We can learn a lot from a mongoose.
It's an exciting time in the fixed income FinTech space. For years, larger-scale investment banks have developed in-house systems and processes in order to make trading ‘a little’ more efficient. It always shocked me when I moved to trade at a new dealer how bespoke these systems were. There were of course the constants – Bloomberg, MarketAxess, etc. – but the variance in local systems was frightening. Some dealers had excellent systems while others were operating on Excel and little else. It wasn’t always who you’d expect. Each desk had differing systems developed by different people. There was little crossover between sectors within the bank, and all too often technical efficiency came down to the individual personalities of the desk heads.
Now, there is some genuinely impressive innovation coming from a number of FinTech firms in the space. Dealers have also become more comfortable with the idea that their data can be managed securely and effectively by external firms, and cloud-based offerings are no longer the red flag they once were. We are entering a golden age of financial technology. Or, perhaps more honestly, banks are being dragged reluctantly into a brave new world.
There is, however, a problem. I spent several years at a Fintech firm meeting with desk heads at dealers and funds. We’d talk about the problems we were trying to solve with our systems, why those systems were so effective, and how we planned to tackle market issues with further developments. Very rarely was the message not accepted as valid. We had a great product, but it required critical mass in order to function properly. The investment market is a network, pure and simple, and in order for a FinTech system to be truly effective, it needed to cover a majority of that network. But how do you build a network at the early stages when there is so much competition for time with other systems?