As various asset classes sprung to life over the years, the trading desks that handled them often blossomed independently. Futures, options, equities, bonds, and the like became robust, yet siloed, at the big banks. Separate trading systems evolved to handle those asset classes.
In recent years, market structure in the various asset classes has begun to look more similar, thanks in large part to regulation. That has coincided with a more cost-conscious environment for IT. Executives see an opportunity to rationalize operations, find synergies in the siloed platforms, and perhaps combine platforms entirely into a true multi-asset monster. A panel discussion at Waters USA tackled this transformation.
"The biggest challenge that the broker-dealers face is up until a year or two ago, we were taking technology platforms that were built for one thing and trying to force them to do more and more and more," said Deborah Mittelman, global head of product management, direct execution, UBS. "Maybe your equities platform is the strongest, so where maybe it used to operate regionally, now you have to make it global, you have to make it 24 hours, which has tremendous implications for your support structure and your account coverage model. Now firms have accepted that this is here to stay, so you'll see new platforms being built that already have this in mind."
One trap that firms fall into is to use all the components of their strongest system, usually equities, and extrapolate them onto other asset classes, according to Nachi Muthu, Credit Suisse global head of multi-asset electronic trading, listed derivatives, and over-the-counter (OTC) clearing IT. For other exchange-traded products, such as futures and options, that may be possible. But products that are traded differently, such as foreign exchange (FX), which is negotiation-driven, are square pegs that are not easy to fit into a round hole.
If a product trades in a certain way, like risk-based quoting, then the mechanism for delivering those quotes could be leveraged across different types of products that trade in a certain way.
"If a product trades in a certain way, like risk-based quoting, then the mechanism for delivering those quotes could be leveraged across different types of products that trade in a certain way," said Greg Wood, director of algorithmic execution, listed derivatives and FX. "But you wouldn't use an order management system because that isn't the way that business works."
Olympian Group, a St. Petersburg, Florida-based hedge fund run by Michael Levas, has a proprietary multi-asset platform, while also using broker-supplied single-asset platforms for some trades. The central benefits of a multi-asset platform, Levas said, is an ability to quickly toggle between classes, to easily hedge, and to be able to go long and short simultaneously.
Levas said the technology is only as effective as the trader is knowledgeable. The best person to operate such a system is one that has traded each asset class individually and knows their ins and outs.
"Clients want to look at the world one way," Mittelman said. "They want one-stop shopping. They want all their flow to look the same and feel the same."