This week’s column will hit on APIs and modernization efforts in the industry—and the challenges therein—but before we get to those points, let me suggest listening to this podcast with David Hardoon.
David is the senior advisor for data and artificial intelligence at UnionBank of the Philippines, and he previously oversaw AI-related efforts and regulation at the Monetary Authority of Singapore. He does a great job of explaining complex topics in an engaging and understandable way…which is more than I can say for this column. Let’s get to it.
Goldman Sachs’ Open Embrace
In a column published on January 2, 2020, I wrote this: “I might be overstating this, but tremors of a tectonic shift are beginning to ripple in the capital markets, stemming from the desktop application interoperability movement. If I’m right, the trader interface is going to radically change—and I know, I know, you’ve heard this before—but this time is different. The mechanisms of change, taken as a whole, represent a true revolution, even if the technologies are, themselves, old.”
Not to say I told you so, but ten months later, my opinion is only hardening. And for the purposes of this column, I’m going to use the term “interoperability” more broadly than in reference to just desktop apps.
Yes, I keep on banging on about interoperability and the structural change that the adoptions of cloud, open-source tools, and APIs present. But you simply cannot benefit from cutting-edge technology—whether it be machine learning or blockchain (ugh!) or natural language processing—if you have yet to break down your silos and take advantage of new data delivery and storage tools. If firms want to reap the rewards of new data analytics tools and incorporate new datasets to find alpha and construct unique portfolios, closed-off trading systems will have to become a thing of the past.
That’s my hypothesis, anyway. But you want proof rather than theories, right? Well, for our first witness, let’s call to the stand Goldman Sachs.
Hamad Ali recently spoke with Anne Marie Darling, a partner at the bank who wears several different hats, about how the it’s enhancing its Marquee platform. The gist is that Goldman is working to build out its cloud strategy by buying further into the open-source arena and adopting APIs to develop microservices for topics like ESG or the US presidential election. The end result would be the bank, through its Marquee offering, having developed managed services for ingesting data, sourcing data, or maintaining a security master, though it’s still early days.
“Moving to the cloud is a multi-year investment for us. We are also very focused on looking at things that clients would want to outsource to GS that are costly for them to maintain and not providing alpha to their investment process. This is what we mean by the creation of the ‘financial cloud’ for our clients,” Darling told Hamad.
It’s also another example of the bank opening up its IP to allow users to service themselves for their specific needs. It’s all about embracing collaboration tools, which are becoming commonplace on Wall Street.
BlackRock is working toward similar ends with its Aladdin platform, creating a stickier platform. Earlier this year, Robert Goldstein, chief operating officer and head of solutions at BlackRock, said that the asset manager is seeing demand for interoperability with asset servicers, trading venues, and market data providers.
“We are seeing that demand continue to grow on this ever-aspiring quest for true straight-through processing, consolidating the number of systems that people use to do their jobs to manage their processes, and, importantly, to maintain optionality in their counterparty relationships,” he said.
One way Aladdin was meeting the demand for increased interoperability was through Aladdin Studio, a suite of tools focused on integration and collaboration. Goldstein said this allowed clients to build custom apps directly on top of Aladdin.
“These Aladdin APIs, as they’re used by developers at BlackRock [and] our clients within the Aladdin community, are providing building blocks to create custom applications and integration tools for solving what may be their own idiosyncratic workflows,” while allowing the firm to embed content from Aladdin and other applications directly into the platform, he said.
Meanwhile, State Street famously went out and bought Charles River so as to create a more robust trading experience for the buy side, but to also figure out a way to combine the Charles River Investment Management System (IMS) with State Street’s Alpha trading platform, thus providing a front-to-back-office solution for asset managers and hedge funds.
“We really want to be open. There’s this theme of choice. If you found the best-in-breed provider in the risk analytics area, or you just have a separate provider in custody, we’re interoperable in that you can take components of this solution without necessarily being bound to all of it.,” Spiros Giannaros, newly appointed Charles River CEO, told Reb Natale this summer.
With these established—legacy—trading platforms, Goldman, BlackRock, and State Street, are coming at interoperability from a particular vantage point, but those efforts are similar to what OpenFin, Cosaic, or Glue42, are trying to accomplish in the desktop application interoperability space. In some ways these vendors are theoretically trying to disintermediate monolithic trading platforms, but they’re also working with these institutions to develop more collaborative tools that can connect into those legacy platforms—thus, the legacy platforms providers need to update their systems to take advantage of the app interop movement.
