Where is the Innovation in Trading Technology?

Attending a conference recently, market participants bemoaned the lack of technology innovation in trading. With equity trading volumes depressed, downsizing of sales traders and reductions in IT spending, innovation has taken a back seat to saving money and retaining market share. Firms are coding for new regulations, rather than breaking new ground.

“Most desktops look the same. [Trading] Screens look the same for the past 10 years. No one has gone out and made a step change,” commented Rishi Nangalia, head of Redi Technologies, Redi Technologies, Goldman Sachs, which encompasses the RediPlus execution management system (EMS) and other activities.

“The real innovation is still ahead of us,” said Nangalia, who spoke on a panel about “Why Trading Technology Still Matters” at the June 11 Tabb Forum conference, “The Fate of U.S. Equities..” Other panelists spoke about opportunities for improving productivity, consolidating information through visualization technologies, such as heat maps — even clicking a picture to open a trade ticket.

As sell side firms undergo cost pressures, there is more of a need to be productive, panelists noted. Some brokers are looking at consolidating their high-touch and low touch sales-trading functions. Others are reviewing whether they need separate sales traders for cash equities, program trading, convertible bonds, noted panelists.

“There’s been a massive innovation gap,” said Alfred Eskandar, CEO of Portware, who spoke about ways to boost the productivity of sales traders on the buy-and sell sides. “There [are] a lot of workflow inefficiencies preventing a trader from covering an account. They have to gather information from so many different sources, distill it and deliver it,” noted Eskandar, who added, “The time for decision making is going down.” For a coverage person, we’re giving tools to the sell side coverage guy so they could be more effective. Eskandar said there’s still going to be conversation with the high touch trader, “We’re just helping the trader have that conversation faster.” Eskandar also reminded the audience that technology is not just for automated trading, and can be used as a collaborative tool and communications tool.

[To submit your nomination of a technology leader in the financial services industry, fill in the information on our Gold Book 2013 Nomination Form].

Still others contended there is room for innovation in financial services. Palak Patel, Global Head of Equity Trading Product Development, Bloomberg LP, said there are “tons of ways to innovate with an EMS.”

While algorithms and the proliferation of strategies were once associated with innovation, one panelists suggested the industry had gone too far with slicing and dicing orders. Still, John Consenza, Co-head of Electronic Trading, Cowen Group, emphasized that big advances have been made on the analytics front over the past four to five years. Citing venue transparency, where firm’s can measure every child order and see where it’s executing and measure toxicity as examples of progress. For Cowen, which is focusing on equities, the future is forward looking analytics, to help a trader predict what is going to happen in 2,3,4,or 5 minutes and how that impacts the trading decision, shared Cosenza. As fixed income moves to an exchange model, the systems that firms built for other asset classes are being repurposed, as firms look to noted Brendan Carley, Global head of Elektron and Enterprise Platform, Thomson Reuters.“A lot of what we see is spreading horizontally across asset classes,” he noted.

Yet Redi's Nangalia, suggested that putting an RFQ button on a platform, referring to the request for quote model, was not innovation. So far, Nangalia said the industry has made incremental changes, not step changes.

“When was the last time you saw come cool algos or cool market structure changes?” Nangalia challenged panelists and the audience. “Where does the courage come from? ” he asked. Nangalia, who is charged with building a stand-alone business unit for Redi to strategically grow as a financial technology company, urged people not to stay in their own firms, but to go out and break the mold. He added, “Thirty blocks south of here, a young industry is brewing,” as if pointing in the direction of where fintech startups are based in lower Manhattan.

But we all know that innovation is alive and well on Wall Street in many different ways. We are accepting nominations for Wall Street & Technology’s GoldBook 2013. Perhaps there is someone within your organization who deserves recognition for spearheading a project. We want to know about that CIO, CTO or SVP in charge of a line of business at a brokerage, asset manager, hedge fund, or exchange who is making a difference. As we did last year, we will profile this exclusive group of tech innovators in our October 2013 GoldBook issue.