Trading Technology and Quality Assurance

Trading Technologyand Quality Assurance

March 2016

Michel Balter, Itiviti

CONTENTSAutomated Quality Assurance ProvidesFive Opportunities for Execution Venues3

Daniel Pense, Electronic Trading Technology

Getting A Good Trade: Quality Assurance Testing For Brokers In The Modern Regulatory Environment6

Jim Northey, Itiviti

How Automation Can Future-Proof Trading Systems And Meet Regulatory Requirements9Carlos Oliveira, Brandes Investment PartnersThe State Of Buy-Side Technology

12By Peter Waters, Managing Editor, GlobalTrading

The Changing Face Of Technology: A Roundtable Write-Up14

1 QUALITY ASSURANCE

Control over the construction and reliability of trading systems is becoming an ever greater focus for firms across the buy-side and sell-side. As regulatory pressures mount, the cost of technological failures, both in terms of clients lost and reputation damage, only increases.

In this supplement we examine how testing technologies and automation of quality assurance is helping to ease the pain of this pressure. We look at ongoing advantages to the automation of client on-boarding technology, how testing procedures and technology can help firms be more nimble when it comes to developing in accordance with regulatory change, and how cost pressures are impacting not only what is possible, but the priority of technological development. These developments are important as more and more firms are having to on-board clients as quickly as possible, and deal with the possibility of technological failures.

We also examine the ongoing issues affecting buy-side technology, as the buy-side increasingly looks to take ownership of elements of technology from the sell-side, what are the ongoing cost and regulatory pressures affecting them, and how can they best prepare themselves for the future. The long-term shift is for ever increasing testing procedures, and greater documentation and scrutiny of those procedures by regulators. The more that these testing procedures can be automated and developed within defined technological boundaries ensures controlled costs and compliance. We hope you enjoy reading this supplement. As ever contact us with your thoughts and replies at [email protected]

Best,

Peter WatersManaging EditorGlobalTrading

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Execution Venues are mandated to ensure their technology is stable and performing as intended. However, often the need to launch new services to members or meet regulatory requirements, in a very short period of time, puts incredible pressure on assuring quality of the systems. Venues are forced to assume risks to meet time requirements. Adopting modern automated quality assurance practices and systems can create opportunities for a venue while removing risk.

Venues originated as opportunistic locations where people meet to trade, be it the Button Wood tree or the confluence of rivers, railroads, and the Great Lakes in Chicago. Now venues are locations where computers meet to trade. These computers talk over message based interfaces such as FIX. These message based interfaces provide an ideal entry point to drive automated end-to-end testing.

The optimal enterprise QA solution automates testing of execution venue trading systems using existing production data, taking into account changes in trading system environments over time.

Automated Quality Assurance Provides Five Opportunities For Execution Venues

This ideal QA solution can operate continuously in real time providing detailed analysis and reporting of test results. What opportunities are presented by this ideal solution for quality assurance?

Speeding time to market for improved competitivenessIn this fiercely competitive landscape, execution venues need to be highly responsive to evolving market and member demands. In large part, this means being able to deliver innovative offerings in a reasonable timeframe. But often the process of delivering new features, functionality or major upgrades is involved and lengthy, both with extensive development requirements and thorough QA.

Automation is a viable way for venues to improve time to market and keep system standards high by speeding up regression testing. Using automated testing, venues can deliver quickly while preventing major defects that could have a negative impact on Member relationships. BATS Global Markets, is one US execution venue using automated testing for this purpose. They utilise automated regression testing to not only speed up the

By Michel Balter, SVP Group Business Development, Itiviti

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AUTOMATED QUALITY ASSURANCE PROVIDES FIVE OPPORTUNITIES FOR EXECUTION VENUES

to dramatically enhance quality assurance. If they’re designed well, automated processes can be far more accurate, reliable and consistent than manual processes. Furthermore, sophisticated testing tools can introduce consistent, repeatable processes into a testing environment that can improve system’s stability. Using advanced automated testing such as model based testing and service virtualisation can greatly expand the quality of testing.

With automation, some venues have reported a 75% reduction in production defects when compared to manual methods. Minimising such defects can save venues a significant amount of money; both in terms of resources needed to fix errors and cost-efficiencies.

