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Trading Systems Guide 2015


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Welcome to the bobsguide Buyer’s Guide to Trading 2015 Change is a constant for today’s trading firms. Evolution is occurring not only in the regulatory landscape but also in the technology world. Trading systems that were implemented as little as five years ago may well be inadequate for many firms. For organisations looking at purchasing new trading systems our Guide features a comprehensive Matrix enabling buyers to compare and contrast the different functionalities of solutions on the market today. The choice of system will be influenced by a number of factors that are outlined in this Guide. Requirements for best execution, for example, may well be strengthened and firms will need systems that can monitor broker and venue performance more accurately. Multi-asset trading strategies are also gaining ground and we ask whether the technology exists to support such strategies. The role of standards in addressing business and regulatory issues in the world of multi-asset trading is explained in our interview with Tim Healy of the FIX Trading Community. Finally, we present some of the questions firms should be asking when undertaking a system upgrade or replacement.

Trading Systems Guide 2015 Editor Heather McKenzie mckenzieheather@hotmail.co.uk CEO Anne-Marie Rice annemarie@bobsguide.com

I hope you enjoy the Guide. Heather McKenzie, Editor

Sales Director Stephen McMaugh stephen@bobsguide.com

Contents

Senior Account Manager Stefano Perciballi stefano@bobsguide.com Business Development Manager Edward Drew edward@bobsguide.com Design & Artwork Donna Healy donna@missjonesdesign.com

6

The best of the best

Many firms have treated best execution as a box-ticking exercise. As a result, financial regulators look set to strengthen best execution requirements.

A slow evolution

Fixing standards

12

Both buy side and sell side firms are pursuing multi-asset trading strategies, but there is doubt whether firms will be able to trade different asset classes on a single platform.

14

The FIX Trading Community has championed the cause of standards in the trading world. As regulation increases, standards are becoming ever more important.

22

18

Copyright© 2015 My Guides. Copying and redistributing prohibited without permission of the publisher. This information is provided with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal or other expert assistance is required, the services of a competent professional person should be sought. bobsguide One Hammersmith Broadway Hammersmith. W6 9DL UNITED KINGDOM

Functionality matrix In with the new

A trading system upgrade or replacement is a vast undertaking and success is not always assured. We look at the key ingredients for a smooth transition.

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bobsguide is the trusted online global resource for buyers of financial IT technology. More than 55,000+ users visit bobsguide every month to research and purchase systems for banks, dealing rooms, corporate treasuries and other financial environments.

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3


Trading Systems Guide 2015

The best of the best Best execution is still an elusive concept in Europe seven years since it was first mandated by financial regulators. Lynn Strongin Dodds looks at the progress firms have made and the prospects for the strengthening of best execution regulations As with many regulatory initiatives, the Markets in Financial Instruments Directive (MiFID), which came into force in 2007, has been a doubleedged sword. On the one hand, it has forced the industry to up its best execution game but attaining the optimal price in increasingly fragmented markets has been challenging. The jury is still out as to whether it will be easier under MiFID II. Under the original Directive, brokers and dealers were obliged to obtain the best possible result of a trade for a client, taking into account not just price but costs, speed, likelihood of execution as well as settlement, size and other considerations. However, the Directive never spelled out how to achieve best execution and the result was that brokers

penned their own policies, which often differed from one to another. MiFID II, which is set to debut in 2017, has more teeth and covers a broader range of instruments. Execution policies will have to be customised depending on asset class and type of service provided. Asset managers will have more responsibility, including providing clients with information on how venues are selected, the specific execution strategies employed, procedures used to analyse execution quality and how best execution is monitored and verified. They also need to report and measure the quality of the top five execution venues on a yearly basis. Despite the more stringent tone, Anna Pajor, managing consultant, capital


Trading Systems Guide 2015

market intelligence at consultancy Greyspark Partners, notes: “Best execution remains a difficult topic. Everyone has a different definition of what it is. In practical terms, clients are not receiving the worst execution but it depends on the actual definition and market conditions as to whether it is the best. I am not sure that MiFID II will solve the problems. For example, the reporting of execution venues will happen only annually. It will be interesting though to see the bias that certain venues receive. I think smaller platforms could lose out.” Per Lovén, head of corporate strategy Emea at buy side trading platform Liquidnet, adds: “Spreads are tighter and commissions are lower today, so on one level you can say best execution has improved, but the real challenge is minimising market impact. For large institutions the average market impact in lit markets is 60-100 basis points. In this context the venue you trade on is increasingly important in achieving best execution.” Steve Grob, director of group strategy for Fidessa Group, echoes these sentiments. “Around the world regulators are talking about getting better outcomes for investors and we are steaming ahead with MiFID II without there being any concrete evidence as to whether those outcomes under MiFID I have been achieved. However, if you take a broad view and look at the bid/ offer spreads, they have fallen. But the answer is less certain when it comes to the explicit costs of trading over different lit and dark liquidity pools.” A recent study by Fidessa shows that the number of venues has mushroomed from 175 at the end of 2007 to 280 markets today. Activity has been fluid with around 60 appearing and disappearing during that time; in total more than 160 new venues appeared within seven years. Although the proposed dark pools volume caps of 4 per cent per venue and 8 per cent across all dark pools under MiFID II will cause further consolidation, there are new platforms already waiting in the wings. The most notable is Plato Partnership, a not for profit block trading platform supported by both buy side and sell side firms. While MiFID II shines the spotlight on brokers and asset managers, national regulators across the European Union have also come under fire for their www.bobsguide.com

