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Made to Measure

Made to Measure

It is no secret that pre-developed applications offering commoditized, off-the-shelf functionality continue to dominate the capital markets technology landscape. Sinara discusses how capital markets firms often turn to tried-and-trusted industry specialists to provide specific functionality in the software underpinning complex and high-performance business processes. By so doing, this helps them differentiate themselves in an increasingly competitive marketplace

Hamish Adourian, Sinara
Hamish Adourian, Sinara

Ask any capital markets CIO or CTO who has been in the industry for an appreciable period of time what the most stressful aspect of their role is and you’re likely to hear something along the lines of vendor selection. Often, these executives live and die by the judiciousness of those decisions. After all, the resulting relationships tend to be complex, multiyear affairs, and the technologies that emerge from them directly impact large numbers of downstream users and the firm’s ability to effectively and efficiently go about its business and differentiate itself from its competitors. In short, it is critical for all capital markets firms to get these decisions right. 

The industry has witnessed a steady contraction in the number of third-party technology providers over the course of the past two decades, either as a result of acquisitions where larger players continue to subsume smaller ones or by less well-established providers going to the wall due to increased competition in what is now a highly mature and competitive market. 

But as much as the financial services industry has changed over the years, some aspects of it have remained the same. The development and implementation of technology to support mission-critical business functions is a prime example of this: it’s all well and good having an all-singing, all-dancing front-to-back-office platform, but if it doesn’t deliver the specific functionality, ease of use and intuitiveness that users require, its value to the business is dramatically undermined. In this respect, off-the-shelf software might appear to be an attractive option at the outset, but too often over the years the model has become synonymous with false economies and disillusionment. “For any kind of software project, you are always going to have lead time, configuration, training and cost,” says Hamish Adourian, interim head of sales and marketing at Sinara. “You will still need to spend time setting it up and integrating it. It doesn’t happen overnight. So, while it may be fine to go with an existing package that everybody else is using, make sure that’s a carefully considered decision every time.”

This obsession with delivering the exact functionality specified by clients is fundamental to Sinara Consultants’ value proposition. Naturally, the London-based software specialist works with all types of capital markets firms, although, according to Adourian, much of its most recent development work has been with brokers and exchanges in the commodity derivatives space. 

Problem Solving 

Adourian explains that, with respect to the brokerage community, order management is the primary business process driving demand for Sinara’s specialist development work. This, he says, is driven by the need for brokers to generate greater transparency and auditability around their orders, while simultaneously enjoying the benefits of working on a single platform to manage all their orders, irrespective of counterparty, asset class and execution venue. And, given that the majority of sell-side firms have grown by way of mergers and acquisitions over the years and have inherited an often bewildering array of legacy and proprietary technologies, there is always the need for them to streamline and simplify their technology stacks in the interest of improving scalability, flexibility, and automation. “Firms tend to have a combination of really old software that they have been using for years or a combination of manual and in-house [developed] processes,” Adourian explains. “They have all kinds of spreadsheets and databases that they’ve developed, which have kind of worked, but don’t really allow them to scale—particularly for some of the smaller brokers. They also tend not to have a clear order management process that can record and track all their orders in the market—that’s one of the specific challenges for brokers.”

Digitization

Another key challenge currently facing the brokerage community is how business can be digitized, weaning themselves off their traditional model of fielding calls from clients and then manually working orders across disparate systems, each with their own interface and idiosyncrasies. Essentially, brokers are now looking to migrate as much of their incumbent processes to digital platforms, a strategy designed to enhance their scalability, responsiveness, transparency and dramatically also reduce their operational risk. “They don’t want to lose their personal relationships with their clients—not everybody wants to become the next robo-adviser,” Adourian explains. “But do they need to get every order over the phone and can they give their customers better visibility of what’s happening? There’s a lot of interest in exploiting new technologies to actually strengthen those customer relationships, but I’m not sure that everyone totally understands how best to go about that.”

According to Adourian, other challenges facing brokers that Sinara encounters include collateral optimization, and monitoring and hedging their intraday risk exposure. “If your systems are going to get caught out by a sudden intraday price movement, there’s no way you can scale. You need real-time monitoring and software that can handle the volumes.”

Exchanges

Sinara divides the exchanges it works with into into two constituents: start-ups and emerging exchanges, and well-established venues.

Understandably, they face different business challenges and have different technology stacks, budgets, teams and skills. Small exchanges, for example, might want to grow their presence in a new market or particular asset class, or they might be looking to add new commodities to their trading platform that hadn’t been exchange-traded before, which means they are looking for the technologies developed specifically to underpin the exchange business: trading platform technology, matching engines and back-end software.

They can either license that technology from one of the large exchanges—Nasdaq, for example—or they can opt for their own technology stack, which is Sinara’s sweet spot. “For some, licensing their technology from one of the large exchanges might be okay, but for others, looking to quickly develop new ideas and business models or create value for the future sale of the business, having more control over their technology is an advantage,” Adourian explains. “So, having a company like Sinara that can build and support a tailored software solution for them is of great value.”

The larger, better-established exchanges have their own unique challenges, many of which stem from their sheer size and growth over years through acquisition, which has made integrating the different data sources they have built up a real headache. “There may be different departments that still operate mainly in silos, each with their own database—and there really isn’t a clear view of where all the data is coming from, where it’s going, who is using it and whether they are maximising the income potential of all the data they have,” says Steve Dobb, a founding director of Sinara.  

Not Trivial

Normalising disparate datasets stored in a range of repositories across the business is, as any chief data officer worth their salt will tell you, anything but a trivial undertaking. But there are also external challenges around how exchanges present their data to the industry—for example, by way of new market data portals or graphical visualisation tools.“These are all sorts of things that they’ll be looking at,” continues Dobb. “In addition to the classic problem of tracking entitlements, as exchanges, are they realising the income they think they should be getting from all the market data they are publishing?”

Clearly, there isn’t a one-size-fits-all approach to addressing these challenges, given that each broker or exchange has its own technology stack, resources, expertise and business requirements. But there is long-term value to be found in partnering with a trusted software specialist that has seen it and done it all by delivering the exact functionality specified by its client—nothing more, nothing less—to meaningfully address their business challenges going forward.  

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