Tests are meaningless if the results cannot be accurately interpreted. Testing software helps interpret results by clearly presenting them, helping you trace errors across hubs and servers, and zeroing in on the likely culprits.

Achieving a more nimble response to regulatory pressures Today’s regulatory landscape is in a state of flux, forcing venues to repeatedly modify their systems to meet evolving compliance requirements, often with short deadlines. Every change introduces new system integrity risks. In addition, regulators are putting added pressure to establish thorough testing practices and to ensure the operational integrity of trading systems, such as RegSCI.

Compliance is further complicated by the principles-based rather than prescriptive regulations. While

overall process, but also add more sophisticated test cases. For them introducing greater QA has helped reduce the regression testing cycle from months down to just 33 hours. All-in-all delivering a process that is exponentially faster now, and far more thorough.

Improved efficiency is a prime area where automated testing shows its value. It’s not uncommon for venues to see a 40 percent reduction in time spent on the end-to-end testing process. This means they can perform platform migrations faster, giving Members an uninterrupted user experience.

Improved on-boarding certification for quality assuranceOn-boarding solutions can offer the simplest and most powerful automated certification platform. With a web-based automated trading environment, execution venues can simultaneously certify multiple Members, 24 hours a day. Because no programming or manual interaction is required, in-house support resources are able to focus more on core responsibilities.

The ideal certification platform offers these features and functionality at the ready:

• Flexible, optimised architecture for quick testing and program execution

• Error reduction and improved time-to-trading with automated certification

• Ability to integrate multiple destinations and events in the scenario testing environment

• Simulated testing environments or plugs into the live member environment

• Storage for historical data for compliance records• Manage the progress of on-boarding pipeline in a

real time GUI allowing you to identify problems with member certification proactively instead of reactively.

Improving testing accuracy for better stabilityVenues that use automated testing systems stand

Michel Balter, SVP Group Business Development, Itiviti

“Automation is a viable way for venues to improve time to market and keep system standards high by speeding up regression testing.“

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regulating bodies do set forth some guidelines for compliance, they often have not supplied precise rules. This leaves room for interpretation on the part of venue that is striving to comply with the latest standards. To this end, a model execution venue is trying to create repeatable, sustainable, adaptable, demonstrable processes that help simplify the compliance burden.

Automated testing is an essential ingredient that can help venues stay on top of regulatory pressures. Automation can help tackle the compliance challenge in a few different ways. It fosters the creation of best practices in testing and auditable automation can make testing more comprehensive, while simultaneously making the process less manually intensive and time-consuming. Therefore, more testing gets done, and the tests are less prone to error.

Lowering total cost of ownership to free-up budgetSome venues are sceptical about implementing automated testing technology, considering the initial upfront investment involved. They think it’s more affordable to simply hire a team of testers to handle the job. The overhead involved in sustaining a manual approach over time is significantly higher when stacked up against automation, especially when overall test coverage and test quality are taken into consideration.

Likewise, building testing tools in-house can present considerable long-term expenses. Technical staff must devote significant time to not only building, but also keeping these systems up-to-date as regulations and other requirements change. That can become quite

arduous. These bespoke testing systems become an entity in themselves distracting from the primary objective of testing the venue systems. Add to this, if building testing software is not an area of expertise, then the overall quality of testing will suffer.

The average venue will potentially see 150% return on investment (ROI) after the first year using the appropriate third party quality assurance tools, and a 320% ROI by the end of year three. The total cost of ownership (TCO) attached to automation is not only lower because it demands fewer staffing resources, but it also minimises the possibility of costly mistakes related to lack of domain knowledge or human error. Reduced TCO can also free-up budget, allowing venues to redirect money to other value-added areas of the business.

Venues will see improved productivity rates and efficiencies with testing. Prior to automation, all testing could only be completed during business hours, but

post-automation it can be carried out 24 hours per day, 7 days per week. The net result is the delivery of new releases to members in weeks, not months.

