Exchanges and market-infrastructure providers have undertaken massive investments to introduce innovation into their core and secondary offerings in past two to four years, according to recent research published by industry-analysis firm Celent.

Market-infrastructure providers historically allocated approximately 5% of their IT budget to changing their businesses. The report’s authors noted that market-infrastructure providers are now spending between 20% to 25%, and sometimes as much as 50% in cases of the largest market infrastructures.

“In the exchange-traded space or regarding trading platforms that many had already modernized,” Arin Ray, a senior analyst at Celent and co-author of the study sponsored by Nasdaq, told Markets Media. “But if you look at central counterparty clearing houses and central securities depositories, we see in the recent years there was a wave of new transformation.”

Much of the transformation can be attributed to business and regulatory changes, according to the authors, who expect the next cycle of upgrades to begin in four or five years.

“Core market infrastructure functions- trading, clearing, and settlement-may continue to enjoy quasi-monopoly status in some countries because the regulators provide them this unique status,” wrote the authors. “But as these providers seek to grow and diversify their revenue base by expanding well beyond their core functions, they will face growing competition from others in this ecosystem, some old and some new, that will come up with alternative offerings and business models.”

Ray expects that the market-infrastructure institutions will be careful when adopting new technologies to support their core services.

“But when it comes to some of the ancillary services are developing new solutions for their client, we see that they are very interested in adopting modern technology,” Ray added.

Of those firms polled, the majority (70%) already have instances of robotic process automation in production while large pluralities are using cloud computing (40%) and artificial intelligence (35%). Only 5% of the respondents have live instances of distributed ledger technology, but 70% of them are working on blockchain pilots.

Risk management, clearing, and trading analytics are the three top areas in which the majority of market-infrastructure providers are investing currently while pre-trade analytics, post-trade services, and research/corporate access also signs of significant investments, according to the respondents.

“Specific initiatives include sentiment analysis on retail investor behavior, automated research aggregation, distribution of broker-neutral research, transaction cost analytics in non-equity asset classes, transaction reporting, cross-margining solution, triparty collateral management solution, and reconciliation of OTC trades, securities, fees and commissions, and so on,” wrote the authors.