Trading firms must balance control and agility in the age of technology

‘Buy or construct’ was originally a binary decision, but technical advancements and the increasingly complex requirements of big trading firms have yet to render an option enough.

Instead, the discussion has taken on the shape of a spectrum, with the aim of finding the ideal balance between preserving technological control (build) and enhancing agility (buy). Every electronic market maker, proprietary trading company, and bank broker-dealer has a distinctive business and, thus, a distinct point on the control-agility continuum; market players who align most closely with theirs might gain a competitive advantage.

Technology development, according to Laurent de Barry, Director of Hardware Trading Solutions at Exegy, a provider of trading infrastructure technology, “is making the difficulty bigger.” “Can you devote increasing amounts of resources to running every aspect of cutting-edge technology yourself? Do you do this on your own, or do you enlist a partner’s assistance while emphasizing your unique qualities?

The modern market participant is able to trade substantial volumes of numerous asset classes, spanning dozens of trading firms, regions, and regulatory frameworks, successfully in real-time. These expectations create the push-pull of control vs. agility, which call for technological solutions to be dependable and scalable, swiftly implemented, and aligned with the firm’s goal.

A hybrid method, in which businesses choose to construct, buy, and integrate technology, was mentioned by Coalition Greenwich as being the most common in the market in research on institutional fixed-income trading trends used by the firms published in October 2022. According to the consultant, buy-side investors were divided over whether they were leaning more toward developing internal systems or utilizing outside technology providers.

The researchers noted that “many are choosing to utilize a best-of-breed approach anyway.” The recent emphasis on interoperability is leading customers to make choices about their technology budgets and supplier preferences. As one American trader explains, there is a strong emphasis on workflows and how they might be improved. The whole “was so three years ago” debate between the “build versus buy” dichotomy.”

The need to find a balance between preserving technical control and improving its adaptability has been made more urgent by a number of factors, including a need for more trained personnel. Since the COVID-19 pandemic and its related disruptions, this issue has been boiling over for financial firms. It has been a problem for years due to increased rivalry from other tech-rising industries. 

According to the KPMG global tech report 2022, which questioned 2,200 executives from various businesses in Q2 2022, a need for more skilled workers is the main issue preventing the widespread adoption of digital technology. Any financial firm’s ambition to DIY technology would be complicated by this environment.

You have limited resources and expertise in the market. Still, at the same time, de Barry noted, the market demands that enterprises have experience in software, hardware, machine learning, and networks. Make sure your talent is being utilized as effectively as possible, she said.

Vendor solutions have changed to meet market demands as the either-or technology paradigm has waned. These days, businesses are looking for adaptable solutions that promote quick time to market while retaining control over the tech stack components that drive distinction. It is necessary to determine what is actually essential to the reason for being and what still requires best-of-breed but is more developed and steadier, so high customization doesn’t provide equal value.

Maintaining and optimizing your “secret sauce” should be your primary goal, according to de Barry. “Then, in order to scale, utilize the technologies partners give. Making the most use of your resources possible is what this is”.

According to de Barry, the number of FPGA (Field Programmable Gate Array) engineers at some clients is as low as one or two yet working with Exegy has allowed them to outperform their competition.

“If you find the appropriate balance, you may be in a compelling position in the market because you don’t have the huge payroll cost of a large staff,” he said. “You may count on the hours of research and development that we conduct and catch up with or pass your colleagues with even a small advantage”.