The Transformation of Tomorrow’s Markets: 4 Strategies to Prepare Your Organization

If there is one thing that is constant, it’s change. Thus far, during 2022 alone, macroeconomic events have driven periods of high volatility and challenges for market infrastructure operators and participants looking to remain competitive in a globally connected ecosystem, including margin pressure, volume spikes, and new ESG requirements. Outside of external forces, many capital markets practitioners are closely examining their strategy, culture and technology to future-proof their organizations and successfully transform their businesses to meet market demands.

As a technology partner and market infrastructure operator, Nasdaq is innately focused on successfully navigating digital transformation – both for ourselves and for our clients as they embark on their digital transformation journeys. 

As such, we were excited to host more than 100 delegates from capital markets infrastructure operators, regulators, and market participants from across the globe at our global headquarters this summer for our biennial Technology of the Future (ToF) conference, where technology and innovation are the central topics of focus. Our mission is simple: we want to collectively advance the capital markets for the future. And as usual with ToF, the conversations and learnings exceeded our expectations. 

For those of you who couldn’t attend, here are some key themes from this year’s edition:

1. The digital assets technology of the future calls for the regulation of the future

The big idea: Significant infrastructure investment will be necessary for computing, data, networks, hardware, and software to build the Metaverse. We have to invest in our regulatory infrastructure as well. This is according to Commissioner Caroline D. Pham of the CFTC, who delivered the keynote address.

In a nutshell: From the beginning, we should aim for durable, flexible regulations – we should try to future-proof what we do, according to Commissioner Pham. This proactive approach to regulation and oversight will ensure that we continue to meet our mandate both today and in the future as technology and markets continue to evolve.

According to Commissioner Pham, this has several components:

• We need to get all the information we can. Not only is there a need for cross-regulatory collaboration in the U.S. between CFTC and the SEC, but also global participation via efforts like CFTC’s Global Markets Advisory Committee (GMAC), which is about having a level playing field and will focus on firms’ global business strategy and operations and the markets that are needed to support growth and effective risk management. She called for a potential subcommittee on Digital Asset Markets, as “this market evolution presents global challenges that need global solutions.”
• We need to learn as much as we can. Commissioner Pham cautioned about “big bang” changes that could lead to market fragmentation and unintended consequences. Her advice: “we should move forward with both hard work and hard thinking, so we do it right the first time and don’t have to rely on dozens of one-off staff letters, exceptions, and temporary fixes.” 
• We need to find pragmatic solutions. We should start with what we have. Commissioner Pham believes it’s “usually faster, easier, and more reliable to use what’s existing and tried-and-true than to stand up something entirely new. So, we should apply existing laws where we can.” “[At the CFTC], we have ready-made regulatory frameworks for derivatives markets that have stood the test of time. We have our core principles and business conduct standards. We have broad anti-fraud and anti-manipulation authority. Where we have rules at hand, let’s use them.”

2. Cultural transformation is a major part of business transformation

The key approach: Trust + transparency = the basis of a strong, innovative, and evolving tech workforce, according to Goldman Sachs Co-Chief Information Officer Marco Argenti, who spoke on stage with Brad Peterson, Nasdaq’s CIO/CTO. Your tech workforce is also a critical crew in how a company goes to market. Indeed, developers and engineers are a central part of the decision-making process both in what is decided on to be built and sold externally, as well as who buys your products and services. Having a great developer experience is critical to success, and that also means having your solutions be easily discoverable by developers.

• Ironically, trust also means building as little as possible. In a big complex organization, build something that everyone can use or look outside first before you decide to build. This requires trust.
• Trust is a big word. For companies on this digital transformation journey, the first step is to build transparency across your engineering and developer teams. This means communicating what your service-level objectives are, measuring them yourself and then cascading these objectives so everyone internally can understand your dashboard, metrics, etc. For example, this could be via a weekly operational meeting where the majority of the engineering leadership congregates and looks together at all the various incidents in a blameless way. 

Being culturally transformative is not about writing code in a different way; it’s about principles, mechanisms, and the customer experience. 

• Before kicking off any important initiative, Argenti likes to have his teams start with the customer or end-state of how they will perceive a service and then work backward. It could be drafting an FAQ, memo or press release and then having colleagues read through the materials in silence before diving into feedback. 
• Not only is this a great mechanism for inclusion, but it puts contributors in analytical mode, where they can concentrate and give useful counsel effectively. 

Constant learning and relevancy are also critical in acquiring and retaining top talent. Engineers and developers are excited about solving big problems and learning new things. Argenti sees a big cause of attrition when developers and/or engineers can’t advance their skills in their current job. For most tech talent, if you want to be competitive in the market, you need to be current with the latest technology and tools. And being an organization that provides those technologies and tools, whether for exploratory or real use, is critical. 

• For exciting challenges to work on, some of the biggest ones are in the industries themselves. For example, big data science problems like high-frequency execution, natural language processing, beta distribution, or interpreting complex contracts all require premium engineering minds. 
• For Argenti, the frontier has moved into the industry. It’s not solving a database problem but perhaps a complex strategy or alpha-seeking problem. By inverting the equation, the industry becomes the most desirable place for an engineer to be and advance their career.

And finally, for the success of any digital transformation project, you need a top-down mandate to drive it forward. Have it central to the strategic agenda that is embraced and regularly communicated across the C-suite. 

• For example, internal audiences should be addressed by the CEO on a monthly basis and reminded why these digital transformation initiatives are important, and why they personally are sponsoring–and believe in–this effort.

