Making a Better Industry: New Year's Resolutions for the Capital Markets

The Financial Industry Regulatory Authority (Finra) released its annual letter looking at areas the securities industry should look to improve upon in the new year. The letter, in its 11th year, is essentially a set of New Year's resolutions.

So in an effort to get in on the fun, I decided to come up with my own set of topics that need to be looked at not just by those involved in securities, but the entire capital markets.

In the true spirit of New Year's resolutions, I fully intend on giving up on these by late-January. But why not at least give it the old college try?

Cyber Security

I know what you're thinking: Dan, we're sick of hearing about cyber security! Listen, so am I! I don't think any topic was beaten to death more over the past year than cyber security. It's safe to say everyone in financial services understands the importance of protecting their data and systems. What I'm interested in hearing about is not the protection of technology systems, but the education of the people who work with them.

Why? Because no matter how strong a firm's defense system is there is still one gaping hole that continues to allow threats into the environment: You. Yes, that's right, I'm talking to you. Every time you open up an email you probably shouldn't, go on a site that looks a bit suspicious, or put in a mysterious thumb drive, you're opening up your firm to an attack.

So this year, instead of showing off solutions that can stop any attack dead in its tracks or discover the smallest of malicious bugs in a code, I want to hear about some type educational program or overseeing system that stops its employees from making stupid decisions that put their firms at risk.

This might seem like an impossible task, but it's a necessary one if we're ever going to hope to see some real progress on the cyber-security front. It doesn't matter how many safety precautions a boat has in place if it has an unfixable, gaping hole in it. It will always sink.

Blockchain

In staying with the theme of hot topics from 2015, we have now arrived at blockchain. I like to compare blochain's 2015 to NBA superstar Stephen Curry's year. While most fans knew who Curry was entering the 2014-15 season, he wasn't the superstar he is now. Maybe it was East Coast bias against a guy who played in a lot of games that started after 10 p.m. EST? Maybe it was because some people still viewed him as the scrawny kid from Davidson?

Either way, he's firmly placed himself in the spotlight now. This past year saw him take home a regular season MVP and an NBA title and start the 2015-16 season with an improbable winning streak.

Just like Curry, blockchain had a big 2015. It seems like every day another big bank was showing interest in developing some type of platform or system around blockchain. The tipping point could have come with the general acceptance that bitcoin and blockchain were not one in the same. Either way, it's clear blockchain has established itself as a technology of the future for the capital markets.

With all that being said, I still haven't seen any tangible usage of blockchain in the mainstream. Yes, there was Symbiont's issuance of its smart security on distributed ledger, but that was a demo more than anything. More often than not, a big bank will announce it is launching an innovation lab and throw around the term blockchain to grab some headlines.

Where are the results, though? In 2016 I'd like to see big banks, asset managers and hedge funds start implementing this technology in a real way instead of just talking about it.

Swap Execution Facilities

This one is pretty simple: The number of swap execution facilities (SEFs) in the industry needs to be cut down. If I had a dollar for every time I heard an industry expert say, Everyone recognizes there are just far too many SEFs out there right now, I'd be a very rich man.

The market is oversaturated. There is no doubt about that. The question is what are we going to do about it? It seems ironic that in a day and age where there seem to be new regulations developed every day, something hasn't been put together around consolidating the amount of SEFs. This issue is especially important with MiFID II regulations coming down, whenever that may be, which will add another wrinkle to the swaps market.

Food For Thought

-In case you've been living under a rock, Netflix has released a new original series that documents the life of a man who was exonerated after serving 18 years in prison for a crime he didn't commit and the ensuing aftermath. "Making a Murderer" is a great look at the flaws of our justice system. Once you're done watching the 10-episode series, which probably won't take long, head over here to read the other side of the story. I don't want to give too much away, so I'll just encourage you all to watch.

-Since this column is all about change, it's only fair that I include another piece about making New Year's resolutions. I found this story by Bill Barnwell, an NFL writer for ESPN, about losing 125 pounds in 2015 to be fascinating. Definitely worth a read, especially if you're in need of some motivation to make some changes in your life in 2016.

-Rip my heart out, N.Y. Jets, why don't you!

Like the column? Hate the column? Let me know via email (dan.defrancesco@incisivemedia.com) or Twitter (@dandefrancesco).