By Bruce Bland, Head of Electronic Trading, ION Markets
Across capital markets, extreme volatility is pushing traders to install as much control and efficiency in their workflows as possible. With the onset of regulatory change, such as the UK government’s removal of volume caps for dark trading, it makes sense that businesses are keen to make their trading systems more agile than ever to manage execution and compliance quickly and profitably.
Yet given rapid change in today’s market, the task of automating and optimizing workflows is not only hard to undertake systematically but can wind up making one’s systems significantly more complex. Through extra layers and processes, businesses often find themselves strapped with technical debt – hampering the ability of their technology to manage high volumes of orders, new regulations and change.
The need for agility
Over the last few years, tier one banks have seen a fair degree of success through their agile order management amid rising volumes and volatility. This is, to some extent, a result of their investment in powerful automated systems, which have become an effective source of long-term profitability.
Indeed, investment in automation and electronic trading is surging across the industry. One recent study by UK-based firm Coalition Greenwich revealed that 46% of global capital markets trading was electronic in 2021.
In a fast, competitive climate, creating efficiency through automation has become a widespread adaptive measure, in terms of deploying systems that can process trades rapidly, as well as keeping overall time-to-market to a minimum. As just one example, smart algorithms allow brokers to customize exchange selection, effectively crunching millions upon millions of data points in real time.
To this end, trade automation solutions are considered a necessity for the modern trading business to be agile. Good solutions help execution traders boost productivity, increase the number of orders they can manage during trading windows and enable the dissection of incoming order flow into ‘high-touch’ and ‘low-touch’ functions. Ultimately, greater agility begets greater profit – and the greater businesses’ profit, the more they can invest in electronic trading infrastructure and process even more transactions.
Managing technical debt
Crucially, while automation typically assists agility, it can also add complexity.
Naturally, increasing the number of layers and components in any system warrants rounds of development, testing and overall diligence. But in addition to these initial expenses, businesses must navigate and account for the implied cost that comes with more intricate software – an effect often referred to as technical debt. Complexity is additive: for every new function or layer deployed, firms are forced to account for this addition in the future, when implementing other software developments.
It’s clear that this presents potentially critical repercussions at a time when the market is being challenged to move rapidly and ‘do more with less’ across the entire trade lifecycle, meeting great demand on the trading desk and in their settlements function.
Finding the balance
At the bottom line, simplicity remains at the core of agile trading for both retail traders and institutions, especially as the global market structure itself becomes more intricate.
As much as businesses wish to keep advancing, there comes a point when customization creates complexity and technical debt becomes a major limitation. Keeping ‘complexity creep’ at bay by restricting technological components to a minimum – and ideally, using a simple, versatile platform – is not only a competitive advantage, but a vital strategic imperative.
It follows that the most efficient and resilient route for equities trading is still a single, automated, exception-based workflow, using a solution that is capable of covering equities, equity swaps, and exchange-traded funds.
Brokers who use these systems as a seamless backbone for their electronic trading, across all venues and order types, will develop agility in its most sustainable form – truly differentiating their offering in the years to come.