In the wake of the pandemic and an unequal economic recovery, global capital markets are being transformed by a number of interrelated forces. The following six areas will be central to better understand the dynamics shaping the future of capital markets, in the view of economists at BNY Mellon.
Democratization of public markets
“Today, market data is readily accessible online and new technologies have significantly reduced the cost of trading and other barriers to entry. This means that more people can trade, at any time, from anywhere. Increased access to markets is a positive development, but it is not without risk. It raises important questions about market and institutional resilience, and investor safeguards, as well as opening a broader discussion on financial education.”
Greater access to new wealth creation opportunities
“New products are being developed that allow retail investors to allocate capital to private market alternatives. Here again, challenges surface when opening these products to a larger community of investors. People need to know about the associated risks, which differ materially from investing in traditional stocks and bonds.”
Blurring of public and private markets
“More companies than ever before are entering public markets worldwide, and yet in the US we are seeing firms remain private for longer, and others electing to transition from public to private. This trend is fuelled by heightened disclosure requirements and regulatory scrutiny for publicly-held firms, as well as investor eagerness to fund private companies. Firms are also exploring other avenues to raise capital and reduce dependency on equity markets.”
Concerns around data and cyber security
“Data is emerging as its own asset class, and data management infrastructure is a key growth area for traditional financial firms. Institutions are actively seeking ways to leverage analytics to remain nimble and promote growth. But questions remain around how firms can innovate safely, benefiting from a more agile use of data while mitigating risks.”
New roles for financial firms
“Blockchain and distributed ledger technologies have the potential to disrupt core functions within capital markets, including trading processes, settlement systems, payments, and capital raising. At the same time, regulators and lawmakers are increasingly vocal about concerns around cryptocurrencies, raising important questions around their future viability as an asset class.”
Transparency around ESG
“ESG is a top priority for financial firms. As investors, asset owners, and corporations navigate their roles in supporting the transition to net-zero and stakeholder capitalism significant questions remain about what market structures and tools are needed to support sustainable investing.”