It’s not just politicians, pundits and pizza chain chief executives who get excited about the upcoming US elections; the financial markets also appear nervous about any potential administration and legislative changes. Sources say firms have become even more cost-conscious this summer—perhaps waiting to see which way the wind blows before committing capital to projects that might prove unnecessary, or which may change substantially if an administration with a new agenda comes to power.
For example, Paul Barringer, who has resurfaced as CEO of the startup US consulting and implementation arm of an Indian offshore development company, says he’s seeing firms shift their focus from the potential gains of low latency to the cost of low latency. Barringer might well say that, since his new role is dedicated to helping firms slash the cost of developing and optimizing trading architectures in-house. But he should know—his last venture, hosted direct feed provider Burstream, ran into this problem while still building out its feeds offering.
Of course, that doesn’t mean the latency arms race has ended in detente; only stalemate. Those with the budget will continue to compete on speed in a smaller market. Those who exit the high-frequency race will use their direct feed connections, and find opportunities to use that direct-sourced data in other parts of their business, potentially eliminating data vendors from some vanilla functions and becoming their own consolidators.
For example, Canada’s BMO Financial Group is in the midst of a project to centralize its market data management function to support better cost management, while consolidating its infrastructure to collect and aggregate direct feeds internally to support algo traders and other data consumers across the firm, and therefore creating a platform that makes it easier to grow into other markets without incurring heavy cost burdens.
Once firms have plucked the low-hanging fruit of duplication, under-utilization and poor administrative procedures—like ordering new services instead of re-purposing existing contracts, or missing the cut-off date to cancel a contract—they inevitably turn to squeezing more value out of what they have left.
One way increase value and cost-effectiveness is to use it more broadly, sharing the cost across a wider audience. Vendors realize this, and are tweaking products in expectation of these delivering big increases in takeup. For example, Corvil—which this week will announce performance gains for its monitoring appliances by leveraging the latest Intel microprocessors—is adapting its technology to deliver metrics that go far beyond latency, while options analytics workstation vendor Livevol is adding execution capabilities and options transaction cost analysis data to its new LVX tool, which Livevol president Dax Rodriguez says could see the vendor start to compete with established trading and pricing front-end vendors such as Derivix, FlexTrade or RealTick.
One trend that Livevol is banking on is that the options markets—already one of the most liquid asset classes—will start to look and trade more like the equities markets, prompting takeup of tools already commonly used by equities traders. “The increased fragmentation of equities markets drove adoption of TCA, because people wanted more intelligence about how, when and where to enter the market—and we think similar things are happening in the options markets: it’s becoming harder to execute, there are more exchanges… you have to expect that people will demand more diagnostics about their markets,” says Livevol managing director Catherine Clay.
And with regulators attempting to shift over-the-counter assets onto centrally-cleared platforms, along with the impact of regulations on other marketplaces, and many new data projects being driven by regulatory initiatives, an equities-like model could not be far off—and the political climate over the coming months could be just as crucial to spending decisions on data projects as the economic climate.
Bill Murphy, CTO of Blackstone, once again joins the podcast to discuss the private equity firm's new offices, designed to house its innovations team.Subscribe to Weekly Wrap emails