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Have faith in the data-agnostics


How do you extend the reach of your trading operation, cut costs and increase profitability? Jorge Vidal, executive vice-president, sales, at theBEAST.com looks at how the financial services sector can achieve these goals

More than ever before, financial services organisations are driven by the need to cut costs and improve efficiency. As liquidity increases and margins narrow, the pressure to find more cost-effective technology which also delivers rapid return on investment and helps increase market share.

One key area of technology investment, which until now has been pretty non-negotiable, is in market data platforms. The quality and reliability of data delivered by these organisations is beyond question. But in recent years, the arrival of the internet and web-based information delivery networks is forcing many financial institutions to re-evaluate their market data architectures.

The recent demise of Bridge Information Systems has also created a degree of uncertainty in the marketplace with many financial services organisations facing the prospect of migrating to an alternative data vendor. This could cause a potentially enormous amount of disruption.

At the same time there has been a soaring demand for real-time information and transactions. The number of places where parties can transact has increased accordingly. In recent years banks and brokers have been joined by sell-side ECNs (electronic communications networks), open ECNs and bank consortia.

Financial institutions need market data solutions which address the plethora of channels which have sprung up in recent years. Thanks to the growth in use of the internet, voice, electronic dealing and cash management systems have been joined by internet-based services and portals as more and more customers express a need for online channels for dealing in the FX markets, for example.

In short, the financial services sector is looking for ways to cut the cost of market data and corresponding IT infrastructure, without compromising the quality of their existing investments. At theBEAST.com they have a pretty direct opinion on the future of the data provider marketplace. "It has been pretty static for the past 12 years. You are going to see that change pretty rapidly over the next year or so," says Jorge Vidal, executive vice-president, sales.

So what is the best way forward? One of the most important steps is to take full advantage of the ever increasing flow of market data, much of it available for free or at reduced cost compared with traditional data vendors. "Financial institutions must be in a position to take advantage of free market data from sources such as ECNs which can be accessed via common desktop applications such as browsers," says Vidal.

Driving down costs
All well and good, but the real challenge is to develop a market data architecture which compliments existing desktop services, and enables you to draw in valuable data from other sources. Indeed the separation of data from the data vendors themselves is perhaps the most profound driver in the marketplace today as financial services organisations look to drive down costs in as many areas as possible.

At the heart of such solutions is what the industry refers to as a meta-data repository. In other words, a database that holds market information drawn from a wide variety of sources that among other things it provides symbology resolution. On top of this you require middleware that integrates data from the repository and all your other market data sources whether it's a traditional vendor, a historical database or an online source of data.

One of the key advantages of the meta-data model is that it isolates applications from the sources of data. In other words it is relatively quick and easy to switch dynamically from one vendor to another to check the consistency or accuracy of data. Let's say that you are looking at one particular equities trade and you notice that the price from one vendor has frozen or is only ticking over slowly.

If you are tied in to one vendor then you have no choice but to wait for the situation to be rectified. But with a growing number of solutions it is possible to switch to the same information from another source. You can also take full advantage of the growing number of free data providers. Vidal cites ECNs who deliver free, US-based equities data. "A trader can use this information when dealing in US equities, and can freely switch to a traditional data vendor when they want to trade internationally," he says. Such solutions are also 'asset-class' neutral. Says Vidal: "Whatever the instrument, whether FX, equities or derivatives, the architecture will adapt."

It also answers the need of financial institutions who want to distribute large volumes of self-generated data. In the past this was usually delivered via traditional market data architectures. But by cutting out the middleman, in-house employees get the same information at a greatly reduced cost.

Taking this approach also enables banks to make their existing hardware investment work harder. Long-gone are the days when the CFO would happily bankroll ambitious IT investments and banks now need to justify every penny of their IT spend. Taking the meta-data route enables them to take an important step forward without the need to rip and replace existing investment.

There is no question of replacing the workstation on the trading floor, but it is now possible to extend the trading room to other relevant areas of the organisation and indeed to clients themselves. At a time when the need to accelerate the volume of trades is greater than ever to sustain profitability, faster, more efficient dealing is more important than ever before. If people are able to do that with the existing technology on their desktop - a PC and a browser - then the move towards the new market data architecture becomes difficult to ignore.

A flexible route
This approach also raises some pretty fundamental questions about the nature of trading rooms themselves. In the past the set up was pretty inflexible, limited to the physical confines of the trading room. This has been transformed by the internet. If all you need is a PC and a browser to take part in the knockabout world of the financial markets, then shouldn't you be taking advantage of this to make your workforce more flexible?

Traders should be able to log-on and start working whether they are in London, New York or Frankfurt. They should also be able to take advantage of mobile and wireless technology - financial instruments don't go to sleep when a trader is away from their workstation so any technology which enables an immediate response to a change in the markets is priceless. Already, many solutions enable traders to make fast, well-informed decisions from a PDA or even a WAP-enabled mobile phone.

The same shift is taking place in the way in which the trading room connects to the rest of the organisation. The bottom line is that trading rooms are no longer run in isolation. They need to connect seamlessly with the middle office, operations, finance and sales to ensure a fast, reliable service to clients.

Another important distinction between the new wave of data delivery services and their more traditional predecessors is the ability to plug into hosted or ASP services. One of theBEAST.com's customers is using this model to deliver market data to trading rooms all over the world from South Africa to Singapore.

"We deliver this service from just two hubs," says Vidal. "There is no need to implement an architecture at every location - instead all you need is internet or intranet access." As well as overcoming the implementation challenge, you no longer need to worry about maintenance. "All the work is done at the hub/server end," says Vidal. "It is potentially a far less expensive, faster process because there is no need to send an engineer out to a regional office."

Time to cash in
Vidal is keen to point out that there is no attempt to blow the big market data names out of the water. But he does believe that the recent transformation of the financial services marketplace along with the technology which supports it, is rapidly approaching a denouement.

"Of course change will always be with the financial sector -that can only be a good thing," he says. "But there is a strong sense that in the past few years, banks have placed multiple bets on technology solutions which support the global upheaval in the financial sector. It's now time for those bets to come up. There is a growing realisation that the data-agnostic model is the one which minimises risk and still enables you to extend the reach of your trading operation beyond its traditional confines."

Jorge Vidal
Executive Vice-President




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