3. Success in the cloud requires a long-term mindset and long-term relationships

For Adam Selipsky, CEO of AWS, the management team of AWS experienced a memorable lesson in taking the long view in the early days of the cloud giant. As Selipsky explained during his conversation with Nasdaq’s Adena Friedman at ToF, when EC2 (i.e., an AWS solution that allows users to rent virtual computers to run their own computer applications) was going to market in 2006, pricing was a major debate.

“We were going to price it at X, and someone in the room said, ‘we should price it at 1/10th of X – we should not penalize our customers for our lack of scale.’” Flash forward 16 years, and Selipsky is giving his own variation on this approach to his sales team. “I tell our sales folks to bring us long-term, trusted relationships, and the rest will work itself out. That’s it. With your customers, there will be good and bad days, but if you trust each other, you work through the bad days.”

Selipsky points to the Nasdaq and AWS relationship as an example. While the relationship began in 2008, the next frontier is moving markets and matching engines into the cloud. “People used to say the cloud will never be secure enough, never enough latency, scalability, availability, etc. And yet, Nasdaq and AWS are literally moving the first market to the cloud this year.”

Selipsky believes that when we look back in 10 years, this will be one of the seminal moments in the evolution of the cloud. It also will have a major impact on Nasdaq’s business, providing it “great cost characteristics, unlocking innovation and allowing (us) collectively to release products for other customers to leverage.”

Take the journey with your clients early on, so your fate is intrinsically linked with your customers. That strong focus on customer obsession will keep your decision-making honest and in check with what the market needs. For companies, this journey also has several business leadership principles to drive home, according to Selipsky:

1. Leverage top-down leadership. For example, if a company decides it wants to move its operations to the cloud, provide the agenda on how it will get done. Have lots of discussions and then execute.
2. Don’t be afraid to eliminate Plan B. According to Selipsky, even well-intentioned, smart people will stay on Plan B since it’s comfortable. “If you cut off Plan B, most people will stop worrying about it and just focus on the mission.”
3. Prioritize training, enablement, and reskilling across the organization.
4. Set aggressive goals. Get quick wins, says Selipsky, but you want aggressive goals. “People don’t realize what they can do until they have that sense of urgency.”
5. Embrace humility. You can learn so much from your customers and people in other industries—but you need to accept that you do not know it all.

4. As central hubs of the financial economy, the onus is on markets to be the drivers of (technological) change

Express yourselves: As Adena Friedman, President & CEO of Nasdaq, sees it, the fundamental task of markets is for investors to express themselves through supply and demand. That responsibility and mission also come with the need for a significant amount of resiliency in the face of extreme volatility, macro forces, a confluence of opinions, as well as constant changes to the investor landscape. 

But what about all things crypto? For Friedman, who spoke with CNBC’s Jon Fortt, Web3 has a potentially major role in the creator economy. And markets, including those decentralized, can play a major role in bridging supply with demand and vice versa. 

• The crypto economy is going through a major transition phase, and critical to its success is having regulators and legislators learn from what’s happening and provide constructive, forward-leaning action to continue to support innovation and growth while also finding a smart way for digital assets to be useful for investors.  

Last week, Nasdaq took the next step in its own digital asset journey with the launch of Nasdaq Digital Assets, a new business that will power the digital asset ecosystem. Building on the successful solutions, we have launched in recent years to service the digital assets ecosystem, the launch of Nasdaq Digital Assets underpins our ambition to advance and help facilitate broader institutional participation in digital assets with trusted and institutional-grade solutions focused on enhanced custody, liquidity and integrity. Nasdaq Digital Assets will initially develop an advanced custody solution that will incorporate liquidity and execution services to address industry challenges around connectivity, availability, and efficiency. 

Consistency is also key in shaping the capital markets ahead. When Friedman and her leadership team make major strategic decisions that will define the company’s direction, they take a 10-year outlook and don’t make permanent decisions in temporary situations.

• Transparency, liquidity, and integrity are core pillars of Nasdaq’s strategy and business decision-making. In 2017 when Friedman became CEO, this brought modernizing markets via the cloud, anti-financial crime, and ESG to the forefront of major initiatives and its mission. Jump ahead four years, and Nasdaq inked a major partnership with AWS to 1) move its markets and operations into the cloud, 2) bolster efforts in fighting financial crime and keeping its markets safe and 3) supporting corporates with their ESG efforts. It’s about defining a long-term vision and being serious about executing on it, while not reacting permanently to short-term distractions.

Being a data-first exchange of the future means embracing all things cloud. For Friedman, the cloud unlocks intelligence, analytics and capabilities for investors and corporates so they can have a better experience of the markets. It also means being nimble and utilizing modern API structures to offer new asset classes and capabilities to the market ecosystem. As Nasdaq moves its first market into the cloud later this year, as well as all non-trading workloads across the company, hyper resiliency, scalability, and security will also be important layers it will benefit from. 

In conclusion, the strongest, healthiest markets in the world embrace and build upon macro headwinds and find opportunities to make them tailwinds. The confidence in this approach comes with having a long-term strategic game plan in place, not short-term thinking.

Other Topics

Cloud Computing Digital Assets Market Regulation

Roland Chai

Nasdaq

Roland Chai is President of European Market Services, responsible for Nasdaq's multi-asset trading, clearing, listings, and market services businesses across Europe, including Sweden, Denmark, Finland, Iceland, Estonia, Latvia, and Lithuania stock exchanges. 

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