Pre COVID-19, Business Continuity Planning (‘BCP’) for the typical front-office employee generally meant an enforced annual trip to the Disaster Recovery (‘DR’) site. These well-laid plans were quickly obliterated when it became clear the pandemic meant it was impossible for everyone to continue working in close proximity to each other at said DR site. With the typical front-office user now either spending all their time working from home, or alternating between home and the office / DR site, the industry has a working arrangement unlike anything most of us would have thought possible within our lifetimes. Add to that the full shift to electronic for the bastion of old-school floor trading - the NYSE - and it is obvious that we have entered a new era of working. This new working paradigm has brought with it a number of challenges and opportunities for all parties involved.
Establishing procedures to continue meeting regulatory requirements
The first, and arguably biggest, challenge encountered has been the loss of recorded lines and trading turrets. This is a seismic shift in an industry where regulation, such as MiFID II, explicitly requires the recording of all ’telephone conversations and electronic communications that relate to the reception, transmission and execution of orders’. In acknowledgement of the COVID-19 working arrangements, some regulatory authorities such as ESMA and FINRA have issued guidance reiterating the regulatory obligations, whilst recognising that firms may need to adjust their supervisory procedures. Whilst there has not been a uniform response to this conundrum, the theme amongst the bulge bracket firms has been to insist that phone conversations are still done on recorded lines. In some cases, this has been done by purchasing and shipping physical turrets to traders’ homes, whilst in others they have defaulted back to Citrix desk phones (with in-built recorded lines), or recorded line iPhones. Cisco Jabber also seems to be winning in this arena, delivering both in terms of regulatory obligation fulfillment and some of the fabled turret functionality, for example being able to pick up other lines and quickly dial key clients. IPC (a leading manufacturer of trading turrets) has also accelerated the development of their software version of the trading turret to deal with the crisis; their CTO, Tim Carmody, recently went on record saying that ‘while it can’t quite replicate every bell and whistle of a physical turret, ‘soft clients’ do provide significant functionality.’
Doing more with less: screens and processing power
Another challenge has been procuring and delivering the appropriate hardware needed to be effective when working from the spare bedroom. A standard set up in the office would see nine monitors, whereas the standard home set up has probably two or three. In response to these challenges, many firms have couriered hardware to those unable to purchase from Amazon (which quickly ran out of stock), as well as offering a (socially distanced) desktop service at home. It is already obvious that this situation has fundamentally changed the desktop experience for those involved and will have significant repercussions for expectations of what ‘good’ looks like moving forward. This will extend into workflow automation, where users are already expressing frustration at having to waste valuable time and screen space on repetitive, low value tasks.
In addition to the screen real estate issue, traders are also struggling with having to compete for critical bandwidth on the family Wifi, where tales of a mass slow down around 9am due to ‘PE with Joe Wicks’ are as yet unconfirmed! A further bottleneck has been ’Virtual Private Networks (‘VPNs’), which some firms have found so overwhelmed that access has had to be rationed to only those deemed critical during working hours. To deal with the network issues, additional WiFi routers have been delivered to dedicate a segment of bandwidth to resource intensive trading platforms. Solutions to the VPN restrictions have been substantially hampered by the supply chain issues. Firms have been unable to get the additional hardware needed in order to deal with the increased traffic and it therefore appears likely that these restrictions will remain for some time.
The cost of supporting your own hardware
Firms who have invested in a fully managed service (and those who provide such a service) have generally fared well throughout the crisis, whereas those in charge of upgrading, monitoring and servicing their own hardware have done less so. Those in charge of their own hardware have encountered an uncomfortable level of operational risk, because they were suddenly faced with having their support staff (generally supporting upwards of 10 applications) working from home in unprecedented numbers. As is usual in these scenarios, the ‘war stories’ will come out afterwards: the all-nighters to restart a failed process before the APAC opening on a Monday morning. Contrast this to those who received a letter from their software vendors laying out their fully tested BCP plan - to have all staff working from home - and many have felt relieved to not have this particular burden at a time when volatile markets have required absolute stability in their hardware.
Constructing secure new communication protocols
Firms are also having to adjust to the reality of zero / limited face-to-face interaction, both between employees and with clients. Some smaller firms (typically more open to using fintech solutions) were relatively well equipped to deal with this shift by quickly establishing new norms of using Zoom, Webex and Skype for video conferences. The larger firms have had to play catch-up in trying to get these tools approved by in-house infrastructure security teams. In some cases this effort has failed (especially with Zoom which has been under scrutiny for multiple security issues) and a couple of banks have decided to revert back to old-fashioned conference calls as the safest option. As one banker stated to the ‘Financial News’ website ‘If one of our pitches gets Zoom-bombed and ends up on YouTube, we have a real regulatory issue’.
