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Modernising Front to Back Trading Technology

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The evolving landscape of trading technology presents both challenges and opportunities to financial institutions. From the integration and application of AI on the trading desk to the promise of digital ledgers in the post-trade environment, such trends emphasise the importance of internal agility, the ability to swiftly adapt to changes, and the need to strike a balance between what to buy and what to build.

Given this backdrop, what are the key questions that firms face when modernising their front-to-back trading technology? At the A-Team Group’s recent event, Buy AND Build: The Future of Capital Markets Technology London, these issues were discussed in depth during the opening session, a keynote fireside chat between Rachel Przybylski, Head of Business Delivery, Office of the CTO, Man Group and Anvar Karimson, CTO, Kepler Cheuvreux, entitled ‘Modernising front to back trading tech’.

Adopting a holistic perspective

Karimson opened the discussion with the contention that modernisation isn’t a sporadic effort undertaken every few years. Instead, it’s a continuous, iterative process, with each cycle becoming increasingly shorter, requiring a more strategic approach. In the past, it was technology could be considered as a standalone entity but today, firms need to adopt a more holistic perspective, integrating insights from various departments, including Sales, Marketing, Technology, and Sales Trading, all of which contribute to the broader picture. To truly excel in today’s competitive landscape, Karimson stressed that firms must recognise the interconnectedness of these departments, rather than viewing them in silos. And with budgets not necessarily increasing, the importance of selecting the right technology partners and fostering enduring relationships with them becomes even more important.

How can technology partners and capital markets firms best work together?

Karimson suggested that technology partners typically fall into one of two categories. The first group confidently claims, “We can do anything you ask,” which might sound promising, but it can raise doubts about their depth of understanding in the specific domain. The second group adopts a more rigid stance, insisting, “This is how it must be done.”

While it’s clear that vendors can’t offer unlimited custom solutions, there does need to be flexibility. Karimson shared an anecdote of approaching a vendor for a minor modification, expecting it to be a matter of weeks, and was told that they hoped to slot it into next year’s development schedule. That kind of rigidity kills productive dialogue.

He added that vendors often seem unclear about whether they are acting as ‘experts’ or ‘advisors’, explaining that an expert handles a specific task (creating a FIX parser, for example) without needing overarching guidance. On the other hand, if a firm is replacing something like an O/EMS, they’re not just looking for a transactional interaction with the vendor, they want advisory input and a lasting partnership.

Open systems

The discussion then turned to key success factors when innovating with technology.

Karimson suggested that the ideal scenario is ‘batteries included but removable’, i.e. a system that is fully equipped yet customisable. Comprehensive solutions should come with all the necessary features and should also comply with relevant standards. As the firm’s needs evolve, they should have the flexibility to modify or replace components. Agility is paramount.

KCx, Kepler Cheuvreux’s Execution Division, launched the API Analytical Suite earlier this year and this was cited as a good example. It has received an overwhelmingly positive response from clients, not least because of its API and open SDK, which enables clients to create integrations on demand by simply registering and receiving an API key, giving them the freedom to tailor their experience to their requirements.

Technology trends

Przybylski then asked Karimson how fundamental shifts and industry trends such as AI, digital ledgers, and the move to T+1 affect technology strategy?

He pointed out the difference in strategic approach between ‘conventional AI’ or machine learning, and the emerging realm of large language models (LLMs). While both are employed at Kepler Cheuvreux, machine learning, used for the company’s forecasting activities, is indispensable. Whereas LLMs on the other hand allow the team to be more effective, but are not essential to the running of the firm.

Karimson observed that digital ledgers offer great promise, but the challenge lies in creating a comprehensive system that encompasses issuance, trading, settlement, and clearing. With today’s landscape dominated by VC money and every new fintech wanting to be a unicorn, he felt that there is little in the way of collaborative spirit, which is a concern.

As for the upcoming move to T+1, the key thing is to move away from big end-of-day processes to a more real-time environment, but it’s important to strike the right balance.

What does the future hold?

Given the rapid evolution of the industry, Karimson believes that the future holds immense promise. While we’ve witnessed a surge in new technologies, the very essence and mechanics of trading are also undergoing a transformation, so the question arises: What’s next? And the path forward is ours to define.

An often-overlooked aspect is identifying what truly gives a firm its competitive edge. For an agency broker such as Kepler Cheuvreux, client service is paramount. Thus, enhancing the client experience is a primary goal. But it’s important not to underestimate the immense value in internal agility. The ability to swiftly respond to both the firm’s own needs and that of its clients is invaluable.

Choosing to build rather than buy primarily hinges on creating unique value. The ideal approach is to purchase core components that can be seamlessly assembled and modified as needed. The real value in buying lies in this flexibility. However, when it comes to elements that directly impact clients and the bottom line, the emphasis is on building those components in-house.

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