The Future Of Trading Technology: Building A Resilient Stack That Supports Business Growth

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A GlobalTrading Roundtable Discussion.

Regulation and technological innovation are forcing the industry to re-position their existing trading systems, according to participants at a thought leadership discussion.

The trading landscape is experiencing rapid transformations and is faced with further disruption. Regulatory imperatives, cost pressures, innovative technologies, vast new data sources, and a constant requirement to deliver competitive services to clients are forcing all industry participants to reassess the quality, efficiency and sustainability of the technology stacks they use or promote.

In order to meet the challenges and opportunities ahead, close collaboration between the business and technology departments within each firm is essential, agreed participants at a roundtable discussion held at London’s Royal Exchange on 5 October.

Clearly, the Markets in Financial Directive (MiFID) II is concentrating minds. The regime, which comes into effect on 3 January 2018, will force buy- and sell-side firms to implement trade processes more rigorously. Notably, there will an obligation not only to achieve best execution in all asset classes in re-structured markets, but to do so in a transparent and auditable fashion.

Prioritisation
Brokerages and fund managers have to determine priorities, avoid wasteful duplication and assess the relative merits of building their own systems internally or buying technology from third parties. It is critical that they streamline processes and install efficient and cost-effective technology stacks, be able to access data throughout the trading cycle, and recalibrate in response to changing market conditions and regulation.

Vendors also must prioritise to ensure their time and resources are not wasted on unproductive projects. A client’s request for a specific bespoke product might be commercially unviable if there is little likelihood that it can be cross-sold elsewhere, and even less worthwhile if there is no guarantee of final purchase and payment. However, vendors need to be flexible and able to offer both customised and standardised technology. They understand the regulatory obligations of their clients, and can tailor their products and services accordingly – but only if it makes financial sense, which typically means being able to offer them to other clients and for use in other asset classes.

As a panellist pointed out to general agreement: “You can’t get away with doing the same thing twice these days: you have to get it right the first time, otherwise it’s too expensive.”

At a basic level, technology prioritisation is simple: focus on regulation and the issues that all clients care about most, such as stability with flexibility, and systems that are fit-for purpose. However, beneath the surface prioritisation is highly complex. Different groups within a firm have their own particular urgencies, as well as disparate views about what technologies should be scaled, and sometimes agendas that might favour an in-house investment rather than buying products from third parties.

Shared interests
Fortunately, many firms now recognise the importance of collaboration and integrated project management. Instead of the traditional segmentation between functions, technology and business operations are cooperating more efficiently, because the selection of appropriate technology is central to the success of their overall success. Business leaders need to understand the role of technology and developers need to place their systems within a business context. Both must recognise that the aim of technology is to enhance capability. The increasing status of the chief technology officer reflects and affirms this trend.

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Similarly, access to and use of data is a theme shared by monitoring regulators and the commercial ambitions of buy- and sell-side firms. Data is both the substance of trade transparency and a source of competitive value, so their interests are compatible.

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