Meeting today’s demands In this unpredictable trading landscape characterised by constant change and unrelenting competition, execution venues need to find new ways of attracting and retaining members. One way of doing this is through introducing automation into the quality assurance process, which can help enhance performance and stability, while meeting the pressures for offering improved functionality and a reliable, faster service.

“The overhead involved in sustaining a manual approach over time is significantly higher when stacked up against automation, especially when overall test coverage and test quality are taken into consideration.“

AUTOMATED QUALITY ASSURANCE PROVIDES FIVE OPPORTUNITIES FOR EXECUTION VENUES

“Venues that use automated testing systems stand to dramatically enhance quality assurance. If they’re designed well, automated processes can be far more accurate, reliable and consistent than manual processes.“


Suppose that your marketing pitch from your trading desk to their institutional customers is successful, and they agree to try out your new algorithmic offering and make it part of their trading strategy in the next quarter. Now that you have the commitment for the trade, it is the job of the bank’s IT department to make sure that once the order gets in the door, it passes cleanly through the chain of systems that will place it at market, successfully manages the life cycle of the order, and returns every order execution intact with the detail requisite to satisfy the client. With the increasing complexity and nuance of how markets allow orders to approach liquidity, and the lengthening chain of systems that enable them to engage in this dance, successfully completing a trade has become more complex than ever before. When the scrutiny and governance detail of increased regulation comes to bear, the requirement for precision in managing that complexity drives the difficulty to a new level.It has been said that mastery of technology is the difference between success and failure for a trading firm, but it is not mere skill at the trading process, but also the management of technical complexity that comes into play. All the good ideas and implementation for the latest algorithmic product offering may get

Getting a Good Trade: Quality Assurance Testing For Brokers In The Modern Regulatory Environment

front page press, but change management, design that accommodates instrumentation and tooling, and yes, plain old fashioned good QA testing make all the difference in how a firm will do over time.

CustomisabilityBroker dealers deal with a set of problems specific to their niche. Generally it is expected that they will provide accommodative technical solutions for their customers that allow the Institutional side to interact with their set of servicers as uniformly as possible. Of course each institution will have requirements on all servicers that vary from institution to institution. Markets also may impose some of these same requirements for uniformity, but of course each of them also has their own flavours of trading requirements and offerings. This means that broker dealers must build systems that have a high degree of flexibility and customisability at least at the boundaries, and they need to be able to effectively manage the configuration complexity that comes with that flexibility. This typically requires customised tooling.

As systems evolve over time, there needs to be an effective way to test not only the base scenarios,

By Daniel Pense, a 20 year industry veteran of Electronic Trading Technology, having held various roles in vendor and broker dealer firms including Credit Suisse, UBS, Donaldson Lufkin and Jenrette, and Morgan Stanley.

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GETTING A GOOD TRADE: QUALITY ASSURANCE TESTING FOR BROKERS IN THE MODERN REGULATORY ENVIRONMENT

internal FIX spec), enforcing paradigms for resiliency and redundancy across the plant, firms can re-use the same QA techniques and even components.

Changing regulatory regimeThe ongoing intensification of the regulatory regime poses additional challenges for quality assurance. In many cases these regulations do not mandate specific technical implementations, as the systems that manage trading are too diverse for this level of detail in the regulation itself. Broker dealers are left to interpret the regulation and translate it into specific technical implementations in their systems. Where there is a level of interpretation, a conservative approach is usually taken, because no one wants to develop a paradigm that will later lead to a failure in an audit by regulators. But once the specific technical methodology of addressing the regulation is decided, the QA regime must expand to include use cases that will exercise those specific controls.

A case in point here would be the Market Access rule, instituted a few years back, where the specifics of the risk control procedures are left to the individual bank. Each must determine how to create controls around and within their systems to meet the requirement.

but also how the systems perform with various customisations applied. In addition, the test process must include the instrumentation and tooling to assure that these remain functional with the deployment of each new build. When this requirement is multiplied across the various systems that are used by each trading desk the task of just maintaining system integrity is very daunting.

