LOS ANGELES — Among the positive changes wrought by technology on the bond markets will be a more equity like approach to trading, according to Ruth Porat, executive vice president and chief financial officer with Morgan Stanley.
Porat, speaking on a panel Monday at the Milken Institute's Global Conference, said she is also seeing more market differentiation and less emphasis on investment banks trying to be all things to all people.
"You have to pick your spots and play to your strengths," Porat said. "You can't stand still, because the market isn't."
For Morgan Stanley that means returning to its core, she said, and becoming "more focused on annuity-like businesses and reductions in fixed income."
New financing models are anticipated, but panelists said they also envision a world where technology could help avert the kind of crisis that resulted in the need for the massive government bailout so unpopular with most of the electorate.
Panelist Chris Dodd, the former senator who co-authored the wide-reaching Dodd-Frank regulatory changes passed in 2008, said the legislation made it possible for technology to play a role in anticipating financial market problems.
"Using real time data from the Treasury Department, you now actually have regulators sitting down looking over your shoulder," Dodd said.
No one realized how interconnected the investment banks were until the crisis occurred, Dodd said.
"Bear Stearns was acting like it was a one-off problem," he said. "Now we know, we came within 10 minutes of declaring a bank holiday" the Monday after Lehman Brothers collapsed.
Dodd conceded that neither the bailout legislation, nor Dodd-Frank were perfect.
He doesn't think the vast changes made to the financial markets' architecture could have been passed in the years before, or in the years after the crisis.
"We had a thin window to make changes that had been discussed for years," Dodd said.
In looking forward to the next crisis, Porat said it is hard to know what "disruptive technologies we will have."
Dodd said in writing Dodd-Frank they tried to draft regulations that would prevent a crisis without discouraging the next generation from being able to create beneficial new technologies.
"Technology can be a threat and an opportunity," Porat said.
Dodd looked back to the days after Lehman collapsed.
"I remember just after Hank Paulson had met with the speaker and the president," Dodd said. "Bernanke said unless you act, in a matter of days, a good part of the financial system and world will collapse. Needless to say, the air went out of the room."
At 2 a.m., Paulson was asking to give the banking industry a billion and a half dollars, Dodd said.
"I was then given two weeks to write a piece of legislation that would pass Congress," he said. "Needless to say, we were traveling in the dark. We were under a tremendous amount of pressure to write that legislation in a limited amount of time."
Richard Daly, president and CEO of Broadridge Financial Solutions, Inc., said he is among the people who believe that if the bailout had not occurred "that life as we know it would not exist."
Given that we live in a world driven by technology, Daly said that going forward, when legislators draft legislation that impacts the markets, technologists should be part among the legislation's drafters.
The way it has worked, according to Daly, is that legislation is passed and then technologists have to figure out how to implement it.
"Every institution of government could benefit by adding more technology to it," Daly said.
