Through the Looking Glass

Take the foreign exchange (FX) space, for instance. Banks are still routinely releasing purpose-built single-dealer platforms, whether that's through RBS with its Marketplace product; or Citi with its high-frequency trading (HFT) friendly Velocity 2.0 platform from last year. Deutsche Bank, too, recently upgraded its own Autobahn-centered FX platform in a wholesale fashion, while the FX Pure group-backed TraFXpure, from interdealer broker Tradition, continues to gather steam. On the other side, pushes into easing development environments for new languages, such as Caplin's HTML5-focused BladeRunner development environment, offer new systems for proprietary development.

It can be easy to slip into generalist outlooks when discussing technology, indeed it's often the only way to adequately convey broad-scale information in such a complex environment. But while outsourcing and similar processes are heavily affecting buy-side firms, who see great benefit in taking technology development out of their own house, sell-side institutions are still continuing with new technology initiatives and more besides.

Open Doors
That's not to say that technology isn't squeezed, of course. I often hear people talk about technology being something of a millstone now, where once it was a competitive differentiator. Systems and hardware are, after all, expensive to run and even more so to develop. The associated costs can also be burdensome as well. When I spoke to Richard Anfang, CIO at JPMorgan Worldwide Securities Services, several months ago, he talked about how outsourcing elements of software development had proved costly in both time and money when they had to re-work received software. That's not necessarily because it was badly written, as such, more that it didn't adequately fit the purpose it was envisaged for. Their move to Agile methodology for software development has yielded cost savings and efficiency increases across the board.

Processes such as Agile development, in fact, offer a glimpse for how technology investment will proceed in the future. While the sell side will always need to create technology for its clients, the approach to doing so can take place in a more organized and cost-effective manner. Other institutions are taking this outlook to the extremities of what could be considered workable.

Deutsche, for instance, launched its Lodestone Foundation earlier this year. Billed as a way for banks to share technology development, it asks a key question of just how much technology actually results in increased alpha. Outside of specific systems for execution, HFT-related activity and other areas, Lodestone argues, probably not that much. Should open source therefore become the norm?

Processes such as Agile development, in fact, offer a glimpse for how technology investment will proceed in the future. While the sell side will always need to create technology for its clients, the approach to doing so can take place in a more organized and cost-effective manner.

New Orders
Technological phenomena such as Big Data increases the attention paid to open source software frameworks such as Apache Hadoop. Elsewhere, open standards such as FIX have produced benefits for industry working groups such as the Fixed Income Connectivity Working Group, which aims to reduce cost pressures in building costly connectivity protocols for Swap Execution Facilities (SEFs) and other venues by providing solid, business-driven technology.

There are still proprietary moves in all this, though. While an institution may use Hadoop to deal with the increasing variety, volume and velocity of data, the open-source framework will still be an underlying technology with development layered on top. Likewise, as Caplin's BladeRunner demonstrates, financial services still has its idiosyncrasies in terms of technology requirements that make a lot of freely-available standards, languages and software difficult to adapt.

Technology development isn't dead, therefore. As with everything else in the industry, its form and function is just changing and molding, fitting itself around the new paradigms within which the industry operates.
Finally, I'd be remiss in not mentioning that tomorrow is the European Financial Information Summit in London, hosted by Waters' own Inside Market Data and Inside Reference Data. Information on the agenda and the venue can be found here.

As always, please feel free to send any tips, information or comments to james.rundle@incisivemedia.com, or give me a call on +44207 316 9811. This week, I'm particularly keen to hear from people involved in financial technology in Chinese markets or associated regions.