Trading Technology Evolves

Terry Flanagan
What was the landscape for providing trading technology to the buy side 10 years ago? What has changed over the past 10 years, and how might the landscape evolve over the next 10 years?
Markets Media posed the questions to FactSet executives.

John Adam, SVP, Head of Portfolio Management & Trading Solutions, FactSet

John Adam, FactSet

Over the past ten years, the market has continued to move from human speed to machine speed—and it is accelerating. An architecture of integrated portfolio, order, and execution management systems is not just an abstract wish for greater efficiency. Basis points of improvement in both cost and performance are on the table. Over the next ten years, I expect our industry to make significant progress towards delivering real solutions to bring systems together, tightening the portfolio lifecycle by shortening time to market for investment theses and closing feedback loops between research, portfolio management, trading, and reporting & analytics.

Tracy Wolfe, Head of Product Strategy, Portfolio Management & Trading Solutions, FactSet

If we’ve learned anything over the past ten years, it’s that technology has solved some problems and made others easier, and some challenges persist. How do we preserve and expand the value humans add to the portfolio lifecycle over the next ten years? How do we, as solution providers, deliver tools that continue to support and enable the human to deliver value? This is a key guiding question for us. Doomsayers aside, we won’t live in an all-machine world (at least not any time soon!). So how do we give portfolio managers and traders the tools to manage more, more effectively? To deal with shifting regulations? To constantly add value? How do we empower millennials who demand more information, faster, as they ascend to executive roles en masse and drive a shift in end client expectations? People who harness the combined power of human and machine are the ones who will win, even—or perhaps especially—in an environment where actively managed funds face scrutiny over performance and costs.

Tracy Wolfe, FactSet

Sort of a parallel challenge we are seeing is that clients are still spending too much of their own time and money owning non-value-adding components of their investment infrastructure. These components simply are not value-adding for investment managers. Clients are building data translators, messaging buses, and so on, that should be off the shelf commodities to integrate their selected best-of-breed systems. Over the next ten years, clients will increasingly demand—successfully—vendors’ technical expertise to better integrate their systems.

Dave Landisman, Head of Product Management, Portfolio Management & Trading Solutions, FactSet

Volumes. Trade volumes have increased significantly, and will continue to do so. Meanwhile, headcount is not growing—at least not nearly as quickly as volume. It is difficult to overstate the significance of automation in this environment, and the need to consolidate or integrate systems grows in parallel as more asset classes trade more electronically. Ten years ago, you didn’t see artificial intelligence and machine learning deployed on trading desks—at least in any meaningful way, and these capabilities have been an important enabler.

I do foresee consolidation of platforms within a given department—say, trading desks streamlining their execution software down to an ever decreasing number of providers—as systems expand their asset class coverage. I do not think this means equity traders will start to trade bonds and FX traders will trade listed options, but they could be using the same tools. I would point to integration across departments as a challenge that will be harder for many firms to solve, both vendor and client.

I would also expect areas where a given solution excels to be decoupled from any one other workflow and tied into all relevant workflows—compliance, for example. Inefficiencies aside, there are risks inherent in having multiple systems running different compliance engines that are not in lock step with one another.

Adam Steinhaus, Head of Relationship Management, Portfolio Management & Trading Solutions, FactSet

Ten years ago, the question was, “How does technology fit into my workflow.” Now, the question is, “How does my workflow fit into technology?” It wasn’t too long ago that paper tickets, even paper blotters were the norm on some buy-side desks. Compliance and surveillance have been a key driver of this shift. Time was when firms did not know what they did not know. Technology has taken the ambiguity out of the investment process, and paper-based trading just doesn’t fly anymore.

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