“Esma found an inconsistent application of practices and that many firms treated best execution policies as a perfunctory box-ticking exercise” patchy implementation of the first version. A recent report from the European Securities and Markets Authority (Esma) found an inconsistent application of practices and that many firms treated best execution policies as a perfunctory box-ticking exercise with the focus on just the best price and not on the other execution factors. One reason for this inconsistency is that MiFID is not a regulation but a Directive, which does not enter directly onto national statute books. The result is that national bodies are able to put their own spin on the rules. However, Esma singled out three regulators for particular criticism – the Polish Financial Supervision Authority, the Malta Financial Services Authority and Lichtenstein’s Finanzmarktaufsicht. By contrast, the UK’s Financial Conduct Authority (FCA) was seen as a beacon and received top marks for bestexecution oversight in all categories. The country also had the largest number of regulated firms using best execution principles – 4143 in all – far higher than any other jurisdiction. Liechtenstein, for example, had just one. The figures were based on data as of 31 December 2013. The FCA, which published a thematic review on best execution, found that significant improvements could still be made. All of the 32 banks, brokers, wealth managers and interdealer brokers reviewed failed to show that traders had a consistent understanding of what best execution actually means. Some firms used ‘carve-outs’, which are agreements by which customers allow firms to opt out of rules although such deals are not allowed. The UK watchdog is now leading the charge for a total split between research and execution while the Europeans stop just short of an outright ban. Whatever the outcome, many believe that unbundling could be the push that brokers across the region need to comply with the best execution policies. “I think it will have a dramatic impact on secondary trading and unbundling Copyright © 2015 MyGuides. All Rights Reserved

will drive best execution,” says Lovén. “It will be a self-fulfilling prophecy as the industry will be forced to take execution much more seriously and adopt more efficient liquidity strategies and venues.” Alun Cutler, director of product management Emea at Charles River Development, adds: “The FCA ran ahead of MiFID II on unbundling and is being much more uncompromising than the European-wide proposals. The UK regulator has the bit in its teeth and this will drive change so firms will have little choice but to comply.” The other motivating factor, according to Cutler, is the increased sophistication of tools that can monitor broker and venue performance. If research is hived off from execution, then brokers will have to prove their mettle or else buy side clients may go elsewhere. “If you look at MiFID I, it was mainly about the processes,” he says. “The tools have become much more sophisticated and we are now seeing firms not just looking at the pretrade data but also integrating that with the post-trade analysis to gain a better understanding of not only the shape, size and risk of the order but which algos have worked best historically.” Paul Squires, head of trading at AXA Investment Managers adds: “There has definitely been a regulatory drive to evidence more of our decision-making process, which has meant that pre-trade analysis has become as important as posttrade. Also, transaction cost analysis [TCA] has become increasingly advanced and firms are doing much more venue analysis and not just looking at the brokers.” Although TCA will continually be refined in the equities world, it is a wellestablished discipline. The real challenge will be in other asset classes because the tools or, more importantly the data to benchmark execution performance accurately, is lacking. Even where the information is available, such as for exchange-traded futures, the analytics tools have not progressed from equities and will need to be reconfigured. ■ 7


5 2 3 1 0 41 13178823 2 3 3 18 151 538 265 231 2 33 581 3 A slow Trading Systems Guide 2015

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3 1001010101010101 1 1 2 2 1 01010101010101

evolution While multi-asset trading strategies have become established in buy side and sell side firms, the systems to support such trading tend to be disparate and unconnected. Lynn Strongin Dodds investigates whether firms will ever be able to trade different asset classes on the one platform Multi-asset trading has generated quite a stir, with vendors pouring millions into developing the technology and sell side and buy side firms creating integrated trading desks. However, the nuts and bolts of trading different asset classes on one platform still prove challenging and many firms continue to trade on a siloed basis. In fact, a new study by analyst firm Greenwich Associates shows that buy side firms are moving away from using multi-asset class trading systems despite an increase in the number trading multiple asset classes. Around 68 per cent of the 350 buy side traders canvassed operate across equities, fixed income and FX but the demand for a single platform for order management and execution dropped from 69 per cent to 61 per cent, while more than 8

one third are using multiple platforms. Instead, institutional trading desks are more interested in cross-product coverage than cross-asset technology platforms.

asset classes a logistical hazard. This is because the underlying products are still very different and the technology required to efficiently trade them on a single platform is highly complex.

