News from BT Global Banking and Financial Markets
Keeping the market connected
What trends have shaped the trading landscape over the past decade?
Alexandra Foster: Over the last decade we’ve gone from a situation where we had incumbent exchanges being the one place where you could trade, to regulation bringing in more competition. That competition then led to fragmentation, and with that came the need for technology to enable searching for and seeking out liquidity. In response to this we help interconnect key data centres to enable better decisions about liquidity.
Michael Cooper: While changes in regulation permitted the competition that led to fragmentation in the equity markets, since the financial crisis the regulatory environment has become much more prescriptive, with an emphasis on increasing transparency and reducing systemic risk. Although electronic trading is most advanced in equities, technology is extending its reach to other asset classes and there is now a much closer coupling of markets on a global and a cross-asset basis.
Foster: Over the years, it has been interesting to see how crashes have triggered changes of behaviour, and how technology has aided those changes. Now, technology is being used to support trust and transparency between counterparties. For example our new cloud-connected edge device – BT Netrix HiTouch delivers a really rich high definition audio and video environment. It enables people to have a human experience as they negotiate for example. They benefit from a high-touch interaction in a low-touch environment.
What trends do you see shaping the landscape over the next decade?
Cooper: To a large degree, the market has been shaped by its participants and their technology suppliers. We’re all aware of the work of the FIX Trading Community on message protocols, but another example would be the innovations in publishing market data brought to the US market by the Island ECN in the early 2000s and now widely adopted. Regulation has an increasing role, but the actions and activities of the market as a community will continue to drive the market forward.
The financial markets are smart adopters of technology rather than raw innovators. It will be interesting to see how the markets respond to regulation around data storage and analytics.
Foster: Particularly in areas where firms cannot secure sustainable competitive advantage – for example certain data requirements – the industry is more willing to adopt utility approaches, rather than everyone building similar facilities. This could well be an area of major innovation over the next decade.
At the same time, there has been an explosion of non-market data; market participants are looking for technology providers to deliver wraparound tools to enable that data to be assimilated and used in real time.
What technology capabilities have financial services firms most needed over the past decade, and how will that change in the future?
Cooper: Firms will continue to need to connect and communicate. As the structure of the market – and the manner in which it operates – has evolved, so have firms’ communications requirements. Over the decade, market data volumes have increased substantially, affecting firms’ requirements for integration between trading applications, latency, determinism and proximity. Communications needs have been constantly evolving, and we are now seeing changes in cross-asset requirements. There is a clear need for adaptive communications technology.
Foster: Having offered services to the industry for over 30 years we’ve been at the heart to today’s trading innovations such as the BT Netrix HiTouch. We have a heritage of innovation across the trade cycle and we’re still innovating and enabling change.
BT Radianz is already a good example of flexible delivery, but the next generation will be all about service-based applications, delivering cost-effective, right-sized trading technology. This will support clients’ need for enhanced liquidity management, better collateral optimisation and better data aggregation capabilities. In addition, there will be much more actionable business analytics to drive decision making based on the full range of data sources.
Will the growth of low touch trading continue, or do you see a need for more high-touch activity?
Cooper: We absolutely see recent trends towards automation continuing and extending further across the trade cycle. It drives transparency, certainty, simplicity. However, it can’t be the only element. We also see less opportunity to drive alpha through pure application of technology. You often need that high-touch human input to deliver an additional layer of intelligence. Technology leadership is now coming from a broader set of market participants. The buy side is much more influential.
Foster: On the true multi asset desk, for example, the buy-side is much further ahead than many sell-side firms. We’re seeing a drive for much more empowerment, much more self-service. The future is the trinity of man, machine and connectivity: smart technology