
4d Premium data feeds
4e Reference data aggregation
4f Industry-specific data verticals
4g SME passport
4h ID services repository
5a ‘Fat finger’ protection
5b System breakdown prediction
5c Market surveillance for fraud detection
6a Automation@scale and robotics
6b Procurement analytics
6c Talent optimization
6d IT productivity
Clearing
Settlement
and custody
Pre-IPO
Collateral
and liquidity
management
Trading
Cash market
Derivatives
market
▪ Connectivity
to interna-
tional trading
participants
▪ Open
electronic
order books
▪ Trading
in shares.
ETFs, ETPs,
warrants,
funds, bonds
▪ Dark pools
▪ Connectivity
to interna-
tional trading
participants
▪ Open
electronic
order books
▪ Trading in
derivatives
(equity,
equity-index
and interest-
rate
derivatives)
▪ Verification of
trade-related
information
▪ Central
counterparty
for
on and off-
exchange
transactions
(cash and
derivatives
markets)
▪ Risk manage-
ment
▪ New issuance
services
▪ Delivery
vs. payment
▪ Safekeeping
of securities
▪ Corporate
actions tax
services
▪ Networking
platform
for startups
and
investors
▪ Growth
financing
services
▪ Listing
services
▪ Global
securities
financing
▪ Collateral
manage-
ment
▪ Investment
fund
services
(order
routing)
Market data and technology-based services 4a 4b 4c 4d 4e 4f 4g 4h
▪ Data feeds, market data, reference data, reporting services, Indices, external IT services, trading infrastructure
5a 5b 5c
Information technology
▪ Internal IT services, software development, connectivity services
6a 6b 6c 6d
Other internal support services
▪ Operations, Procurement, HR, Legal, Compliance, Finance
12. 12
McKinsey & Company
Different use cases are applicable for different player groups
SOURCE: McKinsey
Trade
facilitation/
execution
Internal enablers relevant for all parts of the value chain
Internal support functions
Information technology
Market data
and technology based services
Settlement and Custody
Clearing
6b Procurement analytics
6c Talent optimization
6a IT productivity
6d Automation@scale and robotics
2d Contract terms risk analytics
3a Payment instruction fraud detection
4e Reference data aggregation
4b Real time shareholder/trader insights
4c Best execution compliance
4d Premium data feeds
4f Industry-specific data verticals
4g SME passport
5b System breakdown prediction
5a ‘Fat finger’ protection
5c Market surveillance for fraud detection
4h ID services repository
2c Margin call prediction
4a Sentiment indicators
1a
Trading Market liquidity prediction
1b Implicit cost of trading
2a Bond collateral liquidity prediction
2b Automated credit rating
Technology
infrastructure
Information
services
Custody and
settlement
Clearing
Security
services
Use cases
Highest potential Potentially relevant Lower potential
Revenue Risk Enablers Costs
Value lever in focus
INDICATIVE – NOT EXHAUSTIVE
13. 13
McKinsey & Company
SOURCE: McKinsey Digital and Analytics in CIB Roundtable, May 2017
Lead generation and sales effectiveness
Next generation exposure management
18%
2%
Opening internal risk systems to clients
New predictive signals for trading/market
making alpha
Real time balance sheet and liquidity
management
Trade and Trader surveillance
18%
4%
Self-service research tools
Automated pitch books and other
routine analytics
Other
Legal contracts, reconciliations and
breaks management
2%
16%
4%
22%
14%
2%
Based on votes from senior digital CIB executives at 20 institutions
Lead generation and sales, B/S management, new trading signals, and surveillance
are most compelling data and analytics use cases in capital markets
14. 14
McKinsey & Company
SOURCE: McKinsey
Lessons Learned: What it takes to drive value
Common Pitfalls Our Point of View
Value-led with clear business ownership and partnership with
analytics and IT
Islands of Capability: business, analytics and IT
Focus and prioritization of use cases (value, speed to capability,
data availability, business sponsor)
Oceans of Data: technology first (hammer looking for a nail)
“The Last Mile”: embedding insights in decision making, business
adoption and value capture
Inspiration vs. Perspiration:
▪ - 99% - building models;
▪ - 1% - operationalizing them
“Fit for purpose” technology: prove the value and enable end-
to-end capabilities before scaling
Field of Dreams: focus on large scale technology buildout