Kevin McPartland, principal, market structure and technology at Greenwich says: “Wants and needs are not the same thing. While traders might want to use a single platform, there are reasons they need to use specialist platforms that are more tailored to what they want to achieve in a particular asset class.”

As McPartland notes: “We will start to see convergence into single platforms but it will happen much slower than anyone previously expected. Equities, bonds and FX currently all have different rules that vary from region to region and that makes it really challenging to integrate them in a single platform.”

The main obstacles are well documented and also have been highlighted in the recent Greenwich report – the inherent complexities of adequately servicing multiple, unique asset classes and products make developing a single system across Copyright © 2015 MyGuides. All Rights Reserved

For example, equity is one asset class whether it is a small UK mid-cap, large European corporate or one block trade. By contrast, fixed income is not homogenous and comprises multiple investments that not only have different structures and trading methodologies but also issue and maturity dates, >> www.bobsguide.com


Fixed income electronic trading – solutions for business • Pricing Engines

• Voice Trade Capture

• Market Connectivity

• Order & Execution Management

& Gateways

• Straight Through Processing

• Liquidity Aggregation

• Automated Regulatory Reporting

• Quoting & Dealing

• Business Intelligence & MIS

2015 WINNER

Best trading system: buy-and sell-side

www.axetrading.com


Trading Systems Guide 2015

coupon rates, call and put features. There is no order book and bonds are also segmented by issuer, such as government, sub-sovereign and corporate bonds and can either fall into the inflation protected, discount, coupon and zero-coupon camps. “We are still seeing many firms operating infrastructure independently for the individual asset classes especially when it comes to data and risk management,” says Beau Alexander, head of product management for SunGard. “For equities, there is fluid data but this is not the case for fixed income where instruments differ in terms of definitions, valuations and the amount of calculations needed. Bringing this onto a real-time platform is one of the biggest challenges.” Alex Foster, global head of strategy and business development at BT Financial Services adds: “In terms of multi-asset trading the ideal scenario would be one trading platform to cover all asset classes, but we have not reached this point yet. Over the past ten years, the whole idea of multi-asset trading has been discussed but at the moment there is still a lot of talk and not many truly multi-asset class trading platforms. What we see is organisations trying to create a seemingly homogenous and holistic front-end but there are multiple systems underpinning them. The result is a piecemeal approach. “However, I think we are at a slight inflexion point due to new regulations such as Basel III and compliance requirements. Sell side firms are under greater pressure to consolidate their systems because of costs and the need to have an overview of their exposures for risk management purposes.” This is the case for both buy side and sell side firms. The growing raft of regulation ranging from Basel III to the European Market Infrastructure Regulation requires brokers and asset managers to adopt a holistic view and look at, for example, multiple trades across different asset classes at the aggregate level. The head of trading has far greater responsibility than in the past when there may have been separate heads of equity and fixed income. At a corporate level there is a need to more effectively manage commission budgets and trade performance analysis. There is also more accountability in demonstrating that they are acting in the end clients’ best 10

“The ideal scenario would be one trading platform to cover all asset classes, but we have not reached this point yet” Alex Foster, BT Financial Services interests particularly when it comes to best execution. Although the technology is developing to solve some of the issues, overcoming the cultural biases may take time. “The structure for multi-asset trading is not as developed in the sell side as it is on the buy side,” says Alexander. “Most have specialists in the different asset classes with dedicated sales forces and relationships with buy side clients. We have not seen the evolution of a sell side firm using the functionality of a single order management system.”

1

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01010101010101 3 1 1 2 2 1 Steve Grob, director of group strategy for Fidessa Group, says the challenge of developing multi-asset systems should not be underestimated. “On the sell side in particular you still have very strong-willed individuals operating in separate silos, which is why it is very important not to forget the cultural and political dimension. There also will be a need for a specialist that offers extraordinary execution capabilities in a particular sector or asset class. “However, the direction of travel is for multi-asset class trading and systems. Buy side firms are ahead but the opportunity cost of capital and restrictions under Basel III will push sell side firms to find ways to collapse trading systems. This is because the siloed approach is expensive from a technology, maintenance, risk and client experience.” Copyright © 2015 MyGuides. All Rights Reserved

