Buy-side’s unlocking business value by investing in trading technology

By Mikael Persson, VP Strategic Research
May 3, 2014

A FIX backbone has become the standardisation layer to the sell side trading community, empowering the buy side and equipping them with the agility and flexibility to swap and change trading partners to realise greater value in their business.

Mikael Persson, VP Strategic Research Itiviti, says the market trend over the past five years is a transformation in the way firms perceive their investment in technology. “No longer are buy and sell side’s rationalising technology as a cost centre, instead the thinking has shifted to ‘profit centre’ and ‘profit enabler’.  This is opening up new opportunities to deliver connectivity infrastructure for buy and sell side’s to unlock the value of their business.”

In the past buy-side’s relied on the sell side to provide their trading connectivity technology, a sub-optimal strategy given they could be trading with multiple sell side partners and so required to manage many trading solutions. Take this scenario and multiply it by asset class traded, and it quickly adds up to a large operational constrain for any buy side firm.

It has not only been the advancement in technology but the tightening of regulations that is triggering greater buy side investment in trading infrastructure.  Balter says: “Today we are seeing a number of Tier 1 buy side’s taking advantage of new regulatory constraints to leverage best-of-breed technology to offer execution services to buy side peers for both optimal FIX connectivity to sell side destinations and FIX hub access for their external clients.  In doing so, buy side’s acting as externalised dealing desks are changing the trading landscape by competing directly with sell side trading partners to attract order flow.”

“A FIX technology backbone is the ultimate business enabler, giving firms the ability to flexibly switch between platforms by plugging and unplugging a variety of solutions,” adds Balter.  “The advantages of a FIX entry hub and FIX exit hub are clear. Firstly a reduction in connectivity cost, followed closely by the reduction of time to market, combined with a greater capacity to trade many assets on the one technology.

At the same time, sell sides are not taking the shift in buy side reliance lying down. They are counter responding by leveraging FIX to offer more advanced services such as the leasing of algos to sell side peers and of course the buy side community itself.”

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