Bond Gurus Gather at Financial Technology Expo
Question: As these B2B models keep getting bigger, what are the regulatory hurdles that you see? What does the SEC or other regulators need to do to make this market more concise? Do they need to constrict it? Do they need to expand it or do they need to leave it alone?
BW: I believe what the regulators need to do is to take the regulation that they currently support, and that we have all integrated into our business practices in the over-the-counter market, and find the right parallel to e-commerce. The notion of suitability, of knowing your client, of transparency and a variety of other things-such as concerns about front running-are all issues in e-commerce, as well as in our OTC businesses. The only wrinkle is that they are not always translatable in a very direct and straightforward fashion. And the regulators are attempting to bridge the gap, but I believe the sooner they do it, the better.
Peter Cirlian, Head of Technology at CSFBnext (Credit Suisse's E-commerce arm):
One of the things that we think about a lot, and it seems to come up again and again, is that as the world becomes an increasingly smaller place and e-commerce allows you to do all of these cross-border transactions and you just don't know who is on the other end.... then how do you deal with the regulatory issues from all of those political entities? .... And we deal with this in so many things, especially in businesses like emerging markets ... and how that gets dealt with on a global basis-if it can be dealt with, will greatly influence the market.
Question: Are you continuing to operate or develop proprietary trading systems that are firm or product specific? Are you licensing technologies? Are you entering into joint-ownership agreements? How is that working for you?
IL: A combination of all of the above, primarily. I think one method is the consortiums, as we are all aware of. I think there has been a trend from single product, single-dealer systems to the multi-product, single-dealer systems ... For the most part, the standard trading systems as we know them on the trading floors are still there. They continue to be enhanced, but from many electronic perspectives, those are just being extended as far as the capability of doing business. I also think that all these exchanges are going to have a massive effect on straight-through processing in the back office. And one day there will be a universal straight-through processing platform.
MP: There are, I think, two other trends that are important in the way we build systems. Traditionally, most of the largest houses have built all or most of their technology internally. And I think now we are seeing a shift to a hybrid development model, where, yes, we do continue to have substantial development efforts internally but we are also turning outward in some cases, not just to the usual suspects of the large systems providers but also to smaller niche firms. ... The other trend, I think, is a complete change in the architecture of how we construct systems. It used to be that if you were building trading systems, there was only one front end that you had to deal with and that was the front end that sat on your trading desk. Today that same trading system has to address... your single dealer Web site ... and a variety of commingled, consortium-type platforms. So you have to create a different architecture, where you create more crisp boundaries between functions and smaller modules that can talk to a variety of other systems, instead of just one.
BW: We create systems for our own use internally, which includes integration with systems that come in from the outside and the ability... to access a variety of tools through our front-end system, which we put on our trading floors. And those continue to be, by and large, proprietary.... But there are some third-party vendors out there that are providing fine service. They are quick... and they tend to bring some product to market that it turns out to be in our economic and competitive interests to work with.
PS: The only thing that I would add ... is that the buy-versus-build equation is changing, but is changing in a reasonably well-defined way. And I think it is changing in a way that is good for the dealer community. Our expertise, as dealers, is the content that we deliver... not the type of delivery. There are certainly many firms out there that have much more experience than any of the other dealers ever will in how information should be delivered. And by using those firms for that purpose, it lets us focus really on what our real competency is-which is the content that we have .... So that buy-versus-build equation is shifting in a big way and in a way I think that is good for us.
BL: I think we are also trying all these different strategies. We continue to enhance our internal capabilities to deliver prices to single-dealer platform-and also to multi-dealer platforms-and that involves both internal development and third-party vendors.... We also explore, for instance, new and emerging technology developers that are creating new business models or new ways of achieving the same goal, and that in a sense is a head strategy .... Part of the reason for this is that it is hard to tell at this point which of those strategies will be successful .... People are no longer looking at technology as a means to an end for solving and building trading systems, but also an investment that can yield results for the business in the long term.
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