To date, the main advances have been around clustering of asset classes, according to Foster. “What we are seeing is asset classes such as equities, futures and options that fit well together on one platform. It is difficult then to add fixed income because one company can have 240 bonds that have different maturities.” Alexander agrees, adding: “In the global marketplace, equities, options and derivatives are a natural fit to have on one platform because they complement each other in terms of risk arbitrage and hedging. This is harder to do with fixed income where there is less familiarity with how to mitigate the risks. However, there are different initiatives and conversations around this due to the regulatory push for electronic trading of fixed income. I think in two to three years’ time we could see these integrated platforms materialise.” There are though a few platforms that offer a comprehensive view. For example, Charles River Investment Management System is a comprehensive front- and middle-office software suite for all asset classes. It incorporates global real-time electronic trading via FIX through the Charles River Network, a broker-neutral financial network that is fully integrated with Charles River IMS. “It covers fixed income, equities, FX, derivatives and cash all on a single platform,” says Alun Cutler, director of product management Emea at Charles River Development. “We can configure the screens to a particular firm’s requirements or market vertical. There are not that many total solution platforms in the market and I think the usage was a function of size. The larger firms were able to afford specialist platforms for equities and fixed income but that blurred as you moved down the scale, although we are seeing a move to a total solution approach across the industry.” ■ www.bobsguide.com


Trading Systems Guide 2015

ADVERTORIAL

IMAGINE Financial Risk Management in 2020 By the year 2020 – just 12 years post the 2008 financial crisis – enterprise risk management will look remarkably different, says Lance Smith, Chief Executive Officer of Imagine Software. Because of rapid advances in trading technology, structural changes in the marketplace and increasingly stringent regulatory requirements, enterprise risk will evolve to become more like front office desk risk – except on a global basis. Risk management will become real-time across all traded products and aggregated across all regions. Lance Smith, CEO of Imagine Software How will the risk management evolution take place? LS: It is already well underway for some firms, those forward-thinking firms that – before and since 2008 – realised that a necessary element for success in markets good and bad was better risk management: comprehensive and fast. 2008 exposed a painful and expensive Achilles Heel for financial firms that did not have a single risk engine that could effectively capture aggregated firm-wide exposures or play out the effect of a specific market scenario (collapse of real estate prices and equities, drying up of credit and liquidity, spikes in volatility, etc.) across all business units. At the same time, advances in technology have pushed trading frequencies to nearly a continuum, while OTC derivatives began clearing on CCP’s “as fast as technologically possible” as mandated by the CFTC; 99% of all trades are now cleared within ten seconds. This requirement would have been technologically unthinkable only a few years ago and became the turning point for firms who understood that the velocity of risk was only going to increase and that regulations would only become more complex. Looking back and standing still were no longer options for financial firms and their stakeholders. What actions did companies take? LS: They asked the right questions, such as “can my risk system provide the real-time views that I need now and in the future?,” “do I have the ability to assess the risk of my actively-traded business lines in the context of my enterprise risk?,” “how current is my data?,” “am I using stale correlations that will impact my global view of risk?,” and “how consistent is my risk measurement and my underlying market assumptions across all business lines?” Companies realised that cobbling together a disparate collection of risk systems makes it difficult to drill into problematic enterprise numbers, or to initiate a unified “command center” response when market dynamics suddenly change. We had some very interesting discussions with our clients who took a hard look at their heritage risk system topology and asked us how to streamline it into more of a trading desk technology at the enterprise level. That is the kind of thinking and actions that will create the successful firms of the future.

NEW YORK

CLEVELAND

Describe how the new risk topology works. LS: It’s transformative. First, you are operating with a single database for positions, pricing assumptions and input risk data – no more reconciliation of databases. Second, you’ve got a single risk engine that contains all of the pricing models, one point of entry for global risk calculations and the operational ability to focus enhancements on one system that services the entire firm. It can turn on a dime. Everything is converted to real-time, including trade feeds, prices and calculations. With a more streamlined architecture, firms are freed up to focus on performance. What is the implementation cost? LS: Our clients looked at the ongoing expense of maintaining a patchwork solution and decided it would become increasingly costly to maintain and difficult to adapt to an evolving marketplace. In effect, they would be paying twice: once to maintain or upgrade each independent system and then once again to maintain the interconnectivity of the systems among each other to ensure consistent assumptions, as well as with a separate centralised risk system. This patchwork of legacy systems is very complicated as the accompanying diagram shows. By moving to a simpler and more powerful topology, our clients have been able to achieve real-time risk monitoring at every level – from the CRO to the trader – each with their own individualised views of the data that is relevant to their role in the firm. “2020” Vision While we cannot quite predict the future, two things are clear: markets are only going to get faster, and regulatory oversight is only going to increase. Our clients have already tasked us with creating flexible solutions to enable them to manage rapid compliance reporting and global limits monitoring, and we have gone a step further by enabling them to incorporate their own pricing models and create their own calculations within our system. The future of risk management is clear, and Imagine can deliver the system you need, because our cloud-based platform manages all the requisite data and is completely flexible. Let us help you to achieve “2020” vision – in real-time and at a practical cost.

