Trading desks at banks, brokers and asset managers are looking to consolidate their technology vendors in order to make their drive for new tech-enabled businesses more manageable.
T.K. Yap, managing director and chief transformation officer at CGS-CIMB Securities in Singapore, says technology is closing the gap between institutional and retail brokerage – and therefore giving firms that reinvent themselves a new business opportunity.
“We’re moving to an e-commerce business model,” he said during an online discussion hosted by Broadridge and moderated by DigFin. “With the democratization of finance, we see a convergence between retail and institutional business. Tech used to be an enabler but it’s now more of a driver of business.”
He said this requires overcoming legacy issues and siloed processes, but the payoff is to simplify tech and operations to bring institutional and retail functions under one roof.
“The divide between retail and institutional trading is narrowing because of technology to fractionalize shares,” he said. “As a broker we are becoming more like a fintech.”
Old pressures, new solutions
Vijay Mayadas, president of capital markets at Broadridge Financial Solutions (pictured), says the ‘democratization’ of finance is a rapidly growing trend. He notes that the idea isn’t exactly new, citing historical shifts to discount brokerage, online brokerage, and the popularity of exchange-traded funds. “But this trend is accelerating with no-fee trading, and it will continue to drive the creation of new things,” he said.
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Mayadas says making brokerage more accessible to retail investors is just one big trend impacting capital markets. Another longstanding phenomenon is the electronification of markets. This has already compressed margins for brokers in standardized products such as casdh equities and spot FX, and is now impacting corporate bonds.
He adds that automating workflows, regulatory demands for pre- and post-trade transparency, and automated trading workflows continue to gather pace, especially after the COVD-19 pandemic. Governance requirements around ESG requirements in portfolios is a new factor.
Rethinking tech partnerships
Put together, these trends are changing the tech needs of brokers and fund managers. “Firms want trading and operational transformation through a modular, multi-asset solution,” he said. This is driving firms to look to consolidating their vendors and tech stack to a single global platform that can manage all kinds of data flows, in real time.
Ofir Gefen, managing director for Asia Pacific and EMEA at Itiviti, which provides front-end trading solutions (recently acquired by Broadridge), says firms are responding in two ways. First they are thinking harder about what non-core activities to outsource; second they are reconsidering traditional off-the-shelf software in favor of partnering with tech companies to manage the software for them.
“Firms want to extend what they have so they can avoid buying new systems,” Gefen said. “They want more flexibility in their tech stack.”
Rethinking front ends
Yap agrees, noting that firms must get their workflow and trade processing right in order to reimagine ways of doing business. CGS-CIMB has completely virtualized its processing: it has moved all functions to cloud vendors, so it can better scale activities and drive down operational costs per trade. “That is what allows us to handle the threat of zero commissions,” Yap said.
Once that modern backbone is in place, the work quickly pivots to UI, or user interface. “That is the essential touchpoint of any solution,” Gefen said, noting this is a recent development for the institutional world.
The reason it’s so important is that it allows capital-market desks to begin to combine functions on one tech stack. A modular approach, with microservices fed via APIs, means firms can begin to add functions as needed.
For example, Itiviti is working with trading desks to combine standardized products with specialized ones on the same back end. “We’re talking about combining the exchange-traded assets of an equities or derivatives trader with OTC asset class workflows of a fixed-income desk,” he said. “That means integrating both the UI and the workflow.”
Modernizing the stack
From the user’s perspective, consolidation is about being able to see positions holistically.
“Our customers want a single, consolidated statement,” Yap noted. “They don’t want different reports or spreadsheets for various positions or asset classes.” He notes that fintechs are driving this trend on the retail side.
It’s having an impact on institutional businesses too, where an increasing number of firms are looking to consolidate their technology vendors. This is not a new desire, but in the past it was hampered by the reasonable fear of being locked into a single vendor’s monolithic platform.
Mayadas says the changes in technology make it easier for firms to retain flexibility even as they look to simplify their tech stacks. As more brokers and investors adopt microservice-based components using APIs, the cost and risk of making changes falls. If a regulator releases a surprising new rule, nimble tech stacks make adapting far less painful.
“When you can make adjustments via components, rather than relying on a legacy tech stack, those changes can be incorporated far more quickly and cheaply,” he said.