Despite the continued economic downturn, many buy- and sell-side firms still opened their wallets in the search for best-of-breed technology solutions. In order to decrease latency and increase speed, countless firms both big and small, bulge-bracket and boutique, have upgraded trading platforms, invested in latency management solutions, or set themselves up at co-location facilities.
But the race to have the best technology that will slice latency down to microseconds—and eventually, nanoseconds — is far from over. In interviews with Securities Industry News, industry experts pointed at technology solutions the buy and sells sides are expected to spend their dollars in the New Year.
Networking (both intra- and inter- data center). Growing market data message rates and shrinking latency have made networks a key focus of the sell side, said Kevin McPartland, senior analyst with the Tabb Group. “Upgrades of data center network equipment and purchases of long distance bandwidth will accelerate driven by current bandwidth requirements and future capacity planning,” explained McPartland. “And looking beyond bandwidth and transmission speed, reliability is tremendously important as downtime in today's market is unacceptable.” The core goal: Reduce the number of hops or other factors that introduce network inefficiencies.
Multi-asset-class platforms. Mutating asset classes is the future – different ways to trade traditional asset classes, going electronic, and new types of listed derivatives and structured products will be the norm, said Lloyd Altman, a senior executive in Accenture’s Capital Markets Industry division. “The multi-asset class problem is really affecting the buy side more than anyone else,” he said. “[There are traditional institutional asset management and hedge funds that are employing multi-asset strategies in order to generate alpha… everyone on the buy side is multi-asset class at this point. The question is will they need to replace what they have with something that’s new, or will they continue to modify what they have—it depends on the nature of how they use technology and whether they view themselves as technologists.”
Commoditizing high-frequency trading. Turnkey high-speed algorithmic trading systems will be a trend in 2010 as more players enter the high frequency trading business, explained Paul Zubulake, senior analyst with Aite Group. “We’re seeing a lot of people leaving large broker dealers and starting up their own small businesses related to trading,” he said. “If you’re a new group and want to start out on your own it’s not that easy to just dive into that business, so what’s happening is there are a few firms out there selling their technology and setting you up to trade... it’s an interesting story for next year.”
Latency management. The quest to squeeze more latency and provide more throughput is still creating opportunities for network, data center, and niche technology providers, said Accenture’s Altman. “It feels at times like squeezing a toothpaste tube to find one more use, and it is asymptotic on the latency front as we approach zero,” added Accenture’s Altman. “Whoever can advertise that they can get their first with the trade wins, and they can charge for that as a service. At some point it will not matter anyone, but we’re not there yet.”
Co-location. "Putting trading systems under the same roof as matching engines “is at the top of our priority list,” said Frederick Scuteri, senior vice president of prime brokerage services at institutional brokerage Cuttone & Co. “We’re seeing a lot of interest in many buy-side firms, especially the black box/high frequency trading shops looking for sponsored access to the different exchanges and alternative trading systems (ATSs). That game itself is a low-latency game, and co-location is a very big component of the success of that business. That’s something we’re full throttle on both with the NYSE and some other vendors and exchanges as well.”
Risk management for sponsored access. This ties in with the whole co-location story, said Feargal O’Sullivan, managing director of high performance messaging with NYSE Technologies, the commercial technology arm of NYSE Euronext. “Risk management for sponsored access is the idea of being able to allow buy side firms to use a broker ID and get access to markets directly without having to go through the broker systems but with the risk management that’s required before you allow them to do that,” explained O’Sullivan, noting that NYSE Technologies offers a risk management gateway. “It’s an additional step of latency that’s required to ensure that traders are not taking unjustified risks and bring the market down.” Added Aite’s Zubulake: “Pre-trade risk management in all asset classes will become a pre-requisite, or regulatory mandate, for trading.”
Central clearing. Over-the-counter, or OTC, products are going to central clearing, which will increase the demand for proper data management, said Zubulake. This is a trend that is already happening, with the Chicago Mercantile Exchange having begun clearing credit default swaps through CME Clearing on Dec. 15. “You’re taking a business that was purely a voice business… and now instead of having a one-to-one trade you’re going to have the trade done on that basis but it will be cleared through the central clearer. There will be multiple counterparties.”
Data loss prevention (DLP) technology. DLP, which is made up of systems that identify, monitor and secure data whether it’s in use, is on the upswing, according to Jim Routh, KPMG’s chief information security officer. Several major vendors including Symantec and McAfee have emerged as leaders in this relatively new market and are currently selling these offering as integrated suites rather than individual products.
Data profiling. Data profiling, which examines data in an existing database, collects statistics and information about that data and determines if it can be used for other purposes, provides a deeper, broader and speedier insight to data analysis than the more traditional approaches. Garry Katz, a senior vice president and information architect at SmithBarney/Citigroup, says this technique is getting increasing play, becoming an “essential tool’’ in trading.
Virtualized solutions. JP Morgan Chase & Co. is currently deploying technologies, which create “virtual desktops” within its network – and even virtual networks within its overall network capacity. The selling points here include reduced support costs, improved security, greater agility and more streamlined application deployment. As a result of its virtualized network, JP Morgan's data centers will evolve "from application-based silos to unified fabrics that allow for greater agility and utilization while improving the bottom line," said Cory Shull, VP of investment architecture at JP Morgan, in a statement.
Laton McCartney contributed to this article.
This article can also be found at SecuritiesIndustry.com.
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