LONDON

A Risk Topology Case Study The original topology shows a global prime broker with multiple cross-asset systems. The new topology shows a single optimised risk engine with real-time feeds, calculations and streamlined architecture to enhance performance.

Prime Broker’s original topology

Prime Broker’s new topology

HONG KONG

SYDNEY

www.imaginesoftware.com

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Copyright © 2015 bobsguide. All Rights Reserved

11


Trading Systems Guide 2015

Equities Systems

Fixed Income Systems

Commodities Solutions

TS Functionality Matrix

l

l

Company Name

System Name

4sight Financial Software

4sight Securities Finance

4th Story

4S.Everglades

l

l

Advent Software, Inc.

Moxy®

l

l

Agiboo BV

Agiblocks

l

Algomi

Honeycomb

Ancoa Softwarelimited

Ancoa Market Surveillance

l

l

l

AxeTrading

AxeTrader

l

Baymarkets

Edge

l

l

l

Blaze Portfolio Systems

ATOM Align

l

Born To Sell

Born To Sell

l

Brady plc

Commodity Trading and Risk

l

Calypso Technology

Trading & Capital Markets System

l

l

l

CameronTec Group

Catalys

l

l

l

Caplin Systems

Caplin FX Suite

l

l

l

Celer Technologies

Celer Trader

l

l

l

Chella Software Privatelimited

ActiveTrader

l

l

Chella Software Privatelimited

CapNet

l

l

Comarch SA

Comarch Exchange Trading

l

ComFin Software

TheBulldog

CREALOGIX MBAltd

Internet Broker

l

l

Derivative Path, Inc.

DerivativeEDGE

ELBEHI Future Concept

ELBEHI

EPAM Systems

B2BITS

EQ Finance

EQF

l

Eze Software Group

RealTick EMS

l

l

Eze Software Group

Eze OMS

l

l

Fathomlondonltd

Trading system components

l

l

FinDev Service (Pty)ltd

ActiveBroker (Equity/Insurance)

l

l

Fixnetixlimited

iX-eCute

l

FixSpec

Central

Gaia Transparence

Gaia Transparence

Generation 10limited

G10 Commodity Manager

Horizon Software

Horizon Automated Trader

l

Horizon Software

Horizon Platform

l

icubic AG

iQbonds

icubic AG

iQderivatives

icubic AG

iQrepos

icubic AG

l

l

l

l

l

l

l

l

l l

l

iMarket

l

l

l

icubic AG

iSettle

l

l

l

Imagine Software Inc

Imagine Trading System

l

l

l

Inforeach

Tms

l

l

l

Infront

Infront

l

Interactive Brokers

Trader Workstation

l

l

l

IT SOFTWARE S.p.A

Easytrade

l

l

l

Kalahariltd

kACE² The Analytics Platform

l

KnowledgeNet

TradeNet

l

Lacima

Lacima Analytics

l

Lester Associates, Inc.

Commodity Position Management System (CPMS)

l

Links Commodities

Kiwi

l

Login SA

Acumen

l

l

12

l

Copyright © 2015 MyGuides. All Rights Reserved

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Trading Systems Guide 2015

Systems for Exchanges

l

Online Trading and Brokerage Portals

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l

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l

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l

Liquidity Management Systems

l

Exchanges/ECNs

l

l

Electronic Trading Networks

Brokers

l ■

Commodities Energy specific

Derivatives Systems

■ Some

Software Components for the Dealing Room

l Yes

OMS/EMS

KEY

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13


Trading Systems Guide 2015

Fixed Income Systems

Equities Systems

Commodities Solutions

TS Functionality Matrix Company Name

System Name

LPA -lucht Probst Associates GmbH

LPACalc

MahiFX

MahiFX

Management Joint Trust SA

FinGraphs.com

l

l

Marketware International, Inc

TSP

l

Matrix Applications

TradeBlazer

MBRM - MB Risk Management

UNIVERSAL Add-ins

l

Messer Financial Software

DataCube

l

l

l

Metamako

MetaConnect & MetaMux

l

l

l

Miles Software

MoneyWare Tradevizor

l

l

l

Misys

FusionCapital

l

l

l

MyTreasuryltd

MyTreasury

NanoSpeed

NanoSpeed

l

l

l

Neonet Securities AB

Neonet Trader

NeoXam

NX Trader

NICE Systems

NICE Systems

OpenLink

■ l ■ l

l ■

l

Endur

l

l

l

OpenLink

Findur

l

l

l

OpenLink

RightAngle

l

OptionsCity Software, Inc.

