Trading technology platforms need to change with the times

By Steve Wise | 6 June 2014

Underlying trading technology platforms need to undergo a radical transformation, particularly in today’s dynamic and transparent wealth management environment.  Legacy systems were developed to fit trading systems and styles of the past, but they are becoming increasingly problematic and costly to operate and maintain in line with the enhanced functions demanded by wealth professionals today.

Legacy systems hampering growth

One of the key issues impacting technology in the wealth management space has been the convergence of the different platforms and wealth management systems that are used for managing investments. These were traditionally split into two areas:  fund platforms (including fund custodians used by intermediaries) and stockbrokers whose trading was predominantly based on equities.

Because of this historical split, each industry segment developed distinctive trading technology platforms. As a result, legacy systems with significant constraints have evolved.  In an effort to bridge the gap between the fund and equity worlds, and to make matters even more complex, these systems’ inherent functionality have been extended and modernised in rather a piecemeal way over the years. This has led to the emergence of mixed layers of systems technology without the benefit of a re-engineered and modern STP enterprise architecture.

This situation is no longer tenable, as over the last few years, investors’ and wealth managers’ demands to trade in both equities and funds on the same technology platform has emerged as a common need. Whilst this active interest represents an exciting opportunity for the industry, business models are being constrained by disparate legacy systems that are becoming increasingly outdated.

A new breed of trading technology platforms

Wealth management professionals will always do their utmost to create the ideal portfolio for their clients by using a combination of funds and equities to provide the right mixture of risk and reward. Legacy systems make it increasingly difficult to achieve this objective in a timely and efficient manner without incurring unnecessary risk; both operational and financial.

Many firms have attempted to find ‘solutions’ to this issue, but these have predominantly revolved around attempting to bridge the gaps between the two different types of systems and, as such, many organisations have been using a mismatch of technology to support this relatively recent link between fund systems and equity systems.

Fortunately, this is now changing. In today’s market, we are now seeing wealth managers operating more effectively through a combination of three different areas:  Customer Relationship Management (CRM) and Portfolio Management combined with a fully functional trading platform and Investments Book of Records (IBOR). These firms understand that it is becoming increasingly difficult to ‘build bridges’ between legacy systems to support the kind of complex trades that are now being executed on a regular basis. By comparison, newer and more flexible systems are able to support the investments that are most in demand at the moment – funds, equities, ETF, and bonds – and can therefore boost a firm’s ability to trade across all of these markets as a straight through process without workarounds - improving cost effectiveness, risk mitigation and customer satisfaction dramatically.

For all these reasons, it would be extremely unwise for a firm in the wealth space to rely on legacy systems that were designed and set up to satisfy the requirements of old trading habits. As a very recent multi-million pound three year project that has cancelled ‘roll-out’ has shown, legacy systems are also difficult to implement in the multi-channel, multi-device world that we all now live in.

Instead, it would be advantageous to examine and adopt the new generation of open-architected trading technology platforms that have recently emerged. This approach will not only give start-ups and new entrants easy access to all the facilities they need in a single trading environment, but it will also provide established players with a competitive edge that can be gained by working with a ‘best of breed’ system architecture.

The cost of trading technology platforms

New entrants, and for that matter existing players, to the wealth management market will quickly see the benefits that a robust, purpose-built trading system can deliver. These modern, innovative solutions use industry standards such as web services, .Net, as well as SQL databases to incorporate all of the technology required for modern trading and portfolio management. The added functionality and flexibility that this technology provides delivers significant cost and convenience benefits that wealth managers, intermediaries and end investors all appreciate.

The latest advances in hardware and electronic trading systems – as well as the widespread availability of cloud services – have brought the price down for each trade significantly, and anecdotal information in the market indicates that this could be over 50%. Given that wealth managers trade many thousands of trades each month, this could lead to a substantial saving.

The message for existing providers and new entrants to this market is clear: in addition to the superior functionality and security that modern systems can provide, this approach can also deliver vital benefits to firms that are striving to manage the increasing demands associated with operating profitably in the wealth space.


By Steve Wise, Founder and CEO of Babel Systems

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development