Put another way, good QA testing should always include both functional and non-functional specifications, and when the latter is neglected in favour of the former, plant manageability is compromised. When an outage occurs it will find the weakest link, and from a business relationship perspective, it may not matter if the problem is with TCA of the algorithm or simply the amount of time it takes to get back an execution from a broken trade. Anything that hurts the customer’s trading experience has the potential to impact their cost and can impact the relationship. Technology is always perceived to be only as good as the relationship that it facilitates. This is as much dependent upon consistency and manageability as it is on the latest trading fad.

Firms that consciously consolidate portions of their technology do better at managing the consistency of their delivery, and simplify the task of the quality assurance process. By centralizing certain aspects of the technology: having common data stores across desks or even asset classes, maintaining a tight internal data model (even if this is mostly centred on a common

Daniel Pense, Senior Electronic Trading Broker Analyst, Electronic Trading Technology

“......broker dealers must build systems that have a high degree of flexibility and customisability at least at the boundaries, and they need to be able to effectively manage the configuration complexity that comes with that flexibility.“


reproducibility of the QA program. Generic software test harnesses that get created within a bank often help the efficiency the QA process, sometimes to a significant degree. However their efficacy generally stops at the walls of the organisation, and since the whole purpose of electronic trading is messaging between counterparties, QA programs built around industry accepted standards are necessary also.

The FIX protocol has been the standard-bearer in this realm and is the most successful of all cross-party protocol initiatives. Cost savings realised by the industry due to the wide adoption of FIX protocol are so substantial that it would be difficult to calculate. The desire of industry participants to deliver a cutting edge offering is always there however, and this drive for the competitive edge runs counter to the spirit of standardisation. Proliferation of binary protocols and even customisations within FIX protocol itself have increased the complexity of the trading process and the technology behind it, even while improving things like trading latency and optionality within trading vehicles.

For those who wish to succeed in this environment the QA process and tooling must keep pace. Generally broker dealers implement a mix of vended and proprietary solutions to manage their systems, and those who build or buy the strongest offerings in this space reap the rewards of that investment. The challenge of increasing regulation and requirements for system complexity are not likely to reduce anytime in the near future, but attention to designing and maintaining a good QA profile across the technology plant is a focus that will improve cost efficiency and competiveness in the long term.

The technical implementations that I have seen addressing this are varied, but all involve counterparty limit management and some supervisory override ability. In terms of QA testing the approach here would be to add cases to the functional testing which would breach limits and trigger supervisory review.

In some cases while the regulation is more specific in the trading behaviour that it enforces, it leaves the implementation details to the broker dealer. For example Limit Up/Down controls have specific price limit percentage bands boundaries to adhere to. The mathematics is set, but each system must manage these within the constraints of how it manages market data. Again this typically will be addressed by additional use cases in the test bed, but here the test harness will need to include simulated market data and may exercise the instrumentation as well as the software under test.

In some cases the regulation is very technically specific. For example, in MiFID II there is a requirement for clock synchronisation in the general trading plant which is intended to live with the trade and transcends the systems it traverses, institution, broker or market. To implement this requirement, clock synchronization within fairly tight tolerances (100 microseconds in some cases) must not only be established in every system the trade touches, but that tolerance must be also maintained at the appropriate level. It is the latter requirement that is the most challenging as anyone who has familiarity with managing clock synchronicity in trading systems will attest.

While many tools exist to facilitate clock synchronisation, in practice keeping the drift within tight tolerances across many platforms (which may have different mechanisms for clock synchronisation) is logistically challenging. It is likely that new monitoring will need to be added across many bank’s trading plants which is specific to this function.

Quality Assurance of this kind of thing is essentially non-functional type of testing, but with a monitoring system of the kind mentioned perhaps it can be reduced to functional testing, albeit in a different domain. Possibly there are vended solutions to this problem as well, and as the regulation rolls forward perhaps more will appear, but of course at an added cost to managing the trading plant.

StandardisationWhere it is possible to implement, standardisation generally helps reduce the cost and increases the

“Generally broker dealers implement a mix of vended and proprietary solutions to manage their systems, and those who build or buy the strongest offerings in this space reap the rewards of that investment.“

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All market participants are under enormous pressure to maintain profitability in the face of stagnant trading volumes, sustained record low interest rates, increased regulatory pressure, and stifling competition. No one is immune to these challenges. Venues, buy-sides, sell-sides, service and product providers are all being squeezed. The adoption of advanced automation of heretofore largely manual processes can both future proof trading systems and meet regulatory requirements.

