How Does Your Trading Technology Rank Against Your Competitors?
Over the last 30 years, sophisticated sell-side technology has moved from a differentiator to a pre-requisite. Now the question is not whether one has robust, efficient systems underpinning the trader workflow but whether the systems are truly enabling sales and traders to beat the stiffest competitors in the market.
In this Q&A, Jonny Moore, head of convertible strategy at FIS, discusses the complexities of today’s convertible trading market and the opportunities created by the latest data and technology developments.
What are some of the challenges facing sell-side firms today?
In the FIS™ Readiness Report, we surveyed more than 1,000 senior-level decision makers in financial services (including 420 commercial banks, investment banks and broker-dealers). We discovered that only a minority of sell-side firms are confident their existing technology and operations are in the right shape to support their growth ambitions.
Trading derivatives, such as hybrid instruments or convertibles, on the sell side creates additional levels of complexity. For example, the clients may be balanced convertible specialists or have more of a fixed income approach or more of an equity-based philosophy. They may be hedged or un-hedged with underlying equity. How do you track and maintain all these approaches to the market?
Finally, there are a finite number of trading opportunities in a fast-moving market for sell-side operatives to take advantage of, so both speed and diligence is of essence.
Is regulation still a concern?
Definitely. Our research revealed that almost two-thirds of sell-side firms place regulatory burden as a significand hindrance to their growth ambitions while a further 30 percent see regulatory risk as the biggest barrier to accelerating innovation.
Is there any way to leverage something out of the time and money that firms put towards regulatory compliance?
Yes. For one thing, the data collected for regulation has value. Imagine if you could take the reporting and transparency requirements of regulation and turn it into an innovative business analysis tool.
Data is a common theme to the competitive advantage or readiness of sell-side participants surveyed in our research. We measured respondents against six principles, including data management, and discovered that those who scored in the top 20 percent are also growing twice as fast. Of those Readiness Leaders, more than 25 percent see improved data analysis capabilities as one of the top three benefits their technology investment must deliver. Yet 38 percent of sell-side firms do not have confidence in their ability to extract insights from external and internal data.
How can firms address that gap?
Technology is the key. What if a trading solution turned regulatory hindrance into effective business analysis data? What if it had the robustness, security and structure of an enterprise trading system and yet allowed users to interact with that data in spreadsheets via a simple API – utilizing their desktop data? What if terms and conditions and corporate actions were maintained to the highest standard in the market?
If you have high quality data, you can not only produce an accurate assessment of risk but also spot arbitrages in the marketplace. And that will give you an edge over the competition.
But many sell-side firms rely on multiple systems.
The challenge certainly goes beyond data. After all, how many different systems does a trader use in one day? Imagine if you could combine those functions into one platform that offers technological intelligence, trading and market-making functionality and convertible analytics and data, you’d have the tools to help you beat your competitors. And ultimately, that’s what every trading desk wants.