With Rob Keller, CFA, Executive Managing Director, Product Management and Development, Eze Software Group
In the investment technology space, we have seen considerable interest in technology integration over the past several years. Investment firms are looking to reduce the number of vendors and correspondingly the number of applications on their desktops. They are looking to engage one or two trusted technology partners to help them solve their current and future technology-related needs. The ultimate aim would be for a firm to have just one partner as their sole support to help them with the needs of their growing technological complexity.
Many investment companies are stretching the limits of what standard protocols, such as FIX and Swift, can do for them. The use of standard protocols has helped to integrate the investment lifecycle and allow data to flow between systems, but it can only get you so far. If you want a more fluid workflow between products, standard protocol can have its limitations, specifically where one product workflow ends and another product begins. You are still forced to swivel back and forth between two applications with two distinct workflows.
To address these limitations, a number of technology firms are striving to provide solutions across the investment life cycle by creating a seamless workflow via one platform. One of the critical components is owning the source code itself. Some firms have achieved this and are able to provide a tightly integrated workflow to their clients. The ultimate goal is to provide this integration via a common platform and to have a common product team that can work together on delivery and strategy.
The drivers of integration
What exactly drives the integration of technology varies between investment firms. For firms with heavy compliance business requirements, it is often the compliance team driving workflows that can affect the trading desk. We are seeing this frequently, where compliance is being further integrated into the trading workflow in order to identify concerns much earlier in the investment life cycle. At other firms, it might be the head of a trading desk who is trying to lower the total cost of ownership and consolidate the number of systems providing advanced trading functionality across the various desktops. A further example might be the CTO of a firm, looking across their entire technology stack and trying to simplify and reduce the number of vendors that they have to manage.
One common theme across all investment firms is the desire to lower overall costs, both explicit and implicit. When a firm is paying for multiple providers the explicit costs increase. At the same time, inefficient workflows implicitly cost firms on incurred slippage or market impact.
From a regulatory standpoint, it is clear that firms really need a single trusted view of their orders and positions. They can no longer have disparate desks that do not integrate until end of day reporting. This is where the term “IBOR” has arisen from; firms have had disparate systems that are specific to a particular workflow but have no centralised place to actually look at their overall portfolio.
For additional regulatory purposes, it is necessary to have a real-time holistic view across the entire book of investments to run accurate real-time exposure, counterparty exposure, and ownership disclosure requirements that various jurisdictions require at this point. That holistic view is very important to us. If we look back to the implicit costs, the further upstream in the investment process firms can catch one of these violations the better.
There are a number of factors that can pose challenges for investment firms when it comes to integrating technology platforms with other third-party systems. Firms have legacy platforms that they are trying to integrate using standard protocol. It’s difficult to create a truly unified workflow by stitching together disparate third-party systems that do not share the same source code.
Additionally, separate systems often have incongruent data structures. Trying to synchronise different data structures across systems in real time can be very difficult. Companies that own all the source code can sync data structures and provide a more cohesive system. Now that we own the source code across systems, we can actually deliver that sophisticated workflow. Furthermore, the additional complexity and desire for more flexible workflows is going to mean that it will continue to become more difficult for financial firms to stitch together third-party systems through APIs and standard protocols.
A challenge for technology firms is that some are reluctant to integrate with competitors. As firms integrate capabilities, they are surrendering some of the best parts of their technology. Without these distinct parts, they can lose their competitive differentiation.
For those technology firms that have integrated themselves and own all the necessary source code, they can deliver this streamlined workflow with some further along this development path than others.
Advanced EMS and OMS integration is one area that our client base has expressed a need for. What we have done is given our users the ability to benefit from the advanced trading tools available in our EMS, while also taking advantage of important OMS features such as fully integrated compliance, position-checking, and automated allocations.
Historically, an order would be created in the OMS where it would automatically run through position-checking, robust allocation processing, and then compliance. It would then be staged into an advanced trading tool such as an EMS. At this point, the workflow in one system has ended and the order moves into an entirely separate system. If the order needs adjusting outside of that very standard workflow, you have to swivel from the EMS back to the OMS to make that adjustment.
With our EMS/OMS integration, our clients can now work exclusively inside the EMS but leverage all the robust position-checking and compliance tools available in the OMS. In essence, we are matching up the best of both worlds. If the compliance officer is driving the decisions, they will want to ensure that compliance is a seamless part of the new trading workflow.
Since we have the same shared source code and development cycles, we are able to provide our clients a fully integrated seamless solution.
We will continue to see firms building platforms and acquiring products and services across the investment life cycle to ultimately develop a single, seamlessly integrated system. As we develop our platform, we will continue to innovate and add value to our existing solutions so we can continue to differentiate ourselves from our competitors. With increased regulatory pressures affecting all parts of the investment lifecycle, it is becoming harder for investment firms to stitch together the data required to meet these regulatory requirements. Having an integrated solution with centralized data will put investment firms in a better position.
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