Manual processes surprisingly remain very prevalent today within the financial markets, particularly for fairly standard tasks such as regression testing and client onboarding, both of which are labour intensive and divert critical resources away from adding value elsewhere within the organisation. It also exposes firms to the risk of human error, which can be costly and lead to trading errors and lost business.

How Automation Can Future Proof Trading Systems And Meet Regulatory Requirements

Moving towards automationTesting is an area that is ripe for automation. The supply chain in a trading environment even in SME (Small Medium Enterprises) consists of multiple different computer applications, systems, and networks, often spread across several geographical locations. The effort required to construct test cases that fully exercise the system when one component is changed is prohibitively expensive in terms of labour and time. Further compounding the testing issue are changes by counterparties to their systems that can have an impact on internal systems. For when one piece of the trading infrastructure is upgraded, the whole chain needs to be tested to ensure there are no unintended impacts on up or downstream programs. Every time a trading or order management application is updated – the whole end-to-end flow requires full regression testing. These tests are standard and repetitive. Automating the process allows firms to reduce the number of resources required

By Jim Northey, Principal Consultant and Industry Standards Liaison, Itiviti


HOW AUTOMATION CAN FUTURE PROOF TRADING SYSTEMS AND MEET REGULATORY REQUIREMENTS.

We have the benefit that our distributed trading applications are usually connected by industry standard messaging protocols (FIX and ISO 20022) and de facto standards from exchanges (Itch and Ouch), and vendors (think of the major market data vendors and EMS APIs). Each of these protocols defines a specific model of behaviour. This predefined system behaviour can enable the use of model based testing. Model based testing using a model of the system under test and automatically permutes possible behaviours of the system not limited by human thought on “how the system should behave”. The permutations generated by model based testing have a much higher likelihood of uncovering unexpected errors and outages that we have come to accept as part of doing business.

Time and costIt is an error to assume that test script development and execution is the majority of cost in a complex distributed test environment. Much of the time is consumed by configuring the test environment. Even when firms have adopted best practices in the areas of continuous integration, continuous deployment, and DevOps, there is still considerable effort required

to focus on testing, at the same time simultaneously expanding the entire testing capability. This is where it helps prevent oversights in scenarios where important components or integrations are left untested or insufficient when updates are rushed to market. Today many sell sides use some tools to automate this process, but in large part remain consumed by time-intensive manual testing – either due to testing tools that lack full automation capabilities, or just don’t provide the full range of functionality.

The move to offshore manual regression testing regimes that started nearly twenty years ago has not resulted in improved testing efficacy. The offshoring of manual testing has simply lowered the price of inadequate testing. Automated testing practices can not only cost less than outsourced manual testing, if techniques such as model based testing and service virtualisation are employed, the effectiveness of testing can dramatically increase. The cost per test case can be orders of magnitudes less expensive. This means that a higher volume of testing can be done.

Another popular technique is the use of the Agile Software practice of Behaviour Driven Development using software testing tools based upon Cucumber. While there is no argument that when building a new application in which requirements are fluid and the solution to a business problem is being discovered, the results are a very narrow thread of testing that do not provide sufficient breadth and depth to fully exercise a distributed system. Behaviour Driven Development and testing tools such as Cucumber and the Gherkin language are important tools, but are insufficient to fully exercise and test complex trading applications.

Jim Northey, Principal Consultant and Industry Standards Liaison, Itiviti

“The permutations generatedby model based testing have a much higher likelihoodof uncovering unexpected errors and outages thatwe have come to accept as part of doing business.“

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HOW AUTOMATION CAN FUTURE PROOF TRADING SYSTEMS AND MEET REGULATORY REQUIREMENTS.

“With a focus on improving and simplifying existing processes and systems, automation is a first step in reducing overhead, simplifying the process of upgrading, and taking advantage of new technology as it emerges.“

the firm’s own FIX infrastructure, it becomes a much simpler and less daunting task.

