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Trading technology

Assessing The Stack

Varghese Thomas (SVP, Infrastructure) and Mark Wright (VP, Infrastructure) of NYSE Technologies examine the mounting pressures and alternatives for technology solutions.
What are the principal pressures on buy-side and sell-side firms in terms of their technology provision?
There are always cost pressures, especially in today’s environment, but at the same time there are pressures to maintain legacy platforms, generate new revenue and stay agile while managing challenges ranging from reduced volumes to regulatory reforms. These mounting pressures make the economics of today’s IT unsustainable and a game changing shift is required.
Mark: We’re still in the cost-out part of the economic cycle, but firms are starting to turn and think more about how they grow in this environment. Clients are looking at services that previously differentiated them to source as a managed solution. It’s important to keep in mind that if a client is working on the cost out part of a business line, they’re not necessarily giving up anything as far as capabilities available to their clients.
Varghese: It’s a painful process to assess your home-built operation, design a new solution and go through the implementation process, especially with the associated migration costs. That’s where properly evaluating managed services comes in. A firm needs to be able to identify their core competencies and competitive advantages, and determine which resources are better off in a managed environment. The economics of cloud based consumption enables clients to alleviate transition costs by leveraging infrastructure as a service.
What workloads, tasks, and functions are firms typical looking to move into a managed services environment?
 Early on, we saw a lot of firms moving front office workflows into a managed environment as they wanted low latency access to markets and managed access within data centres. Now, we are starting to see the entire trading workflow as well as broader enterprise applications move to a managed environment.
Firms are looking at all their workflows and determining how to find cost savings in the front, middle and back office through the clearing processes. The key to identifying outsourcing opportunities is to ensure that a firm still has the availability and flexibility to manage the infrastructure and control the workflows in their own environment within their own context.
Mark: As an example, let’s say you have a firm without a presence in Asia. They are considering building systems internally in the new region, but that’s inevitably expensive. Yet it can be something which a managed service provider can offer you in a remote region.
Another workflow ripe for outsourcing would be FIX connectivity. Everyone had built massive infrastructures for managing FIX connectivity within their firm, but that’s pure legacy now and something you can easily give to a service provider to manage.
What questions should firms ask when evaluating their technology stacks with respect to managed services?
If you look at the whole technology stack of a firm, a lot of what sits in the infrastructure is legacy or commodity services that are non-differentiating. So, does a firm really need to focus on data centres, networks or even compute and storage layers? Or could it be more efficiently managed in a cloud environment?
As you move up the stack, a platform approach is available for a firm to leverage in building an application with a suite of services from middleware to content. It’s here where firms can make changes so they can build their own application, but will that platform have all the tools and services that are needed?
Further up the stack, you can probably outsource everything as software-as-a-service — the entire infrastructure and middleware is abstracted from what a firm needs to build or operate. So, depending on a firm’s particular situation, each of the approaches offers flexibility in systems and applications. Depending on current in-house capabilities and core strategy, a firm may decide to just focus on one specific area to outsource or they may look at a much broader spectrum of the technology stack.
What hurdles must firms deal with when evaluating a managed services solution?
 Larger firms have to deal with more legacy systems. If they’ve been undergoing acquisitions over the years, there are many distinct and disparate systems in place. However, they are now looking ahead not only to reduce costs and operations, but to discover what actually provides differentiation, gives quicker access to new markets in other geographies or asset classes, and to develop new ways to create revenue and value.
Mark: I do believe that the switching cost to take something developed in-house and move it to a vendor can be significant. It can be a painful process without experienced service providers. What people tend not to see is that once it’s managed by a vendor, then you’re in a marketplace of service providers and you’ve gained mobility and leverage as your needs evolve.
Will the trend of firms outsourcing parts of their technology stack continue?
Building your own infrastructure is a more difficult undertaking nowadays. For example, financial institutions need to collect, store and process market data, so is it worthwhile to build your own infrastructure for that task? Is there a way that a firm can operationally reduce their cost while gaining access to the latest version of software, hardware, OS patches, and security that’s deployed by a provider? If managed in-house, does the client have the flexibility to maintain a data infrastructure that gives them a way to still focus on a core business? In the end, enterprising firms are outsourcing what they feel comfortable with and what they can do quickly. The migration to managed services is growing rapidly — the industry spend is poised to double in a few years.
Mark: I don’t think it will ever go back to the way it was, the future is a marketplace for services of all levels of the stack. IT departments will, over the long haul, become more and more of an interface between their firm and the vendor marketplace for services. The days of doing it all yourself are over.


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