Democratize the Data: business-owned with focus on sufficient
quality, integrity and access supported by IT
Control the Data: enforcement focus embedded within IT
Analytics is a Team Sport: assemble the right mix of
interdisciplinary skills in optimal structure
“It’s about the Science”: scaling-up capacity is focused on
“Data Scientists”
Build transformational fitness: excel at execution focused on
competitive edge and partner strategically for differentiated
capability
“Your mess for less”: Expect that outsourcing to a third party
will drive transformation
15. 15
McKinsey & Company
Your presenters today
Andreas Waschto
Associate Partner, Hamburg
Email:
Andreas_Waschto@mckinsey.com
Phone: +49 175 318 1434
▪ Core member of McKinsey’s Capital Markets
Infrastructure Practice
▪ Senior Advisor for Capital Markets Infrastructure,
Corporate and Investment Banking
Thank you for participating – please feel free to reach out if you have any questions
SOURCE: McKinsey
Jeff Penney
Senior Advisor, New York
Email:
Jeff_Penney@external.mckinsey.com
Phone: +1 646 207 2673
17. 17
McKinsey & Company
As McKinsey, we are the unrivaled advisor to the capital markets infrastructure industry globally
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
A
Network
C
Thought
leadership
Tools and
assets
D
Experience
B
Unrivaled network of 30+ senior practitioners across the globe
Large number of relevant proprietary tool and assets
We have served 8 out of the top 10 listed global exchange groups and a
variety of medium-sized players in developed and emerging markets
Extensive experience with 400+ projects in the past 8 years, Serving the entire
ecosystem: 160+ projects for exchanges and platforms, 120+ for information providers,
80+ for securities services, 30+ for post trade, and 10+ for technology providers
Truly understanding your key customers: extensively serving the sell side as well
as the buy side
Thought leaders in the industry authoring leading reports and shaping key
industry discussions
Co-operating with numerous capital markets regulators across the globe
MCKINSEY CREDENTIALS
18. 18
McKinsey & Company
1 Global leader of McKinsey’s Capital Markets Infrastructure & Exchanges Practice 2 Global Practice co-leaders
McKinsey has a global team of >30 senior practitioners with deep expertise in the capital market
infrastructure and exchanges industry
Plus dedicated research team for capital market infrastructure & exchanges industry
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
Akash Lal
Senior Partner
Mumbai
David Cogman
Partner
Hong Kong
Boyoung Kim
Associate Partner
Seoul
Jawad Khan
Partner
Dubai
Hans-Martin
Stockmeier
Senior Partner
Dubai
Rogerio
Mascarenhas
Partner
Sao Paolo
Arlindo Eira Filho
Partner
Sao Paulo
Paula Castilho
Associate Partner
Sao Paulo
John Reed
Associate Partner
Tokyo
Fumiaki Katsuki
Partner
Tokyo
Eunjo Chon
Partner
Tokyo
Brant Carson
Partner
Sydney
Matthias Voelkel1
Partner
Frankfurt
Markus Röhrig2
Partner
Munich
Vahan Vardanian
Senior Advisor
Moscow
Frank Mattern
Senior Partner
Frankfurt
Philipp Härle
Senior Partner
Munich
Christian Casal
Senior Partner
Zurich
Andreas Waschto
Associate Partner
Hamburg
C. Blaufelder
Associate Partner
Zurich
L. Yocarini
Associate Partner
Paris
Nils Jean-Mairet
Associate Partner
London
Marc Niederkorn
Partner
Luxembourg
Franca Germann
Associate Partner
Frankfurt
Kayvaun Rowshankish
Partner
New York
Jeff Penney
Senior Advisor
New York
Rush Kapashi2
Partner
New York
Kevin Buehler
Senior Partner
New York
Vijay D'Silva
Senior Partner
New York
Roger Rudisuli
Senior Partner
New York
Jonathan Klein
Partner
Paris/NYC
Allen Weinberg
Senior Partner
New York
Akash Shah
Partner
New York
Raj Bector
Partner
Washington
Roger Rouhana
Associate Partner
New York
Doran Schifter
Senior Advisor
New York
MCKINSEY CREDENTIALS
A
19. 19
McKinsey & Company
We have unrivaled project experience with >400 projects in the past 8 years …
Last 8 years … Number of projects
NOT EXHAUSTIVE
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
MCKINSEY CREDENTIALS
B
North America
>130
>400
in total
Serving capital market infrastructure providers and exchanges globally …
EMEA
>220
Latin America
>20
Asia-Pacific
>30
20. 20
McKinsey & Company
… serving the entire ecosystem
