Future Proofing Trade Execution Systems
Their concerns are legitimate to some degree. For instance, the increasing use of cloud technology raises issues of jurisdiction, the requirement for audit trails implies specific responsibility, and future proofing systems competitively suggests ownership rights and licensing agreements.
Indeed, liability and risk containment is a major factor for future proofing trade technology. If under pressure, then brokerages and asset managers tend to choose in-house solutions for their technology needs, because they have more confidence in their success. It is a natural tendency to manage risks internally.
Arguably, vendors will soon be more tightly regulated – and perhaps some should be already – as their role gains more importance, especially if they create and install standardised systems. It would be ideal, buy- and sell-side speakers agreed, if they could outsource to a vendor and have confidence that it will automatically upgrade to comply with any new regulatory changes. Nevertheless, some systems are especially sticky, so renting could turn out, in practice, to be a purchase for life.
Hence, the momentum towards standardisation can often be checked by the necessity of a market place that offers purchasers with alternative, flexible systems. Besides, too much standardisation can stifle innovation.
Although technology is automating market convention, standardisation requires collaboration to ensure legitimacy and authority, and there is a continuing conversation within the FIX industry about standardisation of systems that confers the former, and a dialogue with regulators that bolsters the latter. The merits include easier compliance, lower costs and increased revenues.
New world challenges
Re-skilling is a major aspect of the financial industry. For example, visualisation techniques are being imported from gaming, while research and development departments are recruiting more and more staff from non-financial backgrounds. Everyone has to think more laterally about the expertise they can deploy – in fact one speaker pointed out that their firm had recently hired a molecular biologist to calibrate data from a different perspective to a traditional financial quant, and another said that their best technical analyst was an environmental scientist.
In fact, quantitative analysts in all their many forms increasingly “own” the trading process. In a sense, outsourcing is taking place within a firm.
It can be difficult for both vendors and in-house technology teams to recalibrate their systems quickly to changes in regulation. That is not because they are not flexible or agile – quite the opposite; rather, large firms have to spend time checking the adjustments and back-testing their efficacy in order to satisfy the regulators. In future, perhaps artificial intelligence can bridge the time interval.
Technology is transforming from a product into a service. Meanwhile, the behavioural revolution underway led by the younger generation means that the financial industry requires much more investment in technology that can maintain orderly markets and ensure security.
In addition, the longer-term macro-outlook indicates an escalating demand among defined contribution pensions scheme for equities that earn growing returns. This trend will need significant investment in technology frameworks, especially if asset classes and their individual securities are rationalised and consolidated.
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