Open-source technology, the great cloud migration and tech accelerators have changed institutions’ calculations when it comes to developing trading technology, writes Matt Barrett, chief executive and co-founder at Adaptive.
Last year was nothing short of dramatic. Political shocks, the August sell-off and the constant ‘will they, won’t they’ over central banks’ approach to interest rate cuts. Yet for the buy-side, banks and exchanges, a quiet technological revolution has unfolded. Innovations bubbling away over many decades are converging and reshaping how firms approach trading technology.
Historically, the disparity between large firms with hefty tech budgets and smaller firms striving to maximise limited resources was stark. Until recently, the idea of building trading systems from scratch was daunting – the operational complexity, time to market and perceived costs were a deterrent.
Now, the convergence of performant and resilient cloud technology, powerful tech accelerators and open-source technology are democratising access to bespoke trading systems. Buying off-the-shelf technology is no longer the path of least resistance. This is a change that will transform not only how institutions view their trading capabilities but also shape their approach to markets.
Breaking barriers
The convergence of recent technological leaps is changing mindsets and levelling the playing field when it comes to deploying state-of-the-art trading technology. The proprietary systems that once gave large banks and hedge funds a competitive edge are no longer exclusive to those with deep pockets.
Over the past decade, vendors have innovated alongside consultancies as client demands have evolved. Yet, the core question for buyers often remained: do you want a system tailored to your business that you own and control? Or, do you want a vendor system that performs well but pegs you to the pace of the vendors’ innovation?
Advances in cloud and open-source trading technology have skewed what was once a more clear-cut choice. Proprietary technology is no longer the preserve of those with deep pockets. Modular, cloud-based technologies enable continuous development and customisation, bringing built solutions into the mainstream.
Evolving technology strategies
Financial institutions are rethinking their technology strategies. Instead of relying on vendor solutions as temporary fixes, there is a growing realisation that investing in modernising technology stacks can yield better long-term results and innovation potential. The question is no longer simply whether to buy or build, but how to best allocate resources to achieve strategic goals.
This shift has far-reaching implications. As more firms – from exchanges to buy-side entities and investment banks – adopt purpose-built systems, the overall market structure will improve. High-throughput, resilient technologies will enhance operational efficiency and reduce friction, leading to greater market and operational efficiencies.
The road ahead
The convergence of enhancements to advanced trading systems marks a tipping point for financial services firms. As more and more develop their own technology stacks, the potential for meaningful enhancements to global capital markets grows exponentially.
Computing capabilities that were previously beyond the reach of mid-sized firms are now widely accessible to all through the cloud. These capabilities combined with bespoke systems will pave the way for AI adoption, 24/7 trading, seamless workflows and sophisticated new tools. Without these capabilities, much-hyped technologies or market structure changes will remain on the drawing board.
This year, we can expect accessible proprietary technology to have impacts beyond enhancing narrow functionality. With a growing number of organisations exploring the benefits of custom trading technology and the proliferation of open-source technologies that form the building blocks of sophisticated multi-asset systems, innovation in financial services will be unshackled.
The next twelve months is about building strong foundations for the subsequent five years. Firms that proactively develop and control their own technology will gain a significant competitive edge, leaving those who follow conventional paths behind.