While savvy trading firms will always be careful to evaluate technology investment, automating key manual processes that immediately help firms reduce operational costs and shorten time to revenue, while improving customer retention and satisfaction in the long term, needs little consideration. For these are key weapons that future-proof connectivity and system infrastructure, while positioning firms for greater growth and leadership.

With a focus on improving and simplifying existing processes and systems, automation is a first step in reducing overhead, simplifying the process of upgrading, and taking advantage of new technology as it emerges.

To kill two birds with one stone, some may ask ‘how will automation help meet regulatory requirements such as RegSCI and the emerging requirements from ESMA in Europe?’ Building a reporting system for existing manual testing processes to meet regulatory requirements leads to increased costs, time, and resources. Automated systems automatically produce output that can be used to meet reporting requirements with little effort. Taking this a step further using a “fit for purpose” reporting system designed to meet regulatory requirements and you end up with significantly improved testing at a lower cost that can be meet reporting requirements.

to configure systems for various testing scenarios. This is where service virtualisation, the ability to emulate behaviour of systems based upon well-defined protocols can provide significant benefit. The learning curve and lack of availability of expertise have limited the use of both model based testing and service virtualisation. A focus on employing model based testing and service virtualisation in very specific domains such as FIX can provide a powerful and readily accessible automated testing environment that can provide an immediate return.

Client onboarding and certification is another business area that is weighed down and compromised by manual processes. Before a new client can start trading, a raft of integration work and certification testing must firstly take place. Connections must be established which are then checked to ensure all systems are effectively communicating. Ideally the client sends a number of different types of test orders to ensure orders will be processed correctly from end to end. Once this has been completed, business can commence.

Approximately 20 percent of customer onboarding is currently automated. And it is not uncommon for this process to take a couple of months from start to finish, and in extreme cases it has taken up to six months. Because the process is so labour intensive, some sell-side firms maintain substantial backlogs of new and existing clients still waiting for connections to trade. This is costing the business.

Client onboarding is a major pain point for many sell-side firms, sapping large teams of internal resources and needlessly blocking potential revenue. And it is not only a problem that exists for new clients. Existing clients also go through the onboarding process each time they start to trade new markets or when the sell-side makes a major system upgrade. Slow customer onboarding time and time again leads to customer frustration. Automating the process removes this client dissatisfaction and importantly closes the revenue gap.

Automating the onboarding process also makes it much easier for a sell-side firm to upgrade the FIX connectivity layer. Let’s say a broker has 1000 clients. During an infrastructure migration, all of these existing clients need to be on-boarded again, and the broker must ensure the ability to route orders is not impacted. The prospect of doing this manually can discourage many firms from performing a valuable upgrade. But if the onboarding process is automated, improving, (and future-proofing)


There are always numerous pressures on buy-side technologists to update and improve platforms. There are demands for cost containment, there are ongoing regulatory changes to keep technology compliant, and then there are changes that are needed as a result of evolving market structure and requested functionality changes from the trading teams. Each of these is evolving in its own way but all impact the functionality and control of systems and technology.

More pressure to control costsWith high levels of volatility ringing the New Year in global markets, many buy-side firms continued to see a decrease in the value of their assets under management. If this trend continues, technology budgets, which have been tightly controlled over the last few years, should expect an even greater squeeze. In just about every firm, there is a greater need to show a very strong ROI justification before taking on new projects. Projects to meet a regulatory requirement however, will continue to have priority and easier funding.

At time of vendor contract renewal, buy-side firms are being very surgical on what they renew, and more time is been spent renegotiating contracts and licences. Everyone is being very cautious with expenditures.

Legacy and new systemsFor years, buy-side firms had a preference to undertake in-house development. Whether to protect intellectual property, a real or perceived lack of suitable options, “building your own” for many was the only way to go. That model has been eroding and combined with advances in technology offerings, regulatory demands and cost containment pressure,

The State Of Buy-Side Technology

for certain systems more and more firms are opting to buy and/or have a vendor-hosted solution, rather than build (and/or maintain) something in-house.

As long as business reasons dictate the need to keep some of the existing infrastructure, we should continue to see a hybrid model where buy-side firms maintain these legacy systems – though providing little or no enhancements – while at the same time giving existing vendors and new players an opportunity to prove themselves. Inevitably, IT departments on the buy-side will continue to get smaller, but will nevertheless continue to be an integral, essential component of the business.