1 Custody and Settlement function of CSDs and ICSDs (not including settlement function of intermediaries like banks)
Example players
Activity
Clearing
▪ Exchange-owned Central Counter Parties (CCP)
▪ Stand-alone CCPs
▪ Central and International Securities Depositories (CSD & ICSD)
Custody &
settlement1
Number of projects
in last 8 years
>30
▪ Exchanges & alternative venues
▪ Inter-dealer brokers
▪ Dealer-client platforms
Trade facilitation/
execution
>160
▪ Data and analytics providers
▪ Credit rating agencies
Information
services
>120
▪ Custodians, Corporate trusts and fund administrators
Securities services >80
▪ Order and execution management system providers
▪ Clearing and safekeeping system providers
Technology
infrastructure
>10
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
MCKINSEY CREDENTIALS
B
21. 21
McKinsey & Company
We are thought leaders in the industry – authoring leading reports ...
Blockchains in capital markets
Working paper on CIB No. 12
December 2015
Fintechs can help incumbents not just disrupt them
Quarterly article
July 2016
Capital Markets and Investment Banking 2016: Time for Tough
Choices And Bold Actions
September 2016
Boosting Front-Office Productivity in Capital Markets
Working paper on CIB No. 9
March 2015
Understanding why U.S. Middle-Market companies switch banks
September 2015
Two Routes to Digital Success in Capital Markets Working paper
on CIB No. 10
October 2015
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
Capital Markets Infrastructure: An Industry Reinventing Itself
April 2017
Deepening Capital Markets in Emerging Economies
April 2017
September 2016
The report describes a CMIB industry that is, on the whole, failing to produce sustainable performance, despite
ongoing restructuring efforts. While there are some encouraging signs, including the coming of age of tech
enablement and the emergence of FinTech firms as potential partners, CMIB banks continue to face tough
choices about how they can achieve sustainable profitability
Capital Markets and Investment Banking 2016: Time for Tough Choices And Bold Actions
December 2015
Distributed ledgers, or blockchains, have been called the Internet of finance. In capital markets, the implications
and opportunities are wide-ranging, but the revolution will not happen overnight. In the near-term, blockchain
technology will primarily impact technology budgets and management priorities. Further down the line,
McKinsey expects significant disruption if the technology is adopted in public markets
McKinsey Working Papers on Corporate & Investment Banking (CIB), Number 12: Beyond the Hype:
Blockchains in Capital Markets
April 2017
The report examines the drivers behind the strong performance of CMIPs and performance variance across
regions and sectors. It describes five trends that will shape the evolution of the CMIP industry, including the
growing importance of the buy side and the rise of fintechs. The paper concludes with eight actions that CMIPs
need to focus on to capture the growth opportunities created by a rapidly changing environment
Capital Markets Infrastructure: An Industry Reinventing Itself
April 2017
The report focuses on the need for deeper capital markets in emerging economies, which - as our research
reveals in detail - lag significantly behind developed markets. Deeper capital markets in emerging Asia could
free USD 800 billion in funding annually, mostly for mid- to large-sized corporations and infrastructure projects,
accelerating economic growth
Deepening Capital Markets in Emerging Economies
MCKINSEY CREDENTIALS
C
22. 22
McKinsey & Company
… and shaping key industry discussions – select recent and upcoming examples (1/2)
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
M. Voelkel
R. Rudisuli
M. Röhrig
M. Voelkel A. Waschto
R. Höll
M. Voelkel
M. Voelkel
Speech on opportunities for Blockchain in capital
markets and securities services; lead of 2 breakouts
(R. Rudisuli & M. Voelkel)
Presentation on global trends and the future of
capital market infrastructure (M. Voelkel, M. Röhrig &
A. Waschto)
Presentation on future of the industry
(R. Höll)
Keynote speech on key trends in the CSD industry
(M. Voelkel)
Panelist on final panel (M. Voelkel)
Joint McKinsey-SWIFT CXO Securities Services
Roundtable “The Future of Securities Services” (M.
