The consolidation of trading desks and infrastructure to address the ongoing convergence in market structure across asset classes is increasingly common. But current buy-side technology solutions fall short. Fortunately, old thinking and fading legacy technologies are giving way to new models and approaches as the buy side prepares to welcome a new era of electronic trading. The onus is on buy-side firms today as never before to reassess where they generate value and performance return. But as they step up their pursuit of alpha, right across the enterprise – from the C-suite through to trading and sales teams – they face a daunting array of challenges. The heightened levels of complexity across investments, operations and regulations. The uncertainty engendered by Brexit. Increasing margin pressure. Entrenched shortcomings in respect of automation and legacy system handling. The ever-present threat of security and data breaches.
Against the backdrop of this highly pressurised operating environment, firms are looking to capitalise on those areas and activities that provide a competitive edge. To this end, the consolidation of trading desks and infrastructure to address more effectively the ongoing convergence in market structure across fixed income, foreign exchange, equities and derivatives is increasingly common. In taking that step, firms can also expect to reap cost and other efficiency benefits that will positively impact their bottom line.
Yet as firms look to consolidate their trading activities within multi-asset hubs, current buy-side technology solutions are falling short. Buy-side users are left frustrated at the lack of viable options when it comes to integrating their own in-house technology with the myriad of vendor platforms and inflexible UI's (user interfaces) in use today.
Many of the electronic trading systems that dominate the market today date back to the end of the previous century. Breadth of functionality is limited, notably when it comes to providing direct and smart execution for fixed income – despite the clamour from the industry for just such a capability over the past five years.
At present the focus remains largely on cash products, with little effective support for derivatives, and certainly not structured products or complex instruments. Legacy technology stacks are showing their age, at once difficult to access and expensive to implement, maintain or upgrade, and wholly unsuited for a modern, digitalised business world where smart devices such as phones and tablets are ubiquitous.
A more open and flexible model is needed to transform this fragmented, siloed landscape – a holistic approach that can overcome the deep-rooted challenges the buy side currently faces as it looks to trade globally across multiple asset classes.
Building on the lessons learned in the first two waves of electronification – initially for listed products in the exchange world and then for OTCs, specifically FX, on the sell side – the third wave that is now breaking around us centres on electronification for all instruments, be they cash, derivatives, listed or OTC.
This third wave sees a re-engineering of the established electronic trading model to deliver the enhanced digital-era connectivity and transparency demanded by heads of trading and their operations teams, enabling them to build assets and grow their firms.
It is about making the right smart tools available to buy-side clients looking to trade either through direct execution channels or via aggregators and venues. It is about creating a truly multi-asset trading capability accessible through a digital framework and via a fully extensible API. If a client lacks a digital channel, it will be provided, while existing channels can be integrated with an API. It means freedom from having to manage the bits and bytes of market connectivity and core trading functions.
Agile delivery is a cornerstone of this new model. Software as a service (SaaS) offers an exponential increase in terms of time to market. Projects involving the deployment of putatively “off-the-shelf” technology that formerly took months or even years can now be completed in as little as a few hours.
In the event of future new regulations or other market changes such as Brexit, SaaS also means future upgrades are at once simple and cost-effective. Its subscription model lends itself to flexible pricing to accommodate with a firm’s changing needs, while also ensuring ongoing reinvestment in the underlying technology.
Enhancing connectivity, efficiency, flexibility and transparency across all products, whether they are cash securities or derivatives, listed or OTC, this new model for electronic trading provides firms with the tools they need to thrive as market structure and trading landscapes evolve.
By removing obstacles to the unimpeded flow of data and opening the way to seamless and efficient end-to-end life-cycle management, it allows value to be pushed upstream to deliver better investment decisions – and lift returns on investment for end investors.
First published on TabbForum15th October 2018.