As we continue to experience accelerated growth in the trading technology space it has become apparent that ‘electronic trading’ is now a misnomer. The image invoked of trading over a wire is no longer appropriate. While execution itself is still an integral part of the process, it represents only a part of a wider non-voice services package now being demanded by the buy-side.
The changing role of the buy-side trader, coupled with regulatory changes and a high degree of buy-side/sell-side connectivity, has seen the rate of change with regard to ‘electronic trading’ outpace existing technological capabilities. The buy-side trader is taking on more execution responsibility than in the past.
Not only is a buyside dealing desk focused on minimising explicit and implicit trading costs, but is also increasingly seen as a source of additional alpha for the portfolio. The buyside trader has become more aligned with the sell-side trader and as such requires access to more of the traditional sell-side tools.
While access to multiple liquidity pools and the advent of smarter technology to trade across them remains valuable, the next phase in the evolution of trading technology sees execution functionality growing into a more allrounded non-voice services package.
With this shift in focus a broad range of proprietary sell-side content, tools and services, together with sophisticated analytics to support the entire trade-cycle, have become ‘must-haves’.
In addition a non-voice services product, unlike traditional electronic execution services, is no longer the exclusive domain of the buy-side dealing desk. With the inclusion of analytics, portfolio optimisers and precise exchange-cost visualisation tools, nonvoice services is a broad, customisable product offering also extendable to a portfolio manager’s desktop.
For the sell-side, ‘electronic trading’ has become a new business strategy involving the entire firm. In this new content focussed era, firms that are best placed to provide a non-voice services offering are those that not only have wide ranging intellectual property, that can be tailored to suit specific requirements, but who also have a global presence – translating into a consistent client experience across regions.
Historically, a broker’s proprietary, nonpure-execution content was only made available to the buy-side via access to secure websites or by email. However, in today’s environment these solutions are often not the most effective. As we move beyond pure execution, the technical challenge no longer lies in how to connect, but in how to distribute.
Flexible distribution
With the evolution towards a broader non-voice services business, customisation has become increasingly important. In this environment, ‘heavy’ client-site software installations that can require a prolonged period of configuration and integration with existing systems are no longer feasible.
However, new technologies such as Miscrosoft.NET, web-services and ASP trading solutions now offer the benefit of thin client applications which can be deployed easily, rapidly and cost- effectively. Building on a broad connectivity network (a result of the advances in automated trading to date), these flexible technologies offer what many on the buy-side have been waiting for – true ‘plug-and-play’applications.
With access to such a responsive technical toolkit, sell-side brokers should now be focussing on the development of highly functional portals that provide trading functionality as well as content in a single system.
For the buy-side such portals or distribution platforms will begin to eradicate the need for multiple applications running simultaneously on an already over-crowded desktop. Easy integration with incumbent order management systems, whilst consolidating trading functionality and proprietary sell-side content, should facilitate achievement of a flexible but highly manageable workflow as we edge towards a buy-side Utopia – all necessary decision-support tools and information available from a single desktop, instantaneously.
Establishing an efficient sell-side to buy-side supply chain, facilitated by standardised connectivity and a flexible distribution platform is essential if firms are to develop a solution where fast large-scale customisation is consistently deliverable.
To use the analogy of Starbucks, it is like a “Soya cappuccino, with an extra shot, a splash of vanilla syrup, chocolate sprinkles and served extra hot” being available no matter where you are or how many people are in the queue behind you.
Whilst the challenge presented by the financial services industry has its own unique facets, just as Starbucks has solved the problem of mass customisation in the world of coffee, today’s sell-sides must do the same in the new world of non-voice services.
In the current environment, where a broker can overcome the technical distribution challenges to effectively provide customised IP-derived content and analytics, the integrated workflows for the client are empowering. Couple this with global exchange and liquidity access, market leading synthetic products and a sophisticated algorithmic and execution toolkit, it is clear why ‘electronic trading’ as a label is no longer appropriate.
The opinions or recommendations expressed in this article are those of the author and are not representative of Deutsche Bank AG as a whole.
Deutsche Bank
Deutsche Bank is a leading global investment bank with a strong and profitable private clients franchise. A leader in Germany and Europe, the bank is continuously growing in North America, Asia and key emerging markets. With 78,291 employees in 76 countries, Deutsche Bank offers unparalleled financial services throughout the world. The bank competes to be the leading global provider of financial solutions for demanding clients creating exceptional value for its shareholders and people. www.db.com
