The drive for automation and for the optimal allocation of human capital to the most value-added tasks now extends to all phases of the trading and client lifecycles, according to GreySpark Partners.
In the white paper report produced in partnership with Itiviti Group, GreySpark Partners explores the current dynamics of the long-running debate over the dominance of high-touch versus low-touch trading systems design, arguing that the distinction between the two types is no longer necessarily relevant from an end-user perspective.
“Since the early 2000s, trading technology sophistication has improved so markedly that heads of trading businesses and their key technology decision-makers are practically awash in 2021 with a wide array of options when it comes to forging strategic partnerships with technology vendor suppliers,” said Frederic Ponzo, Managing Partner, GreySpark Partners.
“However, any solutions partnership selection decision must first be guided by a clear understanding across the franchise of the platforms and systems sophistication level end-state that both the trading business and its clients require now and into the future,” he said.
According to the white paper, in 2021, the client-facing franchises of trading businesses need their trading technology and its underlying systems to provide three, non functional capabilities – that is, efficiency, agility and velocity – to remain relevant into the future.
This hypothesis means that investment banks and non-bank brokers must be prepared to service their end-investor customers’ needs with fit-for-the-future technology that leverages flexible production tools that are derived from a trader’s real-world practices and workflows.
GreySpark believes that trading businesses require technology capable of satisfying those three non-functional capabilities must: remain relevant in a competitive and capital-constrained environment; reconfigure the business at will; and to unshackle change management and thus incentivise innovation thinking.
“Prioritising these trading technology needs means that businesses must allocate their capital intelligently by spending on systems research and development where it makes a difference to the franchise to do so, and to save on systems R&D where it does not make sense to spend,” Ponzo said.
He said that a current, leading approach to vendor-provided trading technology design that gained significant traction over the last three years is the so-called Buy & Build Modularity Approach founded on the idea of trading technology as platforms that contain functional components that can be switched on or off at the user’s discretion.
“As such, Buy & Build modularity is optimal for trading businesses struggling with capital constraints because it combines the advantages of both packaged software and development frameworks by providing set functionality off-the-shelf while also accommodating a high degree of components customisation,” he said.
“Vendor-provided systems design that incorporates the Buy & Build Modularity Approach is also optimal for capital-constrained trading businesses because it ensures a fully functional platform is available to users from the initial time of its development,” he added.
According to the white paper, “no one system can provide the functional capabilities coverage required to allow traders to switch processes and workflows seamlessly between any or all asset classes”.
“By focusing on the elements of the overall trade lifecycle value chain that are increasingly fundamentally the same for every trading business, franchises can more readily leverage vendor provided products or solutions that address efficiency gains therein,” Ponzo said.
By focusing on five areas of the trade lifecycle value chain (Pre-trade Analytics, Client Connectivity, Value Connectivity, Venue Connectivity, Real-time Analytics and Post-trade Lifecycle) that are agnostic because of how data is handled within them, trading businesses and technology vendors can simultaneously create efficiency and rationalise costs within the processes and workflows, the report said.
“This approach is also more rational than any historical attempt to build an ‘all asset classes’ / universal trading platform.”
“An asset class-agnostic, Buy & Build Modularity Approach to trading technology systems design allows both trading businesses and technology vendors seeking to sell into them the ability the focus on the systemisation of human interactions with financial market data inputs and outputs.”
