Amid extreme market volatility and shifting global dynamics, investment banks must rethink risk and resilience. By modernizing data infrastructure, they can unlock operational efficiency and gain a critical edge in uncertain times.
By Ted O’Connor, SVP and Head of Sell Side, Arcesium
The Cboe VIX Index soared to 60 on April 7 as the trade war flared. As of this writing, the “fear gauge” measuring investor sentiment on volatility stands just under 30, still well above the <20 target. Our financial markets are currently experiencing a period when even the volatility index is volatile, fluctuating wildly. Investment banks have collected the spoils of the bear market rally with record equities trading and rising activity in commodities, currencies, and bond markets. Of course, this doesn’t mean that wild market fluctuations are the sell-side golden goose. Banks are still trying to solve a decade-plus-old problem of low trading margins due to the high costs of regulatory compliance, technology modernization, and talent wars.
Erratic trade policy, the recent US Treasuries sell-off, and the weakening US dollar are precursors to a new world order in which global goods and capital flows will undergo significant changes. This is a risk management game for which the playbook is still being written. Extreme volatility in U.S. market is creating significant challenges for treasury desks, with implications for managing liquidity, hedging, and risk. There are so many forces that sell-side institutions cannot control right now.
However, institutions can control how they navigate short-term volatility while adapting to structural shifts in market dynamics to build resilience, by modernizing data strategy.
A new world order in global finance
CNBC reported that, “Rather than wagering house money on bets, they (Wall Street’s top trading desks) have leaned more to facilitating trades and providing leverage for clients.”[i] The sell-side is protecting its books while speeding trade ordering to grab enormous volumes. However, inefficiencies in operations can skim considerable income off their take. Recently, the US Treasuries sell-off to the tune of $2 trillion per day in early April kinked up some post-trade systems, causing about two hours of downtime and “slowness in reporting to clients in T+0 and T+1.”[ii]
Sell-side institutions are operating in a unique environment and must be prepared for anything from credit losses to recession. We’ve transitioned from a decade of low-cost capital and growth to a regulatory supercycle with a rising rates environment – to 2025’s uncertain period of tumult with less onerous compliance. Right now, big banks are in good shape, generally. But if a credit driven event, valuation driven, or liquidity driven event occurs, it will signal that assets have been re-priced to reflect a new world order. Sell-siders can ill afford outages, delays, or errors in liquidity, collateral, and capital management. Any delay in spotting exposure, especially from leveraged clients like hedge funds, can lead to crippling losses.
Chief information and chief technology officers are taking various approaches to upgrade their operating models and optimize the data flowing through their pipelines. This tumultuous period focused on risk management is a good time to unlock middle- and back-office operational efficiency, turning oceans of unstructured data into actionable assets of standardized, structured data.
Make capital work smarter
If the data flows well, the money will flow well. If institutions can reduce manual errors and make their moves with up to the moment, accurate data, they can optimize cash management, asset-based financing agreements, and cross-currency surplus balances. Prime brokers can determine ideal risk-management tactics by executing what-if stress testing for any potential situation if they use independent margin calculators to compute interest accruals across all clients in one place. With real-time visibility into client inventory, cash balances, and liquidity requirements, treasurers can deftly roll with whiplashing market movements. They can manage collateral across clients and rehypothecate collateral as necessary and activate idle cash. Of course, all of these advantages depend on access to a centralized information source. Smooth flow of data means everybody can see it – and it makes sense.
Data democratization for faster decision-making
Institutions that don’t have a modern data ecosystem that makes the current and reliable data accessible across risk, compliance, operations, and trading are dog-paddling upstream. Some brokers and banks have encountered friction and inertia in their digital transformation initiatives. Unquestionably, there is complexity in standardizing and centralizing data across regions, currencies, and asset classes, while complying with data localization requirements. Many data scientists and IT leaders may have adopted closed data infrastructure but struggle with moving accurate data upstream for compliance, reporting, risk management and market oversight, client metrics, and AI initiatives. Data from sources like reference data masters, cash ledgers, collateral systems, and deposits platforms get bottlenecked in legacy systems impeding siloed data integration, resulting in poor data quality, including incorrect and missing information. Consequently, answers come slowly.
Data infrastructure and operating models should enable greater commonality across asset classes and business functions. Deloitte predicts that the future of investment banking is cloud-based architecture, centralized data management, consolidated operations processes and activities across asset classes. Institutions can then automate and customize data operations. These approaches transform an upstream doggie paddler into an Olympic kayaker slicing through whitewater.
Prepare now for the next market cycle
During 5-Sigma events, a bank’s data becomes a mission critical bulwark against losses. High-performing back-offices will smartly process enormous transaction volumes with reduced errors. High-performing treasury desks will understand their exposures and their opportunities enough to fund their banks in the most efficient manner and capitalize on volatility. When clarity and cohesion return to global financial markets, sell-siders with digitally transformed systems will be ready to make money in the earliest stages of an up economic cycle, which can be some of the most profitable time windows. Banks and prime brokers have an opportunity to monetize vast amounts of data to generate intelligent observations that can be valuable to their clients.
Banks and their buy-side clients can no longer tolerate fragmented systems, slow reporting, and human-centric workflows that hamper decision-making and hurt client service. It’s time to finish the digital transformation. Moreover, AI / machine learning is predicted to be the most influential technology for trading over the next two years. To integrate transformative generative AI tools into higher value business functions requires advanced data infrastructure. Institutions that invest in a modern, open-architecture data ecosystem during the “regulatory ebb” will be the ones that avoid scrambling when the regulatory “flow tide” returns.
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[i] https://www.cnbc.com/2025/04/16/wall-street-trading-revenue-trump-volatility.html April 16, 2025.
[ii] https://www.risk.net/risk-management/7961376/treasury-selloff-challenges-back-office-systems April 11, 2025.