Growing need for dataSmall and mid-size buy-side firms rely heavily on the sell-side brokers for street connectivity, algorithmic strategies, and analytics. Extremely competitive, the sell-side firms seek to differentiate themselves by providing customisation to meet portfolio manager and trader needs.

There is a growing trend for buy-side firms to ask their brokers for more data associated with their trade executions. Trade execution data is being used to further understand and quantitatively validate that the algorithm strategy is indeed performing as advertised or requested. With a continuously evolving market structure, the buy-side is increasingly expected to know and understand what happens when an order leaves their system.

As regulation across the globe increases, we can expect some of the data may be combined with

With Carlos Oliveira, Electronic Trading Solutions at Brandes Investment Partners, L.P.

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rules will likely change, we began assessing its impact shortly after the announcement and are looking at possible vendor solutions already.

MiFID II and the significant changes it will introduce have been on the radar for many firms. While some team members have been keeping a close eye on the discussions regarding commission unbundling, others are assessing the expanded scope of investment firm’s transaction reporting obligations. Transaction reporting will apply to a wider range of financial instruments, require additional data and impose obligations on firms that receive and transmit orders. The additional one year to comply recently granted is a welcome relief for many.

Fortunately when it comes to new regulation, the affected parties are given the opportunity to voice their concerns. For a firm of our size, more often than not, we can find vendor solutions to help with the technology, timing and resources needed to be compliant. It can be quite daunting nevertheless to get the data and the processes ready to be compliant, and then to continue with its ongoing maintenance. In order to be a global firm in this industry, keeping up with or ahead of the regulatory requirements are a significant but important cost of doing business.

other data sources and used internally to help the buy-side meet their own compliance oversight and reporting obligations, and externally to demonstrate that appropriate choices and controls are in place.

That then feeds into the area of standardisation. It can quickly and easily become quite burdensome for the sell side to provide multiple, custom formats and fields. As these requests become more common, there is an obvious need to work out whether there is a way for the sell-side to present data and information in a standardised way. Unfortunately, there is still a great divergence as to what people want to know and so correspondingly a lack of standard will continue for a while.

Sensitivity to regulationWe always have to prepare and get ready quickly to be compliant with the most stringent of regulatory demands because that is the nature of having a global footprint. Ideally, we aim to produce something that’s more encompassing than just the minimum required, and this helps us stay ahead of the regulatory curve.

One example is last year’s SEC proposal for a set of broad rules mandating for mutual funds and Exchange Traded Funds to develop and implement a formalised liquidity risk management program, in order to reduce risks associated with redemptions under certain market conditions. While the final

Carlos Oliveira, Electronic Trading Solutions, Brandes Investment Partners, L.P.

“For a firm of our size, more often than not, we can find vendor solutions to help with the technology, timing and resources needed to be compliant. It can be quite daunting nevertheless to get the data and the processes ready to be compliant, and then to continue with its ongoing maintenance.“


On the 29th of September GlobalTrading hosted an executive industry roundtable in New York. The discussion was moderated by Donald Bollerman, Head of Markets and Sales at IEX, and featured a range of senior business executives, traders and technologists from across the buy- and sell-side. The event was kindly sponsored by CameronTec (now Itiviti).

The primary discussion throughout the luncheon was spent drilling down into the following areas:• the development and implementation of technology

in electronic trading throughout the last three years, • how the changing budgetary environment has

impacted development cycles and implementation, • the changing desires of those using the technology.

A principal concern was the changing requirements of those developing the technology, and how responsibility for technology is shifting between technologists and the business side of the firm, and the effect this has on buy-side, sell-side relationships.

The Changing Face Of Technology: A Roundtable Write-Up

The financial services industry in general, and electronic trading specifically, are in a time of massive flux in how technology is developed and applied.

