While it’s critical for financial institutions to have a tight handle on their trade reporting, the business case for developing proprietary reporting solutions in house is flimsy in 2020. With secure, customisable cloud-based solutions available out of the box, which have been tested across multiple trading platforms and offer attractive economies of scale, the old objections to off-the-shelf options (will it introduce new complexity, pushing up costs over the long term?) no longer apply.
It’s a shifting trend that Inforalgo has researched and explored in a white paper, Buy vs build: The data integration challenge facing ECNs and trading institutions, as well as a summary article, Straight-through processing solutions: buy versus build.
The debate is a timely one, given all the latest regulatory demands around transaction transparency. Unquestionably, banks and broker-dealers must be able to count on the promptness and quality of their trade reporting, but the discipline itself is not a competitive differentiator. It makes no sense, then, for each institution to set aside its own budget, and develop and test its own software, to deliver something that every firm has to do – in a pre-determined way, by a fixed deadline.
Learning to let go
It appears the penny has dropped. In the Inforalgo qualitative study, 80 percent of market participants said they would rather buy in a trading data integration solution, rather than build one in house.
In fact, releasing their grip on trade reporting – and all of the inherent inter-platform, data compatibility, and security complexity – means firms can free up resources for other, more strategic IT projects. By taking advantage of external economies of scale – in the form of an easily expandable platform-independent, cloud-based trade reporting solution – firms have an opportunity to start divesting themselves of a not-inconsiderable legacy hardware, licences and maintenance/support burden, and claw back those costs. Equally, they no longer have to be quite so vigilant in monitoring evolving regulatory requirements, or keeping internal skills current, once someone else has taken over that remit.
Consolidating trade reporting is also appealing to regulators who, in the event of an audit or investigation, would have a single, definitive, standard vehicle through which to trace back all transactions for a given market participant – in one coherent view. For firms themselves, the wider benefit is that this reduces their risk of regulatory transgression while streamlining, simplifying and taking cost out of reporting compliance. That feels like a win-win to me. I know that if I was still in a banking CIO/CTO position, I’d choose the ‘buy’ over ‘build’ route today.
Mike Bagguley is a respected financial markets industry leader and a board advisor to Capital Markets data automation specialist Inforalgo. He was formerly COO at Barclays International