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Trading Technology

09:43 AM
Robert Iati, TABB Group
Robert Iati, TABB Group
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SIA’s Past: What Will You Do for Me Tomorrow?

For most of my life, the signs of June have been the aroma of burgers on the grill, miles of slow-moving red tail lights heading to the New Jersey shore and the Red Sox poised for their annual collapse. But things have changed (as my Boston-based colleagues constantly remind me).

For most of my life, the signs of June have been the aroma of burgers on the grill, miles of slow-moving red tail lights heading to the New Jersey shore and the Red Sox poised for their annual collapse. But things have changed (as my Boston-based colleagues constantly remind me).

In 1995 I attended my maiden SIA TMC, which gave new meaning to the first month of summer. So this year, I began to reminisce about TMC's past - trends that have come and gone, good ideas and not-so-good ones - to get an indication of what's happened in the industry in this period of tremendous change and suggest what might be in the offing tomorrow.

The theme of this year's TMC is Cool & Competitive Technologies. So, let's recall some of the past ideas, thoughts and systems that were cool and competitive.

Back in 1995, the industry was in the midst of rapid change on the trading floor, with brokers transitioning from traditional ways of communicating to more-direct connectivity to the buy side. The cool technology at the time was FIX, which we actually didn't yet recognize as the door opener for electronic marketplaces it has become. Nevertheless, we all began to identify the opportunities created by messaging and standards, along with the burgeoning World Wide Web.

By the late '90s the major institutional strategy was "clicks, not bricks." In 1998, we were all fed by a new understanding of electronic trading, and that year's SIA show featured booths operated by newly-created ECNs such as NexTrade, Island, BRUT and Redibook. We wondered how many more new electronic trading systems we would see and how quickly these would extend into foreign exchange, fixed-income and derivatives markets.

In 1999, after speaking with Optimark, I felt as if I'd just left a Billy Graham presentation, as the salesman evangelized about the incredibly sophisticated process it would use to locate and match liquidity. Now that was cool technology!

The 2000 conference was the one with the coolest technology acronyms. It appeared that every booth in the exhibit hall contained a reference to ASP, B2B, B2C, BPM, D2D, P2P and STP. They, too, seemed like great ideas at the time, and some are relevant in today's business. The phrase of the moment was "business transformation," the new business paradigm was "online brokerage" and the industry was directing huge amounts of money to discover and deploy the coolest technologies. In 2001, the industry's full-speed-ahead push to adopt STP and T+1 spurred the development of cool messaging standards technology (and more acronyms). We began to hear vendors step up their talk about XML, FinML, FixML, FpML, RixML and VoIP. With the help of cool communication technology, we'd soon be trading 24/7 (remember Market XT?) and settling these transactions in one day.

Things changed drastically in 2002. Many of the good friends and colleagues whose faces we were so accustomed to seeing at the conference were gone. And so, too, were the event's usual excitement and institutions' discretionary spending. The change was most evident in the return of suits and ties to the delegates' wardrobes. With budgets slashed and prospects tempered, the technologies became less cool and were focused on improving operational efficiency and supporting the flood of regulation. While it can't be classified as a technology, definitely the coolest term was "Six Sigma," which fed our appetite for efficiency. I can honestly say that it was the least fun of all recent SIA TMCs.

Many of us also saw our first glimpse of the future trading markets when direct-market-access systems - most prominently Lava Trading - burst onto the scene at the show. The growing influence wielded by the buy side at this time was fueled by the emergence of self-directed trading tools that changed the paradigm of the markets, along with the value proposition of the brokers.

Technologies began to become cooler at the 2003 TMC when we were all agog about open source and Linux, grid and utility computing, server virtualization, Web services, SOAP, WSDL, UDDI and .NET. With the goal of improving our ability to integrate, modularize, port and deliver applications in the most efficient and inexpensive manner, they promised to reduce our dependence on legacy systems and transform the technology infrastructure. These technologies have a clear place in the plans of every CIO on the Street.

The two most recent TMCs reflected the rebound success of the industry and with it, the return to its trading roots. The cool technologies all center on advanced electronic trading. Smart order routing, algorithms and program trading, and transaction cost research have reached must-have status. Along with it comes the need for a low- and no-latency infrastructure, excess capacity, data feed handlers, tick databases, event processors and a messaging infrastructure.

So after recounting this recent history, what can we conclude? Every conference introduces us to a new level of cool technology. However, it is clear that the ones that endure are the ones that have the strongest basis in our business.

Technology for technology's sake comes and goes. As the buy side gains clout, no-touch trading is pervasive, commissions are compressed and the sell-side value proposition is challenged, and competition is too intense to overlook the real value of your system architecture and application. In the current environment, where CIOs increasingly are being drawn from the business, it is wise for any vendor not only to attack the revenue-producing side of the business, but to do so with a strong proof of value.

The brokerage decision makers are not just demanding the best and fastest, but are challenging the vendors to venture into the future to provide them with tools that will give them a leg up tomorrow. It is not the "What have you done for me lately?" tag, but rather, "What will you do for me tomorrow?"

Next, vendors in the past have focused on tools for the sell-side trader because the buy-side guys either didn't understand or wouldn't pay for the best tools. But TABB Group studies consistently show that the buy-side traders -- both traditional asset managers and hedge funds -desire and will pay for state-of-the-art decision-making and execution systems.

So forget the koosh balls, the celebrities, the booth babes and the flashy in-booth demos. What we delegates really want to see at the SIA TMC 2006 and beyond is why this technology matters. When the markets are consolidated across asset classes and geographies, how is this tool going to enable me to find the hidden liquidity before the next guy, execute that trading decision one millisecond faster than my competition or develop a product that attracts the buy side to be my client? The answer will define the next cool and competitive technologies.

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