Speaking at the European Buy-Side Technology (BST) Summit 2015, Barney Dalton, chief technology officer of Aspect Capital, explained the challenges of reducing risk while improving productivity in a highly regulated environment.
"Agile software development is often advertised as a key to increase productivity, but for us it has been an important ally for reducing risk as well," explained Dalton during his keynote address at the BST European Summit 2015.
For Aspect Capital, a UK-based alternative investment management firm that relies heavily on proprietary trading software, the large fines imposed by regulators in recent years on trading errors at buy-side and sell-side firms were a wake-up call.
The highly regulated environment, according to Dalton, is driving capital markets firms to become more risk-averse, although how they go about achieving this balance while increasing productivity through further automation against the backdrop of incidents like the Knight Capital fiasco, illustrates the acuteness of the challenge facing them.
Back in 2012, Dalton started looking at what capabilities he had in-house and what he could deliver with his incumbent technology stack. But he soon realized that the manually intensive testing process Aspect Capital had in place, and its project-based approach, was too risky, and therefore had to change.
Given that the CTO, by his own admission, lacked some of the skills in-house to induce the change, he brought onboard four consultants — who he referrs to as the "four wise men" — to look at the different aspects of the development process.
“There had been an awful lot of automated tests written in the past to support this new process and we had multiple releases a day so that over time it become a non-event,” Dalton said. "Over time, what used to be a high-risk and quite scary release became more of a boring release – this is how we knew it was successful.”
What Dalton established while working with the team was that the best way to reduce risk was through adopting an agile development strategy, the objective of which was to make every release a non-event by spreading the quality control, the testing and the release processes throughout the development chain.
“There had been an awful lot of automated tests written in the past to support this new process, and we had multiple releases a day so that over time it become a non-event,” Dalton said. "What used to be a high-risk and quite scary release became more of a boring release – this is how we knew it was successful.”
Big Cultural Change
For Dalton, the most challenging part of the entire process was inducing a cultural change within his technology team.
"To really succeed, you need to empower your team to own the process and have the ability to change and improve it. But it is you, as CTO, who hands over the keys to them, which is sometimes the hardest part.”
Dalton said that thanks to this more agile development approach, Aspect Capital had significantly reduced defects in production since 2012 by reducing the duplication of work and by breaking down the release process. But crucially, he said, it was most important to empower Aspect's people to drive that change.
The Bottom Line
- The highly regulated environment and the large fines handed by the regulators are pushing firms to be much more risk averse than they were in the past. But reducing risk while improving productivity remains a challenging task.
- Adpting an agile software development strategy can significantly help with the automation and reduction of risk, but often represents a big cultural change within the company.
- Dalton says that when trying to induce change, one important thing is to empower the people to drive that change.
James talks about his trip to Chicago and some of the interesting topics that came up (including a look at disaster recovery demands). Then Anthony and James touch on ISDA's initial margin rules, with Phase 3 going live next year.Subscribe to Weekly Wrap emails