Metro W

l

l

l

OptionsPlay

OptionsPlay Ideas

l

Orc

Orc Tbricks

l

l

QTXSystems

QTXSystems

l

l

l

Recommind

Perceptiv

Redline Trading Solutions

InRush

l

l

Risk Focus, Inc.

Validate.Trade

l

l

l

S&P Capital IQ

Real-Time Solutions

l

l

Savvysoft

TOPS

l

l

l

Saxo Capital Markets UKltd

Saxo Capital Markets UKltd

l

l

l

Scottlogic

Scottlogic consultancy

l

l

l

Securities & Trading Technology (Pty)ltd

STT Exchange Solution

l

l

l

Smartest Finance

Smartest Finance

l

l

SoftSolutions!

nexRates

SoftSolutions!

BestX!

SoftWell

NAVIGATOR

l

l

l

SunGard

Valdi

l

l

l

SunGard

Front Arena

l

l

Tas Group

TeleTrading

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InstantWatch

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UL Bridge

uxMarketFlow

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VPSlimited(HK)

EliteTrader

Xios Techlogies

Axeom

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Trading Systems Guide 2015

Fixing standards

A non-profit, industry-driven standards body, the FIX Trading Community is focused on addressing business and regulatory issues in the world of multi-asset trading. A global association, it has grown in strength and overseen the increased use of standards, including the FIX Protocol messaging language throughout the trading world. Tim Healy, Global Sales and Marketing Manager at FTC, talks to Heather McKenzie about the secrets of the Community’s success and its plans for the future Why has the use of FIX become widespread throughout the world? To what factors do you attribute its success? The FIX Protocol originated back in 1992, when two of the biggest players in the market at the time – Fidelity and Salomon Brothers – wanted to complement their manual, telephone-based communications with something electronic. This was akin to a double-check on equities orders. Gradually, other firms saw the value: if you have a standard message protocol you can reduce costs, complexity and risk. The Protocol was expanded to cover indications of interest and post-trade activities and into multiple asset classes. Given the regulatory environment we are in today having a de facto standard in the market that everyone recognises is a positive thing.

investment banks and asset managers are represented and the main industry software vendors as well. Representatives from these firms are involved in various product and geographical working groups, which are overseen by a Global Steering Committee. The working groups discuss various industry issues – it could be something that one of the members has experienced in his or her day job. The idea is to discuss issues and seek to resolve them. Members put aside any competitive considerations in order to address particular issues. It is a very collaborative process and people volunteer their time to be involved in the Community. This approach has spawned a lot of good work over the years.

How is the FIX Trading Community structured and how does it work on a practical basis?

What are the main issues that are facing your community of users at present? What role does the FIX Trading Community play in addressing these issues?

FIX Protocol Ltd was rebranded in 2013 as FIX Trading Community, which better reflected the organisation. We are a non-profit, independent and industry driven standards body. Our membership comprises 270 organisations involved in the investment process such as buy side and sell side firms, exchanges and venues, consultants and vendors. Many of the big

The main issue affecting our members is the amount and depth of regulation which is coming across their desks. For our typical members – big and small – regulations apply to all of them in a similar way. Since 2008 the markets have evolved and bank balance sheets are under intense scrutiny. Fixed income markets have been hit by liquidity issues

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and OTC trading is becoming more electronic. Project Neptune, a plan for improving the flow of pre-trade information in the European and US corporate bond markets backed by more than 25 financial institutions is a good example of the role we can play. We worked with Etrading Software on the project along with buy side and sell side firms within the fixed income markets. Project Neptune has adopted FIX as the messaging protocol which will ensure that pre-trade information is better disseminated, enabling participants to share information on available dealer inventory of corporate bonds. The project has leveraged off the existing FIX infrastructure, which has been cost effective. Throughout the development, participants were afforded www.bobsguide.com


Trading Systems Guide 2015

Tim Healy - Global Marketing & Communications Manager, FIX Trading Community Tim Healy has almost 30 years of experience with the financial services sector and is currently the Global Marketing and Communications Manager for the FIX Trading Community, having joined in late 2013. Tim started his career in the City working for US Equity broker, Dean Witter Reynolds, and worked his way through the ranks to become a Sales Trader. He later went on to work for PaineWebber and Citigroup in a similar role. Prior to his position at the FIX Trading Community, Tim worked for a number of different vendors and brokers involved in the electronic trading sector where he was focused on sales and account management.

other trade associations in Europe and globally to address regulatory issues and talk with regulators. Trade associations like FIX Trading Community represent a significant segment of the investment industry in some shape or form. We can present a co-ordinated face to financial regulators such as the Financial Conduct Authority and the European Securities and Markets Authority. We also meet with central banks, members of parliament and others to present the views of our community. We have an ongoing dialogue with regulators and we want that to continue. Presenting a common voice not only helps our members, but it also helps regulators to understand how the market is thinking. What do you consider to be FIX Trading Community’s greatest achievements to date and what are the plans for the near future?

