By Michel Balter, Chief Strategy Officer, CameronTec Group
As the transformation of Turkey’s financial markets continues, leading Brokers are investing in new technology to maintain and grow their business. Michel Balter, Chief Strategy Officer for CameronTec Group, takes a closer look at the advancement of FIX connectivity in Turkey’s emerging capital markets, and the ways Sell Side firms can gain more efficient access to Nasdaq BIST.
Today large financial institutions globally are increasingly investing in ways to reduce complexity around their electronic trading environments. Much focus has been around harmonizing front office systems across trading desks and asset classes to reduce disparate silos and redundant technology. The fragmented technology and regulatory landscape in emerging markets such as Turkey, has further complicated these challenges, adding operational cost and risk.
With Turkey now responding to market liberalization, the emerging technology adoption trend is for modern platforms and FIX protocol standards that help reduce cost and complexity, and build out a competitive business platform that will keep them in the game.
FIX alone however, is not the magic connectivity wand, and emerging markets can learn from FIX investment over the past decade or from across the more mature markets. In many cases the widespread adoption and rapid uptake of the FIX protocol has resulted in cobbled-together systems of home-grown and vendor-provided FIX-enabled services including FIX engines, rules engines, and systems for testing, monitoring, customer onboarding, risk management and support services. Many of these firms today are dealing with internal infrastructure that is aging and costing a small fortune to maintain. Upgrading and harmonizing their overall FIX routing, monitoring and testing infrastructure with a complete set of integrated products can dramatically reduce complexity and operational risk, while improving the customer experience.
Up-to-date FIX infrastructure should include integrated systems that enable the application of complex business logic and risk controls with minimal impact to latency. It should also include systems to support automated regression testing and customer onboarding, and make it easy to monitor and manage connectivity. Out-of-the box resilience can help firms optimize their operations, infrastructure and trading capabilities.
Detailed below are three tangible benefits firms can realize as a result of migrating from an outdated FIX network to a more advanced, functionally rich FIX infrastructure.
1. Reducing Complexity
Many financial institutions have grown through acquisitions, and these businesses often end up pushed together with dissimilar technologies and processes in place. This trend has exponentially increased complexity in banks’ infrastructures. When it comes to their trading framework, it’s not uncommon for these firms to have numerous FIX installations that are all siloed.
Accommodating client needs also increases the complexity of a sell-side’s routing infrastructure. Clients often have technical idiosyncrasies that require customization. In many cases, the customized processes are handled with custom code. Order routing infrastructure becomes increasingly convoluted as more custom code is layered onto the system to handle specialized business needs. These layers add more operational risk, increase the difficulty of debugging problems, and require increased maintenance and support resources.
At the same time, the markets themselves are becoming increasingly complex. While this complexity is unavoidable, it’s incumbent on firms to optimize their trading environments as much as possible.
Ideally, an advanced FIX infrastructure solution should help simplify a firm’s trading environment; making it easier to apply business rules without writing code. It should accommodate market complexity while making it simple to organize and update rules. It should include monitoring systems to make it quick and easy to identify issues and debug errors. In essence, it should provide the tools necessary to manage all the complexity.
2. Reducing Operational Risk
All failures have a cost. While not all incur multimillion dollar losses, even minor outages can jeopardize a firm’s reputation or relationship with a client. With allocations rapidly shifting to the emerging markets, operational risk is gaining increasing attention, with the sell-side or buy-side escalating its importance.
A lack of proper testing is often at the root of such outages. Typically regression tests run by firms are manual and based on testing individual FIX messages rather than business logic. Therefore, the tests are unable to provide a truly realistic picture of how a function might perform in a real-life trading situation. Part of the problem is that legacy FIX testing systems don’t allow users test real scenarios with complex flows that are consistent with real trading behavior, so they are unable to predict how systems will behave in more complex scenarios.
Quality assurance teams need the ability to test the entire order lifecycle in an environment that is as true-to-life as possible. They need tools that enable advanced exchange and client simulation capabilities in order to simulate real market conditions involving race conditions, volatility and high throughput, and a variety of order types sent in at volume. Most of these tests are too complex to set up manually. So the only way QA departments can truly run sufficient regression testing is by using sophisticated automated testing tools designed for testing FIX trading infrastructure.
Such an advanced automated testing solution will provide a combination of rich data model-based testing to automate real client behavior; strengthening continuous regression testing and feeding script-based negative testing.
3. Reducing Operating Costs
Legacy FIX architectures are expensive and time-intensive to maintain. Typically these solutions are built on rigid, dated technology with an abundance of custom extensions. So every time updates are required, FIX engineers are manually amending code. And often custom code is not well documented, making it more arduous to uncover issues or errors later on.
Staff reductions at many major banks have compounded the problems. Pared down IT teams are tasked with managing the volume of manual processes surrounding their trading environment. This increasing trend has exposed a real need for automation to be introduced into a number of routine processes that may have once been handled manually when more staff was available.
Advanced FIX infrastructure can automate many of these tasks and simplify others, thereby facilitating the offloading of many tedious activities. Additional order monitoring tools with a proactive alerting solution can provide transversal efficiencies to also help reduce operational costs by arming both business and IT staff with real time order flow insight for engendering a faster response time.
Weighing the Options
Evaluating FIX infrastructure and maintenance costs is integral to investing in the right technology to deliver business value, ensure competitive capabilities and reduce total cost of ownership. When selecting the right technology partner consideration also needs to factor their ability to deliver future connectivity requirements, whether this be related to FIX, ITCH, OUCH or other. Firms migrating to a rich FIX solution that incorporates all of the integrated functionality needed in the trading workflow are able to reduce complexity, thereby allowing them to re-focus internal teams and resources on more strategic projects.
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