Trading Platform Strategy for a Faster Changing World

Rapid Addition CEO Mike Powell explores how the traditional barriers to platform modernisation can and need to be broken down

 

Even before the recent Covid-19 crisis, many firms were already assessing their electronic trading technology against the developing needs of their clients and the evolving patterns of liquidity provision. Established electronic asset classes, such as exchange traded instruments, are already surfing the next wave of lower touch automation, while OTC and many developing markets are playing catch-up as regulations evolve and investors increasingly expect new levels of electronic infrastructure from their brokers.

But, as with many industries, change is accelerating due to the events of recent months and the growing realisation of their long-term impact. As countries look to recover from a battered global economy, capital retention and its deployment through efficient markets will be high on all government agendas. Key institutions, whether exchanges, broker-dealers, or other liquidity providers, will need to have the right infrastructure in place to support a market recovery and remove any barriers to trading.

A flood of cheap money from quantitative easing and ultra-low interest rates have artificially buoyed stock markets in the short-term, but daily news of rising unemployment and escalating debt will inevitably bite at some point. Market volatility will therefore continue, driven by ongoing uncertainty at a macro economic and geopolitical level. This will be compounded by the micro uncertainty and risk facing many once stable businesses. Companies are having to quickly adapt in the face of accelerating change, crushing the time it has traditionally taken to implement new projects.

So, against this backdrop, how do trading venues, liquidity platforms, broker-dealers, and asset managers think about technology investment and the capabilities they will need to have in place to be successful?

The challenges of a rapidly changing marketplace, extreme volatility and a highly competitive landscape will need to be addressed. Retaining and growing business will be difficult and the ability to move quickly will be key. Today, though, many firms are hampered by legacy technology that makes it hard to implement change, quickly onboard new clients, or manage risk across global trading operations and asset classes. Some are also exposed to performance and scalability issues in the face of extreme volumes and volatility.

Compounding this is the trend over recent years for many firms to become increasingly dependent on white label relationships and 3rd party products for algos, liquidity access, and client connectivity. Such firms can be at the mercy of others when it comes to overall service quality and timeliness, impacting their responsiveness just at the point where they need to be at their most nimble. At the same time, it is just not realistic to always build in-house. Development teams are generally struggling with workload and budget restrictions so should focus on competitively differentiating work rather than reinventing the wheel when it comes to core functionality.

Achieving the right blend of buy versus build is necessary to help firms realise the best mix of time to market, agility and cost, yet still have the flexibility to tailor services and deliver the unique value that differentiates them from their peers. We believe that firms who leverage best-of-breed core platform technology but augment it with their own unique IP are more likely to succeed. The right platform can deliver the performance and scalability needed to meet future demands while providing a framework for adapting services to the specific needs of individual clients. Increasingly, we think this will need to include sell-side brokers deploying tools to their clients, empowering them to take a more active role in managing connectivity and execution quality. By doing this they can develop deeper, more valuable relationships with their clients.

In parallel, if firms can implement a single architecture that supports a multi-experience, multi-asset class global platform deployment then they can also benefit from streamlined operations, infrastructure and support, while making process automation easier. This all contributes to the bottom line, helping improve margins and drive efficiencies. When combined with real-time monitoring and customer insight tools, this can put organisations firmly in control of both their infrastructure and client relationships.

The adoption of cloud can also play an important role in cost management as well as helping improve trading firms’ agility to test and launch new services. Cloud adoption is already firmly on the agenda of most CTOs, so the flexibility to deploy either on-prem, within venue co-lo, in-cloud or across a hybrid set of environments offers firms the ability to flex their technology strategy as their business models evolve.

Over the coming weeks we will be exploring some of these themes, why they are important and how Rapid Addition is helping our customers as they modernise their electronic trading capabilities.

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