Best approaches to adopting a cross-asset trading platform

By Jens Persson, Senior Product Manager, Multi-Asset Class Solutions
February 13, 2019
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As we’ve learned from previous blogs, there’s an opportunity to leverage growing commonalities between the equities and foreign exchange markets into a more streamlined approach to trading and by extension the use of a single trading platform for both market. But what’s the best approach to migrating from discrete set-ups for the two segments to a single platform for both?

Participants today have three basic choices when it comes to deploying a trading platform capable of delivering core functionality for both the equities and FX markets:

  • Off-the-shelf, multi-asset packaged solutions;
  • Development frameworks; and
  • Buy & Build solutions.

Any of these approaches can be taken to address the convergence of market structures and behaviors, including market connectivity, price formation, algo execution and algo market-making. And each has its pros and cons.

Multi-asset packaged software

The primary benefit of taking the packaged software route is the fact that its standardized offering reduces cost and allows for more straightforward deployment. The standardized functionality renders customization unnecessary, thereby speeding deployment and reducing implementation costs. Post-deployment, the same standardized core functionality allows users to enjoy run-the-bank costs, regarded as the least onerous of all development options.

But because each package is a non-customizable, off-the-shelf software solution focused on delivering a limited functionality, it can be costly and time-intensive to modify or add to that functionality. Furthermore, developers and suppliers are often inclined to extend functionality only in cases where the addition is likely to drive new client demand. As a result, new functionality deployments tend not to be competitive differentiators, instead deriving from a common denominator among the user base.

Development frameworks

In some ways the polar opposite of package software, development frameworks are essentially toolboxes comprised of individual components that can be combined in unique ways to create a solution that meets the specific needs of the client. In extreme cases, such as open-source frameworks, they allow users not only to combine individual modules but also make alterations to the underlying source code, for extended levels of customization.

This kind of approach can offer users the opportunity to differentiate otherwise achievable only via pure bespoke development. What’s more, the pre-built elements of a development toolkit mean that time to market can be reduced dramatically. Finally, the modular approach enhances robustness.

But while these advantages make development frameworks a kind of ‘in- house build light’ option, they come with a high cost of ownership for their users. Organizations can become reliant on in-house teams to develop, deploy and maintain the system on an ongoing basis, introducing key-man risk and other dependencies usually associated with pure internal build.

Buy & Build solutions

Recent years have seen the emergence of Buy & Build solutions that seek to offer the best of both worlds, by combining the advantages of both packaged software and development frameworks. Buy & Build typically offers a pre-defined set of functionality off the shelf while also allowing a high degree of customization to each component.

Buy & Build systems are designed to allow deployment of a fully functional platform straight out of the box, meaning reduced time to market. From this starting point, their architecture allows users to continuously expand or customize the system for competitive differentiation according to business needs and available budgets.

This approach allows substantial competitive differentiation without creating unhealthy dependencies on software development teams, although as the production software in use diverges from the original base software, higher levels of service and support are required. Failure to ensure this can result in customizations falling out of sync with newer versions of the system. This in turn can force users to abandon costly custom jobs or run the risk of using outdated software that does not benefit from new developments from the original supplier.

Conclusions

There are many benefits to be gained from the natural convergence of the FX and equities markets, among them technology stack rationalization, long a thorn in the side of many financial firms. The convergence of market structures and market practices means that participants can use much of their technology infrastructure across both asset classes without diminishing service levels to either.

Despite different points of origin, vendor solutions in the segment are mature, and their real-world performance qualities proven, making it likely that most market participants can find a market solution that meets their needs.

Buy & Build solutions can provide sell-side market-makers with an opportunity to differentiate their offerings while managing potential downside risks. As with any strategic implementation, firms choosing Buy & Build solutions need to undertake appropriate due diligence to ensure that vendor support going forward will be sufficient to support the level of customization the client chooses.

In many cases, vendors of Buy & Build solutions step beyond a pure supplier relationship toward a development partnership-like structure to engage with their clients. In this model, suppliers often share resources or deploy staff at the customer site and vice versa.

By taking this approach, firms can implement user deployments at scale, within reasonable time frames and with the level of customization that differentiates their service offerings.

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