Finding The Right Mix: Outsourcing Technology In A Changing Regulatory Environment
A GlobalTrading roundtable discussion.
No firm is capable of managing its entire technology stack in-house, this much was agreed early on at the GlobalTrading roundtable hosted in June in New York to discuss outsourcing and its ongoing role in managing technology for firms. Exchanges are much better able to manage technology internally, but even this becomes increasingly challenging as they look to global markets.
The participants at the roundtable represented a range of buy-side, sell-side and exchanges, and each realised that there are differing approaches to the role of outsourcing technology, and what should be managed in-house by way of competitive differentiation, and what can be commoditised and bought in from a technology provider. That each firm has a slightly different mix of what they want to build and what they want to buy itself enhances the nature of the marketplace, and firms deciding on different answers to the same question is what keeps competitive differentiation alive. The firms in the room though all generally concluded that one of the key measures is the ability to have simple solutions that are easy to integrate into current workflows, and those that can be customised to fit in with the outlook and philosophy of the firm. One buy-side attendee used the analogy of a pyramid of core functionality, whereby a firm can view its technology as either being in the core function of its firm, or it is a peripheral piece that is added competitive advantage. The commoditised functions can be brought in, but the competitive pieces at the top of the pyramid need to be developed internally, and thus the firm ends up moving those boundaries back and forth and realises a hybrid model of technology. As the elements that are competitive advantage evolve, and other elements become more standardised, the key is the ability to maintain an evolving relationship with the outsource provider to encourage that flexibility.
One ongoing discussion point was the level of responsibility for each of the participants in the chain of technology in the event of outages or regulatory scrutiny, from vendor to the sell-side through to the ultimate end client. While it was generally agreed that the majority of the emphasis sat with the sell-side, there was an acknowledgement that increasingly this emphasis is shifting to the buy-side, and more responsibility for the technology is growing across different participants. Whether this will result in a shift of sell-side technologists to the buy-side remains to be seen, but there is certainly room for development on both sides of the Street to ensure well integrated and controlled technology.