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There's Opportunity For Innovation At Every Level

As traditional market opportunities evolve the need for agile technology is as much about maximizing alpha as it is about survival.

Maximizing access to global markets is about survival, according to TABB Group at the MarketTech 2013 TabbFORUM conference. Panelist Brennan Carley, Global Head of Elektron and Enterprise Platform, Thomson Reuters adds that to stay on top there are opportunities for innovation in all different layers of a business, be it at the raw telecommunication or up in the execution layer. "To be relevant to the financial industry you must look at all the different layers of connectivity."

Flexibility

As Will Rhode, principal, director of fixed income research at TABB Group puts it, there's a trade off between trying to know where you're going to connect and where you want a certain rigidity of structure. If markets change in some substantial way, new regulations comes in, or a whole market moves form one place to another, you what to be able to connect with that market without necessarily finding you've got to completely re-architect your infrastructure.

Prompting the panel, Rhodes asks, "Given the fact that there are so many changes going on in terms of the types of geographies people want to access, or maybe the types of asset classes themselves are changing, what do you think is the right decision for the market when it comes to what layer of connectivity they need to actually invest in to demonstrate their performance?"

Tom Whelan, head of US derivatives and product sales at Instinet says one of the things they have seen over the last 5-6 years is a lot of firms with global aspirations have switched gears and said, "actually we'll stay within this one market, we don't need to provide capabilities outside that market, those are secondary considerations. So we'll have our own infrastructure in our home market but we'll use various service providers to access those markets. They will go in with vendor or service provider capability and provide that access to their customers. They may become significant enough over time that the volume and profits are there that they make investments on their own to provide that infrastructure, or make a service more robust."

The underlying emphasis is that flexibility is important and there must be interchangeable offerings firms can invoke to use the right architecture to quickly follow a volume of business. "Where volumes are down, and dollars associated with those volumes are down, it's important for firms to be able to look at new revenue models around modernization of data, or other types of models," says Whelan. "The ability to go into new market without a heavy investment expense to get in to that market, or reach it to be able to deploy a new level of service in that market with no revenue." today, it's common to move into a new market and make a multi-million dollar investment around a product offering. "I don't have the capability to do that. But around a shared platform that is connected now i can do that very easily."

He concludes, "Variable costs. That's what it's all about. People don't want to have high fixed costs. If they are not sure what that market is going to be they don't want to make it very robust, they don't want to have it on their balance sheet. "

Building a One Size Fits All

Tom Whelan, head of US derivatives and product sales at Instinet, adds from his perspective collocation is a business that continues to grow in connectivity. "It's the lowest common denominator… We've all done business together, and we continue to, and whether it is direct or not, the thing would still go through a common point, or at least a large percentage will go through a common point." He adds that sitting in a collocation environment, using it as the foundation, you can actually sit and select architecture in one environment and build a fresh ecosystem.

There are so many different ways to do analytics, different ways to sort performing analytics and different data center providers, the question is how do we build it all together? Could we ever build infrastructure into a single environment where all firms could connect? If so, how do you find the best way? These questions are pushing the envelope in the way technologies are developed, and driving decisions on technology investment.

"We have a very diverse business with people driving alpha though different ways, from a long only solution that holds assets for years, to people who are in and out in nanoseconds. I think that everybody is going to find different value propositions in different parts of that, says Whelan. "What we try to do from a technology services standpoint is drive value in some of the very basics, so I think things like stability, ease of use, just being able to deploy technology or get connected to make it easy on clients that they can focus on things that are important to them."

Looking Ahead

Mark Casey, President & CEO, CFN Services Robert Schrage, Director of Solution Architecture, Telx explains what determined competition and competitive analysis a year and a half ago was proximity. It was a time when everyone agreed wholeheartedly that if you had an extra $10,000 for a square foot near that proximity it was worth it. Now, the competitive analysis is focused on if they can move infrastructure away from the asset, save money, and go into something that's less reliant on proximity to what they trade to.

"I think it depends on a lot on asset classes as well. We talk a lot as if markets are uniform and consistent. If you go into the fixed income world, or counter derivatives, it's a different world than equities. It's less transparent and readily available, it's more about connecting to the broker who has visibility of prices. They may have just enough flow, instead of shaving off a couple milliseconds. It's a very different connectivity problem." Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio

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