HSBC is struggling to keep up with tech costs—Here’s their smart fix
HSBC Holdings is exploring outsourcing parts of its fixed-income trading business in a bid to reduce escalating technology-related costs and stay competitive against more agile, tech-driven rivals. According to a Bloomberg report published Monday, the bank is in preliminary discussions with major market makers, including Citadel Securities and Jane Street Group, about directing some of its trading order flow to external firms.
The proposed outsourcing strategy would allow HSBC to retain direct client relationships while offloading key functions such as analytics, order execution, and underlying technology to specialized firms. If implemented, this move could save the bank millions in IT costs associated with maintaining its global trading infrastructure.
The discussions come as part of a broader restructuring under CEO Georges Elhedery, who took over in July. Since his appointment, HSBC has aggressively streamlined its operations, cutting hundreds of senior roles, scaling back dealmaking activities in Western markets, and reorganizing various business segments to enhance efficiency and focus on core strengths.
HSBC’s potential shift aligns with a broader trend in global finance. Non-bank liquidity providers like Citadel Securities and Jane Street have gained significant market share in recent years, increasingly handling trading flows traditionally dominated by banks. A report from Boston Consulting Group indicates that non-bank market makers now account for 26% of global market revenues, more than doubling their share over the past six years. In contrast, European banks have seen their share of global trading revenue decline by 10 percentage points to 29% over the past eight years.
Outsourcing trading functions is a bold but strategic step for HSBC, reflecting a changing financial landscape where advanced technology and algorithmic trading play a crucial role in maintaining competitive advantage. By leveraging external expertise, HSBC can focus on client relationships and strategic growth while reducing the financial burden of maintaining cutting-edge trading technology in-house.
The move also underscores the increasing pressure on traditional banks to rethink their business models amid rising technology costs and shifting market dynamics. While no formal agreement has been reached, the outcome of HSBC’s discussions with Citadel Securities and Jane Street could signal a broader shift among global banks towards more cost-effective and tech-driven trading solutions.
As HSBC navigates these challenges, the potential outsourcing strategy could set a precedent for other financial institutions grappling with similar issues. If successful, it may mark the beginning of a new era where banks rely more on specialized firms to handle their trading operations, allowing them to focus on high-value services and long-term growth strategies.