Broker-dealers have been tremendously focusing on best execution and ensuring that they have the right mechanisms in place to achieve the right outcome for their clients, according to Ralston Roberts, Head of Global Markets at Velocity Clearing.
However, many firms are using the incumbent systems and don’t have the right technology capabilities, he said.
“We’re at an interesting pivot point, because from a technology perspective, you’re either in the build-it-yourself camp, or you’re in the vendor camp,” he told Traders Magazine.
He said that the majority of the vendor platforms have been around for over 10 years, but the technology has changed over that period of time.
“When you start to look at some of the in-house built systems at the largest banks or even at some of the largest trading firms on the street, they’re just significantly faster than what you would get from a traditional vendor platform,” he said.
The latency profiles have all gotten a lot better on newer technology, but some of the vendors just haven’t upgraded to these levels yet, he added.
“There’s room for new entrants to come into the technology space to provide some cutting-edge technology with a new latency profile,” he said.
“That’s something that we’re closely looking at trying to decide if we want to start to expose some of our technology in that area,” he added.
Brian Schaeffer, President of Velocity Clearing, added: “We want to build the technology in such a way that we never get slowed down by any changes.”
He said it’s a challenge to “stay on the cutting edge” as technology moves at light speed.
“It’s exponential in terms of how things are developing and how folks want to be involved in the process,” he said.
Schaeffer added that where latency is less critical, Velocity has built its tech stack in the cloud.
“We can be super flexible as the regulatory dust settles. And if we need to change our routing logic protocols within our algorithms that can be done on the fly,” he said.
He added that on the execution side, everyone’s fine tuning their protocols to try to figure out in which way to source liquidity.
According to Schaeffer, since the implementation or subsequent to the MiFID 2 implementation, broker-dealers have to pay a lot more attention to their trade cost analytics and to what they’re providing back to their buy-side clients.
“It’s one of those things from both the regulatory and execution side that has changed. Broker-dealers have a lot more folks sitting on that desk trying to figure out how to get best execution.”
