Simply put, without the major strides in tech upgrades undertaken in recent years, it would have been impossible for the capital markets to have functioned as seamlessly as they did in a “work-from-home” environment this year. In this edition of Forecast 2021, technology providers OptionsLive, LiquidityBook, Itiviti and Fixnetix deliver insights into current trends in the tech space and what they expect to see in the coming year.
In our Forecast 2021 series, we bring you reflections and predictions from prominent firms and thought leaders from the industry. Today, we’re highlighting perspectives from the trading technology space, with thought leaders providing their perspectives on whether the pandemic revealed flaws in trading technology, the most important trends affecting the space and how firms should approach a potential return to the office.
A provider of managed services to the global financial community
Jake Beeman, General Manager
What, if any, flaws did the pandemic expose among trading among trading technology platforms?
In my opinion, this is dependent on asset class and also how you define “flaws.” Fixed Income, for example, tends to trade much differently than say equities or futures where you have a good bit of sophistication around trade automation and less manual, human intervention. I haven’t performed much research around the topic but I would think that the collaboration you get from having your trade desk on the same floor and within vicinity of one another could have created some challenges around optimization. In addition, I would have to think the supportability of a trader’s technology produced some challenges as larger and smaller institutions may not have been prepared for remote support at scale.
What are the most important trends occurring in the trading technology space?
For me, there are really two main focal points which have either started trending or will trend through the end of 2021. First, data continues to be an innovation focus with the introduction of more public cloud-based capabilities for data storage and distribution. Firms like Crux continue to show success adding more and more datasets to their library, and we see firms like MayStreet making strong gains in more traditional real-time cloud-based delivery capabilities. Data will continue to trend as the most key component to a trading environment and the need for accurate, error-free content will only grow, but the question remains if public cloud can cope with the strains of real-time data. The second trend will be sector rollups and consolidation and what that means from a technology offering perspective. Two major incumbents in Refinitiv and IHS Markit have announced divestitures, State Street has entered into the technology space with the Charles River acquisition, Virtu has been active in creating tech offerings and even the banks are looking to create more one-stop shop platforms as seen by Goldman’s continued development of Marquee. This could create strong shift momentum on the technology front with more rapid adoption of rising fintech type offerings. Also, I wouldn’t underestimate the amount of cost focus 2021 will bring; this will especially ring true at most large investment banks so I expect to see more outsourcing and “as-a-service” interest from the Street.
What questions should investment managers be asking their trading technology providers as they approach the year ahead?
I think the biggest question that often comes during and after any major driver of volatile conditions, which 2020 has certainly produced in a big way, is how prepared and capable a trading shop’s platforms are, specific to coping with volume and rapid supportability. COVID has produced some very challenging conditions on both fronts and firms will be looking at how to cope going forward, much like they did after Hurricane Sandy. The other big focus will be how accurate and capable central risk tools are to limit potential exposure, especially for firms with multiple strategies that trade across several asset classes
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A provider of trading solutions that cover the full trade lifecycle
Linda Middleditch, Chief of Product Strategy & Engineering
What, if any, flaws did the pandemic expose among trading technology platforms?
The pandemic was the ultimate stress test for trading technology platforms. Not only did we experience the direct market impact of vastly increased trading volumes and unprecedented volatility, but this happened as offices were shutting down and people retreated to remote work and disaster recovery protocols. Overall, I think we passed the test with flying colours. Having said this, of course, there were issues. To the point, Itiviti’s trading platform, including our data and support model, worked very well. For clients it was less issues with individual systems, but more about how the overall trading technology, risk management function and compliance worked in tandem during decentralisation. Some downfalls, especially in the compliance and surveillance area were made evident, and I think the challenge now is to provide solutions that provide more security and stability in this area, while at the same time being on the right side of the privacy issues this creates for employees.
What are the most important trends occurring in the trading technology space?
Data, data, data – analytics, pricing, reference data, risk, compliance and regulatory data, the list goes on. Multi-asset capabilities, central risk book maximisation, liquidity access to all relevant sources, flexible algorithmic framework and smart routing technology is to a large extent standard in today’s electronic trading space. The differentiator is how this is used, and here two things matter more than anything: 1. Data 2. Intelligent real-time use of such data in both macro and micro decision making.
