Frankensystems

The Attack of the “Frankensystems”

What does a buy-side head of desk think of Fixed Income trading infrastructure? “I know what it needs to do, I just don’t know what it looks like."

Having navigated MiFID II, trading desk heads now face the task of selecting technology that will drive their strategy for greater automation, smarter use of data, and better execution. But fragmentation, varying workflows, different business models and technology architecture all contribute to a challenging scenario for trading desk decision makers.

Recent research from Liquidnet, surveying global asset management firms representing US$13.1 trillion in AUM, found that 63% of respondents are planning to switch to greater automation, accelerating an evolution in electronic trading.

So, budget is not the issue here, but as another buy-side head of desk remarked recently: “selecting trading infrastructure is more complicated and time-consuming than building a house. But like housing, you have to live somewhere!”

Probably the most taxing aspect of any technology decision is whether these multiple moving parts will actually work together, not only technically, but also commercially. 

PMS. OMS, EMS, venues, dealers and brokers present a swirling pool of moving parts that somehow make up a dizzying array of possible permutations for the ultimate execution tech stack. Indeed this has reached the point now where there is a nomadic tribe of consultants dipping in and out of vendor presentations at client sites, struggling to maintain a demeanour of alertness as a vendor demo heads into its’ third hour.

Then there is the RFP, a kind of geeky dating application process where vendors submit what they hope will be impressive credentials to win the approval of the prospective client. The trading head, dealers, internal IT specialists, legal and compliance departments will then pour over the submissions to reach a conclusion. From that point onwards the real fun begins as legal contracts are argued and agreed and the technology confection begins.

There is a lot at stake here. There is not one single solution that covers all asset classes, venues, brokers and workflows. There will inevitably be a need for vendors to work together for the benefit of their mutual client. Furthermore any multi-vendor configuration has to be relevant for at least five years. Whatever it is will take six months and maybe even as long as a year to fully implement.

So, let’s look at the building blocks of this decision. This usually starts with an incumbent OMS. This existing OMS vendor may be under review, or, as in the case of one “in deployment” buy-side client at TradingScreen (TS), actually changing OMS during the EMS deployment. That is like swapping planes in mid-flight rather than at the airport like normal people. It sounds impossible and very risky, but due to our existing integrations and in-depth knowledge of twenty-five OMSs, TS can plan and deploy very effectively in this environment.

A crucial point worth noting is that many buy-side clients are to some extent hostage to whether their OMS has an open policy towards EMS integrations or insists on its’ buy-side clients using an in-house version of an EMS. Having already dealt with a number of buy-sides who found themselves in this situation it quickly became clear to the buy-sides that a pure-play EMS was always going to exceed an OMS version of an EMS in terms of venue connectivity, workflow functionality, and trader productivity targets.  

Once the OMS issue is resolved the question of data needs to be addressed. The discovery and development of data-centric solutions is expected to accelerate, creating opportunities for a wide range of commercial solutions in areas such as risk assessment, business intelligence, and audits.

We know from our client conversations that obtaining data is not an issue these days. Combining it into a workflow where it can genuinely add value at a trading decision point and be attributed to a given trade is, however, very challenging. 

For these reasons we strongly believe in co-operative vendor solutions that solve client pain points. As a result we have developed a very open, neutral, and co-operative strategy.

At TS our expertise lies in solving client pain points by providing solutions to highly complex problems. We have intimate experience of analysing in-house set-ups that one client recently described as his “Frankensystem,” an honest admission that self-build does not result in efficiency as there is no opportunity to optimise by doing it a second, third, fourth time.

Read the rest of the article via Traders Magazine here 

  • Paul Reynolds

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