Throughout the debate the participants, coming from a range of buy-side and sell-side firms, discussed that while headcount reductions are continuing to take place, firms are hiring more people in technologist and compliance roles. The onus and responsibility is shifting between firms and departments, but it is continuing to build. Further, there is a growing realisation that financial technology is increasingly competing with other industries. The ability of financial firms to attract the top graduates and most innovative brains is ever increasing, and money is no longer the only motivator that new talent requires. This is especially true in the US, primarily with competition coming from start-ups and Silicon Valley, but also this trend is impacting Canada, Europe and the emerging markets. The challenge is to make the most of the staff and resources a firm has, and the table quickly agreed that both are

By Peter Waters, Managing Editor, GlobalTrading

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rarely sufficient. The true differentiator between many firms is in finding a unique competitive edge, and this is an area that will continue to remain paramount. As a consequence, it was put out that the business side should remain in charge of the competitive edge of the business, while the technologists build the common stack. There was consensus however that those boundaries are breaking down and evolving.

As a result of this shifting competitive edge, it was agreed that standardisation is a key area to look at.The parties discussed the potential for standardisation in areas as disparate as data for analysis, time stamps, wider technological standards and how exchanges bill

James Rubinstein,UBS

“Increasing demands from our client base, as well as significant regulatory change and the need to continually adapt our products to a complex marketplace have led to new levels of demand for data and analytics. How we balance the tradeoff between presenting detailed data and the meaningful interpretation of that data is a significant challenge. Both the buy and sell sides are working to evolve: deciding what is meaningful, how to provide and interpret it and importantly how to manage the investment in the technology and human capital required.”

their clients. There is a growing need to standardise data and the input that firms receive, so that they can better understand their trading and compare like with like. Whether this ongoing drive becomes the role of a self regulatory organisation or the regulators themselves remained subject to debate. All those present agreed the buy-side will start to generate and analyse more of their own data; how the sell-side continues to provide a competitive edge to those buy-side remains to be seen.

As ever though, the divide between theory and practice continued to move around the table. In a time of infinite budgets and no sudden regulatory changes, there might be time to work out many of the standardisation issues

Donald Bollerman,IEX

“GlobalTrading convened a wide range of participants to debate a healthier, technology-enabled future for our markets. This type of dialogue is critical for our industry, and I commend GlobalTrading for producing a professional yet provocative event.”

THE CHANGING FACE OF TECHNOLOGY: A ROUNDTABLE WRITE-UP

GLOBALTRADING16

Mark Gurliacci,AB

“With regards to ongoing developments around execution transparency, our interests are aligned with our clients, and our clients benefit from the innovative trading technology that we require from our trading partners. AB’s ability to streamline our trading with optimised algorithms, sift through the pre- and post-trade analytical complexity and reward the sell-side for quality liquidity provision ultimately lowers our all-in costs of trading and enhances our clients’ returns.

Further, we support sell-side initiatives in the area of actionable IOIs and automating capital provision and believe there are still significant unrealised savings in improving trade workflows. We look forward to more innovation in the area which will only increase our trading activity

and reduce the costly delays in search for quality liquidity provision. However, we do still face tough budgetary constraints. Automation is the solution to our goal of maintaining premium relationships with the sell-side while reducing the explicit costs of trading, including lower blended commission rates. At AB, we limit this automation to our Tier 1 global brokers, we continually measure trade performance and leverage sell-side algo enhancements that allow us to expand the breadth of orders that can be streamlined.”

that continue to plague the industry. But while each firm has to remain competitive and drive itself forwards while reacting to the wider market environment, it continues to be difficult to get the necessary cooperation. Again this loops back to the discussed theme of how the buy-side want the ability to manage more of their own data, and to do their own analysis. The ability to control, standardise and manipulate data to suit a firm’s own end is far more powerful than being fed that analysis by another firm. But there is

2016 Executive Roundtables:London, New York,Hong Kong, Singapore, AustraliaContact [email protected] to get involved.

considerable cost involved in the development of the technology required to perform that analysis.The discussion evolved into a wider dialogue around where firms should cooperate and where they should compete, and how vendors can remain adaptable to these changing and disparate needs. The table agreed that the future remains uncertain, but there is a growing need for the buy-side, sell-side, exchanges and vendors to standardise where possible so that the industry can continue to develop and compete.

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Trading Technology and Quality Assurance