The future of trading was discussed among much else at the 2013 Bloomberg Enterprise Tech Summit on 10 December at London’s Level 39 fintech space in Canary Wharf this week by Antoine Shagoury, chief operating officer (COO) at the London Stock Exchange (LSE) and Alasdair Haynes, chief executive at the newcomer Aquis Exchange, writes Neil Ainger. The operational challenges at banks, insurers and other companies’ running enterprise-wide IT with tight budgets and growing market and regulatory demands was also discussed by the gathering of chief information officers (CIOs), such as Peter Hambling from Lloyd's of London, and senior technologists like Robin Aveline, head of application architecture markets at RBS, and by representatives from Wipro, WEX and Cinnober among others. The blending of outsourcing and internal resource to achieve operational efficiency, and the necessity to leave budget for future tech innovations was also debated.
“Market intelligence, risk management, post-trade and other such services can all help clients manage their positions, comply with new regulations and do such things as intraday reporting and meet enhanced collateral requirements,” said Antoine Shagoury, COO at LSE, while being interviewed by Bloomberg at its London Enterprise Tech Summit this week. “The challenge for us in 2014 is to deepen these offerings but we now have the core IT infrastructure in place to be able to do this and to deploy add-ons around the core to meet these changing business needs.”
That is as good a description as you are likely to get of why flexible enterprise-wide core technology systems matter. As Shagoury explained it’s a service orientated architecture (SOA) model and technology-wise that is what matters for LSE as it gives them a flexible IT infrastructure that is centred around a single core platform that can serve the business, and to which bolt-on functionality can be added as needed. “I’m a delivery person and as a tech guy this model allows me to meet my targets,” he told the gathering of operations, IT architecture and other technologists in London.
Antoine Shagoury, COO at LSE Interviewed on its Tech Overhaul
The LSE has overhauled its technology in recent years to get to this SOA-like IT structure. Where it hasn’t been able to improve internally it has brought in expertise via the purchase of Sri Lanka’s MillenniumIT trading platform a few years ago and indeed of the Turquoise multilateral trading facility (MTF) to add volume and depth to its offering. “We are now looking to harvest value from these investments and want to leverage the IT foundation we’ve built to offer a wide variety of execution and data services and post-trade services,” said Shagoury, “all of them underpinned by the tech competence we’ve built out in recent years.”
The tech offering at LSE is tailored to the new post-crash regulatory environment where centralised repositories, clearing and enhanced transparency are a necessity forcing over-the-counter (OTC) trades effectively back on exchange, with the incoming European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Regulation (MiFIR) shaking up the marketplace as Dodd Frank has done in the US.
Confidence is high at the LSE too that its new IT architecture can withstand the outages that have plagued capital markets this year, a topic much discussed at the Bloomberg Tech Summit in London and indeed at the recent Mondo Visione 2013 trade show [see the highlighted links in the earlier show report for instances of outages -Ed]. “All the outages in the capital markets arena this year have different causes but fundamentally most come down to a software glitch or connectivity problems that have perhaps been exposed because of the new market and regulatory environment in which we operate,” said Shagoury, while stressing that he is confident that the LSE has enough IT expertise, early warning signs and trading brake procedures to stop flash crash or other types of outages.
Latency, Risk and Trading Discussed by CME, RBS and Others
In a later afternoon session at the 2013 Bloomberg Enterprise Tech Summit in London entitled ‘Speed, Risk and Trading’ Ari Studnitzer, managing director in charge of platform development at CME Group, backed up Shagoury’s contention that established traditional exchanges have more operational resource to prevent outages, although that didn’t stop the failure of Nasdaq this year. “It is no longer about low latency alone; it’s about predictability and providing world class risk systems; that is the future,” he maintained, before going on to stress that CME thinks open standards and messaging protocols like FpML and FIX can help aid resiliency and allow internal enterprise IT departments to focus on more value-add competitive advantage projects.
It is a viewpoint supported by fellow panellist, Robin Aveline, head of application architecture markets at RBS, who said RBS increasingly use such standards themselves. The bank is also undertaking a move towards setting up its own single core IT platform, as the LSE has, to do away with its historic single asset class trading platforms. “We now want a single platform for all the asset classes we remain in,” said Aveline [RBS exited equities already post-crash but still undertakes hedging and investment trades -Ed]. “We’re also beginning to see a more ‘off-the-shelf’ purchasing (rather than build-out) approach at RBS and it will be interesting to see how this affects the culture and operations of the bank in the coming years.”
The issue of trade repositories, surveillance systems and the EU Market Abuse Regulation (MAR), plus the commencement of the US Volker rule, were all also discussed by the capital markets practitioners that dominated the afternoon Summit sessions.
