The Technology Revolution in Buy-Side Firms

Published by Anjaney Vatsal on
3rd Sep, 2015

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The progression of technology usually induces a range of emotions in individuals from all walks of life.  A few, view technologies as a great evil that slowly diminishes our humanity, while others have an opinion as a way to bring the world closer together and to help solve some of our greatest challenges. However, the view is of no importance, what drives the technology revolution is the DIRE NEED! The need to change!  The upcoming lines would narrate exactly about this for buy side firms, the need to change.

Blame it on our conservative nature or fat skin we are bit slow in adapting a change and so is the industry. Electronic trading knocked the industry as early as 1990’s, but the stragglers adopted the technology, not until 2006. Big data buzz has been creating ripples but is still not in full adoption mode. Cloud technology also has to face challenges and individuals have their reservations about adopting it completely in the financial world. However, experts say that the industry would see a change, and it is already in accelerating mode. Technology, process, and analytics are experiencing a makeover to adapt to growing needs in the competitive world across the globe.

 

The Key Reasons for Change

The firms that are looking for change or adopting a change could have one or more of these reasons for doing so:

  1. The competitive edge of serving the client with better structure and environment
  2. Ability to handle big data
  3. Support to Algorithmic and High-Frequency Trading
  4. Shift to Broker Neutral systems
  5. Faster Onboarding and implementation
  6. Disaster Recovery
  7. Cost Effective Systems
  8. Need for systems with Artificial Intelligence to enhance security, user interaction and also interactive systems
  9. Ability to support multiple users across the globe.
  10. Need for plug-n-play model as compared to the traditional model that needed ‘x’ time for implementation and getting live.

 

The “Areas” For which Technology could lend a helping hand

  1. Live market data
  2. Real-time Analytics – Risk Exposure, Post Trade Analytics, Pre-Trade Analytics, In-Trade Analytics
  3. Breadth of Connectivity capturing execution venues that offer liquidity
  4. Real-Time Monitoring
  5. Transaction Cost Analytics
  6. Enriched IOI’s with better specifications and information
  7. Increased focus on visualization and user interface
  8. Sales and Marketing using The internet and social media

 

The Change is Here

A survey conducted by Aite Group for the duration from April to September 2013 was not very positive in terms of technology adoption. The report revealed the fact that majority of the buy-side firms are not in favor of adopting a new OMS and only 15% of total 26 buy-side firms under survey acknowledged the fact that they would soon be implementing a new OMS.

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Another report from Aite group forecasting Top 10 Trends in Institutional Securities & Investments, 2014 stated that the buy-side is more enthusiastic to spend in startup vendors products, especially around compliance and risk management. The report advocates the hedge funds, the banks and other buy-side firms are geared up to walk away from years of stagnancy in IT spending devoted to safeguarding and regulation, and opening new avenues for growth and additional revenue generation. Opportunely, quite a lot of financial technology firms are attempting to help prospective clients accomplish that through cutting-edge innovation.

Another vital revelation out of the report is the fact that most new technologies would be based on cloud technology unlike earlier as the industry had their reservations about accepting it. The past few years have been pleasant with firms welcoming the change and were able to witness the positive impact of the technology in terms of scalability and cost control.

The same report also highlights that in 2013 the broker-dealers, market centers, and regulators spent almost $300 million on compliance technology, and this number is expected to grow by about 35 percent by 2015 year end.

The technology providers now understand the requirement that products are being designed on how they operate today rather than how the market should work. The basic principle helps the buy side firms to adapt the technology and also get quick outputs. Just for an example the data feed provider would look for ways to deliver them faster and accurate at a lower price [may be] rather than reinventing the wheel.

Another survey done by EZE Castle Integration of 538 buy-side firms across the US, UK and Asia dictates about the preferred OMS’s , market data provider, mobile device preferences and market data analytics provider for the firms. The study does provide a current of technology change sweeping firms and people along with them.

 

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What Technology has to Offer To Buy side Firms?

Advent Software, who offers portfolio management and accounting systems, is unique in a way as they feature pre-trade (deal time) and post-trade compliance; support for a range of asset classes including derivatives; a trading blotter; FIX-enabled connectivity; and order generation and routing functions. Talking about another firm Portware Pvt Ltd who offers EMS allows multi-broker/exchange connectivity; pre-trade transaction cost analysis (TCA); algorithmic trading tools and DMA; and also shows strong integration capabilities with OMSs. Another leading global diversified provider of financial information services Markit includes repository management (design, storage, archiving, retrieval, distribution of data); content management (importing and cleansing routines); business intelligence tools designed to allow authorized business users to interrogate data repository; creation of reports and manufacture of data sets. Another vendor Rimes Technologies provides data management services and sources ready for use and is quite capable of integrating with other systems; quality data provision and other functional services. However there are more to this list like Vermillion Software serving as client reporting platform, buy side CRM offering again by Advent Software, cloud provider BT, and Data analytics tool provider Essentia Analytics. Overstock.com is offering and issuing a bond denomination in Bitcoin. The above were few illustrations of how innovation is shaping up the firms and how it is a mandate for buy-side firms to adopt a change before it is too late.

 

At the End

To pick a new technology or not is a topic of speculation; however one thing that is quite evident is that technology continues to drive an ever increasing rate of change. The traditional system of trading and clearing are about to undergo a transformation, a technology revolution that has started at a slower pace is showing positive impacts. So just stay tuned as there is more to come up.


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