What questions should investment managers be asking their trading technology providers as they approach the year ahead?
Resiliency, flexibility and best of breed functionality are all buzzwords here. Although important, the focus should be larger than this. The most important question is how will my technology provider support my needs as business and markets change? Don’t look too much at what you need today, focus on where you could be tomorrow and how your vendor will help you get there. This includes both great growth scenarios as well as challenging conditions. Hence, one needs a technology provider that fully understands the business and the market, a vendor who seriously focuses on R&D and who is investing in the future product. This is the product that will support the business of tomorrow.
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SaaS-based provider of buy- and sell-side trading solutions
Sean Sullivan, Chief Revenue Officer
What, if any, flaws did the pandemic expose among trading technology platforms?
Beyond reinforcing the need for cloud-based solutions, the work-from-home situations necessitated by the pandemic have caused firms to think more critically about business continuity planning. Allowing for limited remote work on a sporadic basis is very different than having all employees work remotely for an extended period. The limited reliability and user experience of legacy systems that rely on outdated technology become more pronounced, particularly in volatile markets. It was once tolerable and now it has proven to be costly and problematic. At this point, a large number of firms have come to the conclusion that on-premise solutions are not as scalable or reliable as newer systems offering more modern technology. But the cloud alone isn’t enough – multitenant cloud solutions, in which all clients are on the same version of the software, offer faster, more seamless updates and better client service. The need to think more critically about extended remote work and worst-case scenarios is a big part of why LiquidityBook has continued flourish as the current state of the world has added more reason for firms to replace their outdated and underperforming solutions.
What are the most important trends occurring in the trading technology space?
One key trend in the trading technology space is the continued rise of a new generation of developers. This generation is unique because it is entering the job market at a time when the cloud, data analytics, machine learning and AI are all becoming more relevant to the creation of new products and services. Aspiring technologists must be proactive and develop the skills that will help them thrive in this environment. At the same time, vendors need to monitor the latest trends and modernize accordingly – not just for the business benefits, but to recruit the best talent available, as the career track for the aspiring requires them to work with cutting-edge systems.
What questions should investment managers be asking their trading technology providers as they approach the year ahead?
Managers should be asking their technology providers how they can prepare for a remote workforce in the long term, not just in the next few months. We’re all eager to see one another in person again, but the fact is 2020 has proven that the work-from-home model is viable and will be part of the business fabric for the foreseeable future. That raises key questions on topics from screen real estate to security measures, but most important of all is the ability of your provider to pivot quickly as the environment dictates. Continual deployment, centrally managed, single-code, scalability – all of these are becoming more important in evaluating the core system providers you partner with.
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An options trading platform
David Hoffman, Co-Head
What, if any, flaws did the pandemic expose among trading technology platforms?
This year, the entire industry has had to adapt to remote working conditions and remote trading, whether they had the tools in place already or not. In options markets especially, this meant that many faced some disruption to their traditional workflows. Much of the options trading landscape still employs numerous legacy platforms as well as human interaction of which access was greatly restricted in a work-from-home environment. Prior to the virus, many options traders were still building their own data models, which is costly and time-consuming. The pandemic has accelerated the move to more streamlined solutions, and we should expect to see an interesting shift in options trading in 2021.
What are the most important trends occurring in the trading technology space?
There’s an increased need for targeted data and technology that can support grabbing the data at the critical moment when a trade is contemplated. Data algorithms solve the real-time data needs. However, well thought out user interfaces need to be written for traders to leverage the algorithms on their workstations. Those that can provide extremely accurate derived data and a convenient front-end application will be the winners in the evolving technology race.
What questions should investment managers be asking their trading technology providers as they approach the year ahead?
The first questions they should be asking must be around the interoperability and security of their systems. We outlined above how the industry is becoming increasingly sophisticated and trading dynamics are shifting. New solutions must be able to be seamlessly implemented into existing systems and work with other technology, while not sacrificing security capabilities.
This article includes firms that are both clients and nonclients of Forefront Communications.
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