News from BT Global Banking and Financial Markets
The buy side on the cusp of change
What are the main drivers affecting the buy side at the moment?
The markets are in a state of flux with a lot of ongoing European infrastructure regulation and uncertainty around Dodd Frank. The buy side is facing potential structural
and legislative challenges, at a time of diminishing returns coupled with the need to stay competitive. So the hunt is on for technology that can respond both to the changing
dynamics of regulation and to the demands of the market.
What impact will that have?
For one thing, the new regulation could affect the way research is funded. Firms on the buy side may find themselves having to pay for
research out of their own commission, rather than from funds generated
from trading, as has been the case up to now. The commission the buy
side earns already fluctuates wildly because it is paid out
based on volume – not necessarily on value, or on what it is
contributing to a fund. So the pressure is on to reduce the cost of market data.
What are the business drivers?
The onus on who has to prove best execution is also shifting to the
buy side, which means it will start having to have the same
capabilities as the sell side.
So questions of liability and responsibility are a big concern. The
buy side has to know what funds they are running for any given client
at any
given moment – how they are performing,
what is the Value at Risk and what their credit exposures are. So asset managers will
need virtually real time analytics to deliver that information.
The fact that the buy side is right on the cusp of change will
have huge implications for next generation technology
What about the technology drivers?
The fact that the buy side is right on the cusp of change will
have huge implications for next generation technology and next
generation platforms which will have to help provide what the buy side needs
to prove best execution to their end clients.
Portfolio managers on the buy side are really
looking at how they can streamline their work flow. They have to have
access to knowledgeable data sources in a way they haven’t had before
and with the data explosion they need to integrate portfolio analytics,
and to be able to model especially if they are on the quantitative side.
So we will see the buy side looking at automation and how they can drive their own efficiencies.
How is this affecting buying decisions?
Whereas in the past the
question was “what platform can do everything?”, the buy side is now
moving towards more modular plays in the hope that these “plug and play” solutions will be elastic and dynamic enough to meet the changing situation and evolving
regulation before being replaced with something
that’s ultimately better.
So cloud based services are coming to the fore, as well as compute power that can pull together all the
different portfolio tools that portfolio managers use to streamline
their workflow.
At the heart of all this is speed – the speed that
allows you to integrate disparate information sources and give you real competitive edge. So while we might might not think of fund
management as part of the low latency world, the buy side can no longer be held back by latency deficiencies.
Where does BT come in?
As the industry continues to shift to greater automation diminishing returns to the bare minimum, the buy side will need to leverage its use of technology to optimise liquidity, relationships and resources.
We believe that only the combined interaction between man and machine will enable it to re-emerge in a new and more cost efficient manner, delivering the next generation in trading.
That’s why we have developed BT Netrix HiTouch, which acts as a control centre for human interaction, integrates with apps such as order management and customer relationship management systems, and is tightly integrated with BT Radianz Cloud Services, which gives access to over 400 services providers covering almost every aspect of the wholesale financial community.
Netrix HiTouch specifically helps buy-side firms collaborate more effectively internally to maximise their own investment returns, and work with the sell-side to help them manage risk and collateral effectively. With Netrix HiTouch firms can adopt multiple trading strategies, complementing low-touch electronic trading with high-touch human collaboration, across multiple asset classes.
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