The benefits of a modular approach to trading technology

By Martin Nilsson
April 11, 2017

The ability to respond rapidly to a new opportunity is a prerequisite for success in derivatives trading. Adding access to a new exchange or electronic execution venue, support for a new security, or compliance to the latest regulatory wrinkle is essential to making sure opportunities are realized and profits are made.

As a result, agility and flexibility are widely recognised as an essential characteristic of a modern trading platform that can match the challenging requirements of today’s global derivatives markets. Given the complexity of the derivatives business, though, building a competitive trading platform often entails a major capital project of a scale that necessarily undermines any pretext of agility.

Firms are understandably reticent about pursuing a major trading software implementation just to be able to trade a derivative in a new marketplace, or merely to explore possibilities on a new trading venue. What’s needed is a more flexible approach, one that allows firms to select, use and pay for only the trading tools and functionality they need in order to launch new activities rapidly and without major cost.

To ensure this kind of flexibility, trading technologies need to select platform providers that offer facilities for customizing the software they provide to clients. By taking a modular approach, firms can thus select only the functionality they need, without having to embark on a major IT project. In this way, firms can quickly enter new regional markets or trade new asset class types that until now have been out of reach for them.

Savvy suppliers are responding to this user need by opening up their architectures to allow users access to certain segments of their source code so they can can customize a solution to meet their specific needs. According to a TABB Group survey of 72 buy-side, sell-side and proprietary trading firms that are active in the global derivatives market, almost 40% of respondents said they had been able to buy what they needed in a modular way from their platform providers, although nearly one-third said they were unable to do so.

This approach, though, needs careful attention. It requires, for example, rigorous testing on the part of both supplier and consumer, to ensure functionality is what was intended and that the platform’s custom elements are robust and reliable. The approach can also be more expensive, with 30% of TABB survey respondents saying buying a la carte costs “much more”.

The message is that a modular approach can offer the kind of agility firms need to take advantage of emerging opportunities, but it’s vital to partner with the right supplier to ensure the result is fit for purpose and doesn’t cost the earth.

 

Related Content

Identifying and responding to the demands of traders

Identifying and responding to the demands of traders

Blog The fast pace of derivatives markets makes their participants a demanding group. Derivatives traders must be flexible to succeed, and also need functional capabilities in their technology such as speed, global access and powerful analytics. They confront these needs in an environment affected by new regulation, plus more demands for market access and lower costs. […] April 27, 2017

The easy business case for automated testing

The easy business case for automated testing

Blog In the ongoing pursuit of efficiency and cost awareness among market participants, trading technology is often at the center of attention. Still there is at least one key function in trading systems left largely untouched by productivity and streamlining measures, and that is testing. Manual testing of trading infrastructure solutions remains prevalent within today’s financial […] April 20, 2017

Automating testing with a trusted tool

Automating testing with a trusted tool

Automation & Testing Whether you are deploying FIX or proprietary protocol components within trading systems, thorough testing is crucial to success. Not only do you need to test your systems for execution venue driven events but also for managing the client flow. Manual testing is a costly and error-prone process that can be significantly improved and accelerated through automated testing. Automated regression […] April 6, 2017

How automation can future proof trading systems and meet regulatory requirements

How automation can future proof trading systems and meet regulatory requirements

Articles & Reports Market participants are under tremendous pressure to maintain profitability whilst simultaneously improving time to revenue, meeting new regulatory requirements and holding off their competition. Venues, buy-sides, sell-sides, service and product providers are struggling with the increased regulatory pressure and the complexity of the trading environment. Manual processing is labour intensive and exposes firms to the […] March 14, 2017