the opportunity to get together and talk about the issue in confidence under the neutrality of the FIX Trading Community. How does the use of the FIX protocol help firms in addressing regulatory requirements? Does the FIX Trading Community work with regulators on particular issues? Does having a common voice for the industry help? We are increasingly working more closely with regulators as they realise that standards are an important factor in improving the efficiency of markets. FIX is the de facto standard for the multi-asset trading environment and we can potentially offer some solutions to the issues the market faces. FIX Trading Community also works with www.bobsguide.com

It is difficult to single out one achievement. We have increased our membership significantly over the past 15 years. We have experienced some austere times during the past six to seven years and while the situation has improved, there is still a big focus on costs among our members. Despite that, our membership has remained stable and we have conducted 30 global events during the past year. We have maintained our neutrality and remained a non-profit association. That has been challenging, particularly given the financial pressures of the post2008 period. We have also focused on keeping membership fresh and buoyant, ensuring that the new generation of market participants, who don’t know what it was like before FIX existed, to become involved. We need to maintain the interest of people in FIX both on the business and technical side of an Copyright © 2015 MyGuides. All Rights Reserved

organisation. There used to be a definite line between the business and technical people at a firm, but that has been rubbed out. Business people now need to have some technical knowledge and the technical guys need to have business knowledge as well. FIX Trading Community gives the opportunity to people to talk about the technical and business issues and how they can be resolved. As for the future, we will continue to work with regulators in all three regions – Europe, the Americas and Asia Pacific. We recently began a cyber security working group, which reflects how important this area is and what a threat it represents to our members. It is early days, but we will examine whether FIX has a role to play in reducing that threat. We are also looking to expand the work we have done on Best Practices. In addition to the Best Practice document for the automation of the IPO process that we released in January this year, we plan the same approach for TCA for multi-asset trading and also for fixed income and FX. We also realise that once a best practice document is issued that is not the end of the story; we will continue to monitor things and make additional input if required. There are enough people within our trading and investment firm members that during their day jobs come across issues that they want solved. Luckily for us they don’t keep these issues to themselves, but want to discuss them with their peers and work towards developing a standard approach. The idea of having just one set of information and standards between buy side and sell side firms, just one language, has snowballed since the early 1990s. We hope to help foster that approach into the future. ■ 17


Trading Systems Guide 2015

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Trading Systems Guide 2015

In with the new Trading system upgrade or replacement projects are vast undertakings. Success lies in a combination of factors including the relationship with the vendor, involvement of stakeholders and understanding of technology and business requirements. Heather McKenzie reports Nearly a decade on from the introduction of the Markets in Financial Instruments Directive (MiFID) in Europe and RegNMS in the US, the trading platforms financial firms implemented in response to the regulations are showing their age. Technology and financial regulators’ requirements have moved on and many firms are looking to upgrade or replace existing systems.

Of course upgrade and replacement projects are not new. As Anna Pajor, managing consultant, capital market intelligence at London-based Greyspark Partners puts it: “There is a never-ending story of upgrades and replacement programmes at banks and hedge funds.

New technologies and more innovative solutions, particularly in data analysis, along with new regulations mean that firms are replacing systems with higher quality solutions than were available even three to four years ago.” Geoff Carruthers, director at another London-based consultancy, Formicary, agrees. “Change is fairly constant; there is a continuing need to introduce new types of functionality and to support the evolution of the market.” Given change is inevitable, there are steps firms can take to ensure the best possible outcome of replacement or upgrade projects. The disparate systems within firms – particularly tier one and two organisations – and the myriad interfaces required mean that change programmes are costly and time consuming. Knowing the right questions to ask and the ultimate objective of a programme will help to ensure a better outcome. One of the most fundamental pitfalls of an upgrade or replacement project is a lack of understanding of the problem to be solved. Says Pajor: “Even if an organisation understands the problem they want to address, understanding the complexity of the change required and what needs to happen is often lacking. That is why we see budget overruns and more effort required than was imagined.”