Regulations and New Market Entrants: Aquis and the Buy-side
Regulation and its technological and market impacts were discussed later by Alasdair Haynes, formerly of Chi-X Europe and now chief executive officer (CEO) at the newcomer Aquis Exchange. He was naturally more interested in European rules such as EMIR/MIFIR but as one of the launch guys for Chi-X in Europe last decade he sees opportunities where others might perhaps see threats. “Regulations will have a huge impact on the financial markets in 2014 but I see that as an opportunity for our subscription-based pricing model where you’re charged per FIX trading message, not based upon if it’s a £17 share or a £3 one.”
Haynes supported the idea of an exchange as a utility with cheaper pricing and more standardised technology and messaging, in contrast to the LSE and CME who naturally emphasised the resiliency of their own internal proprietary IT systems, data offerings and practices. Tech-wise Haynes thought that regulators should ensure the safety of trading and prevent outages by enforcing strong common rules. “For me, I like to use an airplane analogy where the CAA makes it safe to fly and I see no reason why it cannot be the same in our sector.”
Veronica Augustsson CEO at Cinnober, which supplies many trading platforms to financial market participants lamented the poor state of a lot of software now and blamed this for the outages seen across capital markets this year. “It’s a shame the quality in this landscape has gone in the wrong direction and deteriorated; that’s why you’ve seen over 300 locations that couldn’t execute trades at some stage this year,” she said. “However, you have to be prepared to pay for quality.”
Erich Schlaikjer, a fellow panellist and partner and chief technology officer (CTO) at Cantab Capital Partners, spoke up for the buy-side when he said he didn’t mind paying for quality - referring to trading prices, not software quality assurance - but that he still thought exchange prices were too high. “I’ll pay more than I want to in order to trade next year,” he said amusingly when asked to future-gaze into 2014, citing his buy-side firm’s $1m cost per day trading expense as too high. He wasn’t convinced by the subscription-based unit price per trade approach of the newcomer Aquis Exchange either, fearing it could penalise high frequency trading (HFT) due to a perceived lack of bundled volume discounts but would no doubt be looking at it in more detail as with any other newcomer to the financial markets.
Building Efficiencies, Lloyd’s CIO, and Right-sourcing
Away from capital markets, the 2013 Bloomberg Enterprise Tech Summit in London next addressed how to build IT efficiency into your enterprise using outsourcing, internal resource, and near-shore partners as appropriate, to get the right balance to deliver a quality service at an efficient price.
As the chief information officer (CIO) at Lloyd's of London, Peter Hambling, admitted during the afternoon session entitled ‘Building Efficiencies’ his firm has in the past done everything in-house and then outsourced everything in a bid to keep its IT service to the participating insurers at the Lloyd’s of London insurance market competitively priced. “Now, we are restructuring our operations a bit to better serve overseas markets and moving towards a blended approach partnering with a couple of key IT supporters,” he said, while emphasising that it is important to keep some internal IT expertise to support innovation and growth initiatives, which increasingly rely on technology. Getting the balance right is the key thing.
According to fellow panellist, Roop Singh, global head of the outsourcer and Software-as-a-Service (SaaS) tech provider, Wipro, the balance between cost and quality can also be helped by the emergence of the shared service concept. This has been a trend throughout 2013 as by grouping together and sharing a common IT platform banks and other organisations can save money - the trend was clear at this year’s Sibos 2013 trade show where the organisers SWIFT announced a shared KYC platform as a collaboration initiative designed to cut costs industry-wide on a ‘business as usual’ non-proprietary, non-profit making compliance related activity.
For Melissa Smith, president and incoming CEO of WEX Inc, which provides corporate payment solutions among other things, the key way she is presently driving IT architecture efficiency is by consolidating data centres and operations. Her firm is looking to expand into 70 countries after a spate of acquisitions so there are obvious savings to be made. She is also a fan of co-sourcing with partners - just like Lloyd’s CIO Hambling – although Wipro’s Singh preferred to call this approach ‘right-sourcing’. This simply means aligning the installed IT estate and human resources of an enterprise to meet the global needs of the organisation at the right price point and service level.
The crucial thing, of course, is to retain enough flexibility and internal IT skills around the core internal technology offering to be able to do this, while still allowing space for future IT innovations like the addition of mobile channels or effective responses to cyber-security attacks or outages. Getting the balance right was a useful summary and thought for all attendees to remember as they departed the 2013 Bloomberg Tech Summit in London, no doubt pondering the 2014 operational challenges that lie ahead.
By Neil Ainger