For years, the financial community has heard rumours of the impending consolidation of desktop capabilities. Yet despite the talk, the anticipated consolidation never seemed to get off the ground. But now, with the economic downturn, firms worldwide are facing shrinking budgets and strict mandates to find ways to do more with less. As a result, Thomson Reuters’ Ron Quaranta argues, consolidation of capabilities at the desktop level may become more than just talk.
By Ron Quaranta
A trading desk has a myriad of needs: news, pricing data, fundamental information, risk analysis, liquidity discovery, trading capability, and much more. For the most part, many of these capabilities are resident within different applications or systems provided by different vendors. As a result, intercommunication and integration of these can be challenging, resulting in sub-par efficiency which, so far, has been accepted by most as ‘a way of life’.
The idea behind consolidation is simple. Rather than having data terminals, multiple execution management systems (EMS), order management systems (OMS), risk management systems located at disparate trading desk terminals (or worse, bundled randomly onto a single PC), the idea of consolidation is that a single desktop seamlessly interacts with all of the functionality a user needs. News and information lead to global liquidity discovery, to transactions routing, execution analysis and position management. All effortlessly interacting when and as needed.
Why has it taken so long?
Sounds great in principal, right? But this idyllic working scenario comes with a series of challenges.
Firstly, it requires traders, trade managers, technology heads etc to reconsider and in some cases rework how their trading desks operate. All too often, traders and the internal organizations that support them are comfortable with their current methods of working, are averse to possibly learning new technology, and in fact may not have the time to engage in a new workflow routine.
Secondly, many buy side traders are just using the systems given to them by their brokers. For the types of trading that they are doing, the broker provided system is just fine, so why change?
Also, in many instances the ideal workflow solution simply hasn’t existed. A vendor might be providing price discovery, and now incorporates trade order routing. But what about post trade analysis or position management? Essentially, it hasn’t made sense to move away from the existing method of working to a solution that was still only partially ideal.
Technically, many of these workflow capabilities can’t in fact communicate with each other. This issue has multiple roots, not least of which is the proprietary nature of many of the applications and services. Over time this is becoming easier to handle as more capabilities can communicate using industry standard protocols, notably FIX. Technology vendors are also increasingly open to wider collaborative capabilities since that does lead to greater business all around.
Lastly, in the period prior to the economic downturn, money was not as much of a concern; at least not insofar as technology spending was related. Some traders wanted one type of news and data terminal. Fine, sign it up. Others wanted a different terminal. Sure no problem. It was the needs of the trader, as defined by the trader, that were in focus and accommodated, without question to a great extent. Enough money was being made to justify the costs of multiple disparate systems.
The financial world is a different place now. The new cost cutting mode has provided trading desks with an opportunity to look at desktop consolidation in a more pressing way. If the needs of a trading desk as a whole can be met while decreasing the number of disparate applications used and paid for, then the need of the firm to save money is met. There are cases where these measures have in fact expanded the traders’ toolset.
In economic conditions such as these, nobody can feel entirely safe in his or her job. Most employees become more amenable to changes that are dictated by the employer. As such, traders are becoming more willing to adapt their workflow and are more fully embracing the usage of consolidated desktop capabilities. It takes a good recession to stir things up and make us all less complacent with status quo.
Vendors such as Thomson Reuters and others are spearheading this consolidation effort. Over time, we are all seeing a significantly expanded suite of single vendor capabilities that offer multi-asset, pretrade, trade and post-trade functions. Some vendors that don’t cost effectively support most (if not all) trade related activities will simply lose market share.
What the customers want
So what are customers looking for? Beyond what directly results in cost reductions, the demand for the latest capabilities has not waned. People still want the best technology despite their budgetary constraints, or perhaps even more so because of those constraints. For example, liquidity discovery that readily translates into actionable IOI’s and then convert into orders, real time analytics and scenario analysis, multi-asset algo trading, and so on continue to be front of mind. Customers clearly no longer want many different vendors to accommodate this but rather just one that offers all this within a desktop which also provides all the news and data needed.
It is clear that many customers are looking for capabilities “on demand”. They want desktop functionality that allows them to utilize new applications which seamlessly integrate into their workflow. On demand training and support for new capabilities and new users. Billing that includes the desktop and all capabilities for users on one invoice. A tall order for some vendors, but over time all this will grow the stickiness of the desktop and ultimately translate into a longterm relationship between client and vendor.
What of the future?
Capability consolidation at the desktop level is sure to continue. Multi-asset liquidity analysis and routing, adaptable algorithm creation at the buy side level, trading capability directly from breaking news, real-time post trade analysis and other once esoteric capabilities will become commonplace. The key will be adaptability. Vendors need to focus on making it easy and seamless for users to adapt new needbased tools that enable them to redefine their own workflows. The anticipation is that vendors will be providing a comprehensive toolbox of useful applications that will make work easier for end users which in turn will translate into a “sticky” desktop for vendors.
Also, as users become more adept at using the tools available to them in a consolidated desktop, the ability to experiment with different plug and play features may allow them to discover new, more efficient ways of working. This in turn will make them more effective, and ultimately more profitable.
We may not have yet seen the full extent of the economic downturn and its impact on technology usage, and we are only now beginning to truly see the possibilities that capability consolidation offer. These are truly exciting times in the financial technology industry.