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Trading Systems Guide 2015

Budgets overrun because firms have not taken into account the cost of support, licensing and maintenance. Often in such large projects parallel running of the old and new system is required and it can take up to a year to switch off legacy systems. This makes the operating environment very high cost. Carruthers says the selection of new systems is an enormous decision to make “Trading systems involve big capital expenditure and they touch on many functional areas. It can take about 18 months to work out what the best solution is because the devil is in the detail. There is a lot of difficulty in proving and understanding how you will get the functional coverage for your business requirements out of a particular solution.” Firms can often underestimate the amount of integration that is required when installing a new trading system. Carruthers likens trading systems to battleships, which require extensive connections and configurations. “Change is fairly constant in trading; regulatory requirements and market dynamics are continually changing. As a result, trading firms have to introduce new types of functionality in order to support the evolution of the market and their businesses.” A current trend is consolidation, particularly among tier one and two firms. “These companies have huge IT estates, historically catering to different assets classes and also different functions such as front, middle and back offices.” The advantage was that firms could buy best in class solutions for each function; the drawback was the cost of licence fees, maintenance and support. Platform consolidation delivers a consolidated view of risk and reporting and for firms that are trading multiple assets gaining aggregation of data at the trading systems layer is the most cost effective approach. Carruthers says most platforms are similar in covering much of the functionality that is required by firms. What questions should firms ask before they embark on a change project? It may sound obvious, but Pajor says first and foremost firms should ask what is wrong with their current systems and technology. “If there isn’t a problem, then there is nothing to fix. Shiny new technology doesn’t always mean it will bring added value immediately. There must be an understanding of the principle problem to be solved.” Sean O’Donnell, director of technology www.bobsguide.com

“One of the most fundamental pitfalls of an upgrade or replacement project is a lack of understanding of the problem to be solved” at Sapient Global Markets, a capital and commodities markets advisory and integration firm, says the relationship with the system provider is crucial in selecting a system. “The credibility of the provider and the support it gives to the solution is very important and should come into decision making,” he says. “Revenue streams are under pressure at many vendor firms and that will have an impact on their viability. If a trading firm hears negative things about a particular provider its contingency will be to move to another platform.” Trading firms also should consider whether the growth and direction of a trading system is aligned with the strategy of their own business. As O’Donnell points up, some providers are focused on a fixed vertical space while others may have spread themselves quite thin trying to be a “Jack of all trades, master of none”. Pajor makes a similar point, saying once a firm understands the problem it is addressing it needs to also understand what it requires immediately and also what systems requirements it will have a few years down the road. “This is very important. When an organisation goes to market to choose the right vendor and solution, it will see amazing systems, but it might not necessarily need all these bells and whistles. What it does need is a system that will be able to grow and develop with the firm itself.” O’Donnell agrees: “Firms must look at the technology set that the platform is built on and ask whether or not it is future proof. Is the provider selling it and intending to continue to do so? Is the provider moving with the times? Firms should be wary of entrenching themselves in a technology that has no future.” Changes in technology also mean that the openness of trading systems has become more important. The ability to develop APIs on the platform is a key consideration, says O’Donnell. “Firms should be able to put their own front ends on to platforms themselves, rather than having to rely on the provider coming in with their own staff and taking six months to plug the functionality into your infrastructure.” Copyright © 2015 MyGuides. All Rights Reserved

Another question is whether the trading system will be deployed on premises or in the cloud. On premises deployments will deliver more flexibility but involve extra costs. Cloud-based solutions are lower cost, but the offering tends to be plain vanilla and the possibility of customisation is lower. Getting user and senior management buyin for an upgrade or replacement project is vital. Without senior management support projects often fail. Also, users of the systems have to be brought on board as well. O’Donnell says front office staff tend to be more amenable to the idea of the risk/reward balance in change. The back office less so as arguments about extra performance, cost reduction and better latency don’t hold as much sway. Carruthers says there also needs to be active participation from the business side of a firm in any upgrade or replacement project. “The business areas really need to be involved and hands-on particularly in the selection process, but also during implementation,” he says. Scope planning is where trade-offs often occur regarding functionality; the business people need to know why something might be too costly or difficult to achieve and technology people need an understanding of why the business line requires particular functionality. “It is always easier to stick with what you know. Legacy trading systems become highly customised and business processes are encoded into the application and support interfaces. These would have to be recreated in the new platform and often they are not well documented or understood. When new trading systems are introduced the scope inevitably changes and often boils down to doing the same thing with the new system – the bar is set very low.” Solely technology-led programs never really work, according to O’Donnell. Without full input from the business side a replacement program can often aggravate the end users who don’t buy into the new platform and don’t get the full benefit out of it. ■ 21


Join the FIX Trading Community and enjoy the unique opportunity to participate in the development and promotion of FIX. Help to drive change and shape the future of the trading environment by becoming a member and participating in the decision-making processes.

FIX Trading Community is the non-profit, industry-driven standards body at the heart of global trading. The organisation is independent and neutral, dedicated to addressing real business and regulatory issues impacting multi-asset trading in global markets through standardisation, delivering operational efficiency, increased transparency, and reduced costs and risks for all market participants. Demonstrate your firm’s commitment to FIX Trading Community by becoming a member of this unique organisation.

www.fixtradingcommunity.org


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Trading Systems Guide 2015  

Change is a constant for today’s trading firms. Evolution is occurring not only in the regulatory landscape but also in the technology world...

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