Following the initial shock, the industry now has some opportunities in the long-run.
With the general consensus being that COVID-19 has inadvertently ushered in a new era of more flexible working arrangements - it was called a ‘catalyst for a generational change’ at a recent FX industry forum - the industry now needs to adapt for the new normal.
Regulation extends beyond the trading floor
First and foremost, regulation and compliance are going to need a seismic mindset change to eliminate the total reliance on being physically located on the trading floor within eyesight of the compliance department. In order to permit employees to work from home in a fully regulated way, a new breed of surveillance tools will be required to piece together activities that previously could have been physically observed on the trading floor.
Simplification, simplification, simplification
Having had to subsist on fewer monitors, the user experience is now going to be at the forefront of the desktop and automated workflow design of the future. The front office UI is going to need to be more economical with both space and data - displaying the same information more intuitively and ideally in an exception-based view. Interoperability vendors will be a winner in this arena (with their historical focus on charting abilities), and solutions that have done the hard work to align with these interoperability frameworks will be at an immediate advantage.
Workflow automation, already a focus for the high-touch trading desks, is going to become the new buzzword; areas such as crossing, aggregation and wave creation will be a focus for rules-based logic. The ability to set up rules-based flows (potentially using machine learning in the future) will become necessary to allow users to focus on the true value-add activities.
Infrastructure and support models will change
For those banks with in-house builds, we will continue to see the move to web-based applications which by design allow their users a seamless transition between home and the office. For those banks running vendor applications, it seems inevitable that some firms will at least consider entering into managed service contracts as they have quickly realized the true cost of running this support in-house.
In general, the industry is likely to undergo a significant investment in infrastructure, as many firms realize they need to upgrade their networks and buy new VPN licenses for all their staff to work from home. Both of these shifts will open up a significant opportunity for vendors - those who can offer a competitively-priced managed service will be immediate winners. Some vendors have already spotted an opportunity to lessen the infrastructure requirements (and cost implications) for firms by looking at methods of allowing users to log directly into their applications from home instead of having to go via the banks’ VPN. Whilst this is still in early-stages, it could offer an interesting alternative instead of the current reliance on VPN licenses.
Video conferencing goes mainstream
Video conferencing is also going to see continued focus both for client meetings and keeping in touch with colleagues, with Symphony hoping their reputation will bring an immediate advantage over Zoom in the security-focused financial services industry. Quoted recently on Financial News, Symphony’s founder and chief executive said ‘Zoom is not fit to be used within the confines of regulated financial services… We are building the world’s first compliant, secure and encrypted video conferencing service’. This will obviously open up further opportunities for Symphony in combining their messaging service with video conferencing to further advance into the communications space; will we see traders flitting from Symphony video conference to Symphony chat, instead of between IB chat rooms? Taking it further, will we see Bloomberg invest in the existing video capabilities within IB to compete in this arena?
Cost savings offer a glimmer of hope
With a global recession increasingly likely, cost-sensitive firms are seeking savings where they can. The first potential saving in this area is real-estate costs; the typical financial services company spends between 5 - 10% of their total costs here so even a marginal shift of allowing a portion of their employees to continue working from home would have significant financial benefits. Another outcome is likely to be greater global diversification, some firms have already begun to consider lower cost office locations previously deemed unviable after realizing that location is less relevant than previously thought. This will be especially relevant for attracting younger workers, who often cannot afford to live within a reasonable commute of financial service hubs. The second area is travel; COVID-19 has decimated the travel industry and it seems unlikely that firms will return to travel policies of old (it was not unusual for senior leadership in some firms to spend in excess of £250k / annum on travel). In the future, firms are likely to really consider whether a video call will suffice when previously a flight would have been considered (an agenda likely to be furthered by firms trying to establish their environmental credentials).
So whilst you are probably unlikely to see the typical trader dropping the children at school before returning to work in his spare room every day of the week, it does seem likely that the global economy is experiencing the cultural shift of a generation in working arrangements. There is a huge opportunity for the financial services industry to focus on the tools, protocols, controls and cultural shifts to both define and embrace this new distributed workplace model effectively. As one trader mused recently ‘I think my children will think I was crazy to spend three hours a day on a train when I could have done it all from the spare bedroom'.
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Shelley is Co-Head of Product Management, Principal Trading, with responsibility for the Market Making, Limits, FX & Position Management applications. Prior to joining Itiviti, she has spent her 20 year career in various Product Management positions within Tier 1 banks (Morgan Stanley, Citigroup) and Bloomberg SSEOMS.