And moving beyond banks, asset managers, or specialist vendors, the industry data giants are making similar moves. As we explored a couple weeks ago, Refinitiv is moving away from its legacy Eikon and Thomson One platforms to its new workflow platform, Workspace. Bloomberg is using Bloomberg Anywhere and Bloomberg Enterprise Access Point (BEAP) to allow customers to create their own tools and analytics. I’ll also include Symphony in this group, as the vendor is expanding beyond communications to develop robust workflow and collaboration tools, and even specialized services around KYC/AML needs.
Let me move even more to the edges. Morningstar has revamped its tick data delivery architecture into a cloud-based solution, which will eventually help it to offer microservices in the future. Xignite is building a suite of cloud microservices for data management, storage and distribution in the cloud. HPR is embracing the cloud to develop a market data distribution platform. While each of these projects—and the ones mentioned above—are significantly different in practice, the common thread in each is to use modern tools to move away from closed-off platforms toward platforms that are stickier and open. And it’s this idea of creating a complete front-to-back, sticky ecosystem that is fueling the merger market, too.
Yet, while everyone is gunning toward a similar end that is more collaborative, there will definitely be winners and losers in this journey. Brad Bailey, a research director within research and consultancy Celent’s capital markets division, had this to say: “It’s a fundamentally difficult problem to take all these pieces that have evolved over decades and put them together in a way that’s very seamless. That’s the end-game, and it’s kind of a winner-take-all scenario,” he recently told me. “More and more firms want a solution that they don’t have to manage. They want either the vendor or partner to manage it; they want the technology infrastructure in some type of cloud. This is changing so fast, so that idea of ‘as-a-service’ or a managed service, it’s absolutely essential.”
Pre-2008, it was all about building best-of-breed internal platforms that were closed-off black boxes to outsiders. Then the Financial Crisis hit, and banks and asset managers, alike, had to embrace third-party solutions as tech and ops teams were cut to the bone. The walls that kept investment banks from buying into cloud-based solutions, much less embracing open-source tools, started to come down. At the same time, the API economy developed, opening up new ways to distribute data to users—and users liked that and wanted more.
As Goldman expands its cloud strategy, it will allow the bank to create managed-data services and develop new risk tools that will make the Marquee platform stickier. It’s a smart move, though an increasingly-common move. But if you think I’m incorrectly connecting the dots, I’m all eyes ([email protected]) or ears (646-490-3973).
Refinitiv’s Rough Rebrand Ride
Acquisitions can present all types of unique challenges relating to integration and cultural shifts…and then there’s the branding: Do you jam together the two companies’ names or create a new and unique brand?
Well, after Thomson Reuters agreed to spin off its Financial & Risk business—the division that includes its financial content and technologies—to a consortium led by private-equity giant Blackstone Group, a rebranding had to happen, as Thomson Reuters is still a massive media organization today. The new name that was settled upon was Refinitiv.
As a result of the rebrand, many Refinitiv data users are going to need to update their APIs. Max Bowie and I spoke with several market data professionals at banks from around the globe, as well as a few knowledgeable consultants to get a feel for why this rebrand project will be such a challenge—and perhaps a very costly one. Our sources are not happy about this impending project, while Refinitiv believes that this rebrand will not prove to be too onerous, but you can read to story to see why those involved feel the way they do.
Rather, I’d like to discuss APIs more generally, as I think that the industry needs to have a wider discussion around these interfaces. As APIs become more important to firms moving away from monolithic platforms and adopting microservices architectures, they will need to also modernize their API strategies.
Jo Wright wrote earlier this year that APIs, when not developed properly, are vulnerable to hacks—that should lead to an API overhaul on its own. Additionally, though, while capital markets firms are increasingly turning to APIs to modernize their infrastructures, API development can lead to tech sprawl and debt. When they’re used as patchwork tools to connect data and platforms, and there isn’t a clear long-term strategy in place, APIs can actually be detrimental to an organization.
As several sources told Max and I, Refinitiv missed a trick. They could’ve spent the last two-plus years thinking of—and then implementing—an API development plan linked to this rebrand, in which firms would still have to go through with the migration, but Refinitiv execs could’ve laid out why this will be beneficial for users in the long run. Instead, they’re having to now reach out to a surprised user base and tell them that they essentially have to do this, and the end-users believe there’s no benefit, only work.
It would seem to me that better planning and communication with the trading community would’ve proven greatly beneficial for Refinitiv, but I also suspect that many—if not most—firms would’ve been caught in a similar position, as API strategy appears to be scattershot throughout the industry.
Once again, if you think I’m wrong or off-base, I’d love to hear from you: [email protected] or 646-490-3973.
The image at the top of the page is Melchior de Hondecoeter’s “A Rooster and Turkey Fighting” courtesy of the Cleveland Museum of Art.
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James Crosby, founder and CEO of data management firm Fencore, joins the podcast to discuss vendor lock-in and interoperability.Subscribe to Weekly Wrap emails
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