Voelkel, T. Saleh, M. Röhrig, F. Germann & J.
Penney)
18th ISSA Symposium
2016 (global)
FESE Convention 2016
(regional)
European Issuers Members
Meeting 2016 (regional)
ECSDA Conference 2017
(regional)
IOMA Derivatives &
Clearing Conference 2017
(global)
Sibos 2016 (global)
M. Voelkel
M. Röhrig F. Germann
T. Saleh J. Penney
MCKINSEY CREDENTIALS
C NOT EXHAUSTIVE
Example contribution
McKinsey role McKinsey contributors
Event
Industry association
23. 23
McKinsey & Company
… and shaping key industry discussions – select recent and upcoming examples (2/2)
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
M. Voelkel
WFE Annual Convention
(global)
Panelist on panel on consolidation in capital markets
infrastructure (M. Voelkel)
ISSA Symposium 2018
(global)
Keynote speech on automation and robotics in
securities services (M. Voelkel); workshops on
automation and robotics (M. Voelkel, J. Klein & F.
Germann)
M. Voelkel J. Klein F. Germann
Sibos 2017 (global) Joint McKinsey-SWIFT CXO Securities Services
Roundtable “Key Themes in Securities Services:
Robotics, Cyber Security, and DLT ” (M. Voelkel, J.
Klein, F. Germann & D. Chandarana)
M. Voelkel J. Klein F. Germann
D. Chandarana
Presentation on data and analytics in capital markets
infrastructure (R. Kapashi & A. Waschto), panelist on
final panel (M. Voelkel)
World Financial Information
Conference 2017 (global)
M. Voelkel
A. Waschto
R. Kapashi
M. Voelkel
Emart 2017 (regional) Keynote speech on future of energy trading (M.
Voelkel)
IDX Conference 2017
(global)
Panelist on panel on future of post-trade operations
(M. Voelkel)
M. Voelkel
MCKINSEY CREDENTIALS
C NOT EXHAUSTIVE
Example contribution
McKinsey role McKinsey contributors
Event
Industry association
24. 24
McKinsey & Company
We can offer you a large number of proprietary tools and assets
Survey/database End product/key characteristics
Global Capital Markets
Survey (GCMS)
▪ Comprehensive benchmarking of capital markets economics with full coverage of fixed income
and equities
▪ End-to-end coverage of securities origination, trading, sales, structuring, and research economics
Corporate and
Investment Banking
Revenue Pools
▪ Revenue insights and forecasts for different products, regions, type of banks (Globals, Regionals
and Nationals), and client segments (Corporate Banking, Capital Markets, and Investment
Banking)
Capital Markets Trade
Processing Survey
(CMTP)
▪ Benchmarking of cost-per-trade performance to provide transparency on, e.g., relative scale and
efficiency by asset class, KPI benchmark of underlying operational issues
▪ Contains cost data, trade volume and KPIs for : Equities, FICC, Listed derivatives, Prime
financing
Global Securities
Services Profit Pools
▪ Revenue, profits and forecasts based insights for different securities services products and
regions
▪ Country specific market sizing available
Global CMIP Revenue
Pools and CMIP index
▪ Revenue and forecasts by players (e.g., exchanges, information providers) and functions (e.g.,
trading, post trading, market data) in the capital market infrastructure industry
▪ Proprietary McKinsey index for CMIP players globally
SOURCE: McKinsey Global Capital Markets Infrastructure & Exchanges Practice
MCKINSEY CREDENTIALS
D
Peer group positioning across product categories -
Total Capital Markets - Summary
Revenues, EUR millions
