GIVING THE BUYSIDE TRADER CONTROL OF TECHNOLOGY.
Adam Toms, CEO of OpenFin Europe speaks to Best Execution about the steps the industry is taking towards working in a more open and collaborative manner in order to accelerate innovation and increase efficiency, particularly on the trading desk.
What are the barriers to efficiency on buyside trading desks today?
The buyside often have some degree of technology resources to build in-house solutions, but it is also fair to say they are significant consumers of third-party technology, particularly on the trading desk.
While every supplier of technology wants to provide the best service it can, the one challenge that asset managers run up against time and again is the sheer number of applications on the desktop, ranging from banks/brokers offering single dealer platforms, through to vendor EMS/OMS solutions or an array of analytics. Each application has a specific and important purpose and is valuable and well designed in its own right; but in the context of the trader workflow, transitioning between applications is often a fragmented and inefficient experience.
We need to focus on unifying the desktop experience for users to drive greater efficiency. At the heart of this is creating better seamless application interoperability on the user desktop. Bilateral integrations have held the marketplace back for too long; we need to leverage and promote open standards such as FDC3*.
How would you describe the capabilities of buyside firms in developing innovative solutions?
If asset managers have an innovation mindset the technology almost certainly exists for them to execute on their vision. We have been really impressed by the level of innovation and thought leadership from a number of buyside firms over the last 12 months, particularly those with internal technology resources. But it’s also fair to say the buyside does not always feel in control of innovation when they are dependent on vendors who have historically operated with a closed architecture.
However, that is now changing across the industry. With third-party providers adopting open standards that allow desktop connectivity between tools, they can build a workflow that maps across platforms. For example, the FDC3 open standard is being used by banks like JP Morgan, as well as data, analytics and workflow providers such as FactSet.
Open standards allow alerts to be triggered by one tool, which can then open up another tool in order to support the next stage in a workflow automatically, such as an execution management system (EMS) opening an enriched window for a trading venue in order to handle a request-for-quote (RFQ) trade, or perhaps market data screens updating automatically as the user views different symbols in independent applications.
What does that mean for traders?
Buyside firms have a bigger and bigger role to play as innovators, in partnership with their technology suppliers, and need to help define the workflows that are most impactful to them. Making a time investment to understand the new technologies available is also important, for example the benefits and possibilities that can be delivered through products that leverage NLP, ML or AI. Data integrity is also essential and should be a central focus. Given the regulators’ continued focus in this area, I’m sure this is top of mind for many trading desks today anyway. It needs to be clean and fit for purpose so it can be leveraged efficiently, as the core source of personalised and dynamic insights for trading desks.
Whether decisions are being made by human traders or algorithms, in order to reap the benefits of automation and advanced analytics, data is key. It will also help guide and identify high-value workflow enhancements.
Is the asset class important in this context?
While we will continue to talk about three distinct asset classes across equities, FX and fixed income, it’s clear that each asset class will always retain its own macro characteristics; however, the underlying execution of those asset classes is starting to align into core groupings based on how they trade.
We can think about that in terms of data transparency, liquidity profile, similarities of venues and order types.
How can an over the counter (OTC) market structure affect the complexity of trading workflows?
Considering FX trading as an example of an OTC market, and characterised by both bilateral trading and multilateral trading with no primary venues, there is no single central point for price or liquidity formation and there is a vibrant FX derivatives market.
Depending upon which currency pairs an FX trader handles, they can have many technology, data and liquidity providers. Efficiency is key, so the trading workflow has to navigate a route to execution that uses those providers efficiently.
However, traders are increasingly looking at assets via their liquidity profile in order to determine the right path to executing a trade. Highly liquid instruments with transparent pricing can be traded in an automated way, regardless of asset class. That delivers increasing efficiency and has given rise to low-touch multi-asset execution desks.
At the other end, with instruments for which less data is available or orders are more challenged from a liquidity perspective, skilled traders need to manually manage that process more closely, but it’s important to note that the use of analytics and more intelligent workflow design can assist in this process.
Bring that back to open standards; what are their effect on enabling more efficient workflows within OTC or listed markets?
Low-touch trading is already operating across asset classes, like FX and equities, which can be closely aligned in profile. Both use execution algorithms and even hybrid algorithms that execute equities and FX simultaneously. In any asset class, a triage system is needed to differentiate between low-touch and high-touch and determine how those trades are subsequently executed.
But of course, technology and isolated platforms in particular are the Achilles heel to that implementation. We can conceive of instruments, trading protocols and execution profiles in similar types, but our problem ends up being that each of the asset classes are generally managed, or liquidity accessed, in separate systems today. Each application, however, does play a very important role because it enriches information, it can provide analytics and it can provide notifications and alerting.
In the new world, a trader can now see a more dynamic, unified picture: a smarter desktop, with centralised advanced search, notifications and alerting that’s working for the trader to deliver the right information at the right time in their workflow, making use of all the applications on the desktop. Most importantly, it should help deliver alpha, improve productivity and lower operational risk within firms.
Is that true across high and low touch trading?
For more automated, or lower-touch components of workflow, the world is about monitoring and oversight. Once you have made that initial decision to use an algorithm, you need to know if the order is on track, off track or needs attention in some way due to an unexpected event or idiosyncratic risk. These types of alerts and messages from underlying applications can be passed into one central console that an individual trader can focus their attention on.
High-touch trading is different, but fundamentally can still benefit from unified search, dynamic alerting and particularly the ability to contextually navigate across the vast array of applications in use across the desktop.
We fundamentally believe there has been a positive shift across the industry to work in a more open and collaborative manner in order to accelerate innovation and achieve common goals. We have definitely seen this across the OpenFin ecosystem, which today runs more than 1,000 applications at over 1,500 banks and buyside firms across 200,000 desktops. If we work together, a generational shift on the buyside trader desktop will most certainly prevail.
*FDC3 is The Financial Desktop Connectivity and Collaboration Consortium. The main goal of FDC3 is to standardize how applications communicate, without having defined inter-application workflows prior to being deployed.