I first walked the TradeTech halls in 2006 with client Chi-X Europe at a time when most discussions about a European multilateral trading facility (MTF) were met with ‘an MT-what?’ and ‘kai-x? What’s that?’ Removing the European concentration rules paved the way for a lit and dark venue explosion: Chi-X, BATS and Turquoise. Then Baikal, Burgundy (remember those?) and hundreds more.
Best execution supercharged smart order routers hunting fragmented liquidity to feed hungry algorithms and quant models. Proximity hosting, ultra-low latency, even FPGA (field programmable gate array – yes, loads of us had to look it up) commanded a commercial premium as we shelled out for microsecond advantages, watching the crestfallen faces of capex/opex-heavy data centre owners at the very mention of cloud.
Who’d have thought then that today you can spin up an exchange matching engine in the cloud in a matter of hours? We’ve been mentors to FinTech lab start-ups for years now and used to advise against using the c-word in elevator pitches. Back then, it was on-premise or out the door. Cryptocurrencies – essentially Bitcoin – were designed by and for bank-hating mavericks and I don’t think the word tokenisation had been invented. Digital assets sounded far too risky and most ran for the hills at any mention of initial coin offerings. Blockchain? ‘No, it’ll never catch on’. As was patronised – I mean explained – to me on many occasions: “It’s a fad, it needs a use case and it’ll never fly”. Today, primary and secondary markets, settlement, custody, asset and securities servicing businesses, not to mention trade finance and payments, all race apace to create and protect single sources of immutable truth.
As we know only too well, much advantage is found in the data. Historical, proprietary, internal, external, alternative – even synthetic. It is all there for the taking, but what a mess it was. FIX Protocol had brought some industry standardisation, but the tags and flags, normalisation, harmonisation, concentration and consolidation – not to mention governance, privacy and identity – later GDPR – set challenges that legacy-laden, database-siloed organisations needed to tackle, and fast.
Data variety, veracity and volumes exploded. (And I refuse to use ‘the new oil’, nor the expression ‘unprecedented’. Or Brexit. Well, at least not here.) As have the tools to hunt the insights, aggregate and assimilate, remove the noise, and attempt to address what’s biased, siloed or sullied. Regulatory obligations set high, demanding expectations for better governance, surveillance, compliance and risk management, while RegTech innovation has attracted investment on an epic scale. As we know, unlocking insights takes technological finesse, budget and speed. Oh, and increasingly scarce, therefore costly, skills.
How then do we tackle the common challenges and take advantage of the common opportunities? How about we share? Code. Best practice. Sorry, say that again? We couldn’t possibly… although do talk to me about the wasted cost, pace of development and potential operating efficiencies. When you put it like that, I guess it’s a next step from collaborative trading community working groups to sorting out the frictional wrinkles. This awakening has paved the way for other collaborations and open source foundations, leading us to financial services and fintech-wide operating layers. After all, co-ompetition (terrible word), collaboration and interoperability dominate the buzzword bingo scorecards.
We’re heading for the edge of the cloud and 5G could radically reimagine how we work. Imagine harnessing IoT, virtual reality and augmented realities as we reconfigure the trading desks against a backdrop of redesigned future of workspaces?
Whatever your state of technological adoption and sophistication, one question remains: do we have the talent and the leadership. As organisations? As an industry? Today, every trader needs to be a technologist. And if we’ve learned anything in 2020, it’s that every leader needs to know how to signal the next crisis, pandemic wave and market event. We all need to appreciate and imagine how technology can drive us through and out the other side. But many may not be born or trained that way. So, for me, one technological development to watch is low code, but choose wisely. Not all are fit for the complexity and specificity of the capital markets. Self-aware leaders with likely tech-limited knowledge can achieve their business line ambitions for growth, risk management and operational efficiencies. At speed, and on an enterprise and industrial scale.
Margins continue to be squeezed. Interest rates remain low. The cost-axe hangs precariously close and the world has been thrown like never before. We need ideas from fresh perspectives. Diversity of thought, diversity of skills and diversity of people. What have we learned from the last financial crisis? Investors are expecting returns and/or down-side limitations. Regulators are expecting us to demonstrate evolution, oversight and control. And the technology has given us the tools. We now need to think differently.