Investment banks have had a fraught relationship with technology. They were among the earliest adopters of all sorts of communication tech, from teleprinters to computers to mobile phones.
But they are also hamstrung by old, incompatible and poorly thought out legacy systems. Lloyd Blankfein described Goldman Sachs as a tech firm earlier this year, but Goldman and other firms are spending billions to stay current — BCG estimated that the capital markets industry spends around 20% of operating expenses on tech.
Either way, it is surprising it has taken this long to get agreement on an order management system for new issues which the buyside can access as well.
It is an obviously excellent idea, promising faster, more accurate deal execution and less tedious admin for all involved. Those that like the human touch will doubtless get to keep it — investment banking remains a client service industry, after all — but a smoother, faster, less stressful new issue market benefits everyone.
The problem has never been the tech as such — order book management and book building is really just a specialist interbreeding of a simple database and an online messenger, both of which were old tech in 2000. Instead, the problem was co-ordination.
Banks poured money into proprietary systems, but how many investors want to log in to 10 different trading screens? Ipreo’s new offering isn’t there yet, but having seven major banks as sponsors is a promising start.
Would-be fintech disrupters would do well to remember this last point — it isn’t that banks can’t build tech, but they struggle to co-ordinate it, within banks and with each other.