Restraints on operations resulting from inefficient legacy technology are one of the major challenges faced by banks offering services to derivatives markets. Modular implementation and the curation of multiple systems provides the answer.

Since the financial crisis, massive investment has gone into compliance to meet the demands of Dodd-Frank, EMIR, MiFID II and other key pillars of the post-2008 regulatory reforms. Investment in the front office at banks has lagged as a result.

  • Eyes to the front

Banks today are increasingly turning their attention to investment in the front office looking for a competitive edge and to take advantage of AI, big data and cloud computing, technological advances which have changed the dynamics, cost and investment profile of upgrading front office systems.

“Tier 1 banks with large technology estates containing legacy platforms are increasingly bringing us in to replace or augment some of their internal systems,” says Alex Brown, Head of Product, Principal Trading, at Itiviti.

“No longer do firms have to build an entire system to gain efficiency in a specific part of the front office, we can work with them to replace specific components or functions.”

This represents an evolution of the traditional buy vs build debate. With a more modular approach to installation, you can buy, build and curate. This means that a firm can target a specific aspect of its architecture to improve without a radical overhaul of the whole system.

“A modular buy-and-build dynamic adds more value to the stack,” says Alex. “Not every bank operates in the same way or has the same level of investment and they differ in which parts of the stack they need to upgrade, so it is essential for us as a vendor to have the flexibility of offering to accommodate that.”

  • Best-in-breed

This approach enables banks to focus on where the value add is for their business, buying in commoditized parts of the infrastructure and building around that. It also allows banks to buy the best-in-breed for each component.

“No one provider owns the desktop anymore,” says Alex. “Niche providers are coming in offering a specific part of the stack and focusing on that area. Being able to offer software that easily integrates with such technology is key.”

This trend has been fuelled by initiatives such as OpenFin, which bills itself as “the operating system for the financial services industry” and "intelligent" desktop integration platforms such as Glue42 and ChartIQ's Finsemble.

  • Easing the onboarding process

However, this is only part of the challenge. William Sumner, Senior Sales Manager at Itiviti, says it is essential that vendors understand how Tier 1 banks work in order to make the onboarding process as seamless as possible.

“Onboarding can be made much easier through an understanding of how to navigate the complex compliance and risk processes at large sell-side firms and being able to integrate your product into those systems is essential”, he says.

Itiviti is developing AI-based processes to allow firms to more quickly onboard their flow based on historical connectivity data and developing rules to ease the onboarding processes based on that data.

Changing attitudes to cloud-based hosting has been a key factor in easing the onboarding process. 10 years ago, most firms (and in particular banks) were highly cautious when it came to hosting anything offsite. Today there is a far greater acceptance of hosting data and applications in the cloud.

“Cloud hosting is now seen as an enabler rather than an inhibitor. Banks still do thorough due diligence on their providers of course but it is no longer an issue that you are an external provider outside of the banks’ internal architecture,” says Alex.

  • Interoperability

This philosophy of integration and interoperability is helping banks to break down the traditional technology silos between asset classes, which has long been a barrier to efficiency and reduce the costs of integrating technology across silos.

Taking a modular approach to investment gives banks the opportunity to outsource part of the build of their front office technology while maintaining an edge. It also significantly reduces the total cost of ownership (TCO).

“We see the TCO of front office technology being consistently underestimated for firms that go it alone,” says Alex.

“You have the R&D costs, the build and delivery costs, project management and development teams. You have to attract, retain and train the workforce. Then, once built, you have the ongoing maintenance and upgrade costs.

“What is also underestimated is the opportunity cost - how much of a distraction is a full inhouse build? The true cost of ownership needs to incorporate all these costs.”

Finally, there is the risk that things can go wrong amid increased scrutiny by regulators on algorithmic trading and the expansion of the Senior Managers’ and Certification Regime (SM&CR) in the UK. With senior managers now on the hook for potential failures, there is a growing pressure to get everything right.

“A buy-and-build approach allows firms to balance the time to market and investment in technology and people with a focus on ensuring that systems are compliant with increasingly stringent regulatory requirements,” says William.

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Written by

Alex Brown

Head of Product Management, Principal Trading

Alex is an accomplished electronic trading specialist with 25+ years’ experience in Financial Services. He joined Itiviti in 2019 having previously held positions at Bloomberg and Morgan Stanley.

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