Bespoke trading for the many: the new building blocks of fixed income trading technology

trading, fixed income, technology, Fergus Keenan, Adaptive Financial Consulting, solutions, fixed income trading, flexibility, innovation, evolving marketFergus Keenan, chief strategy officer at Adaptive Financial Consulting, discusses the importance of bespoke solutions in fixed income trading, offering flexibility and innovation in a rapidly evolving market.

Fixed income markets have become a hotbed of innovation. As electronification continues to surge, the tradeable electronic universe is rapidly expanding and increasing in complexity. To navigate such a vast and changing market, firms need powerful systems that allow them to trade seamlessly – giving access to the furthest reaches of the market while delivering functionality and intelligence that sets them apart.

Executing differentiated trading strategies is increasingly important for banks and investment firms in a highly competitive market. Technology adoption has made this possible by opening innovation paths that were inconceivable to desks only a few years ago. A far cry from the analogue past, where calling brokers was the primary means of trading, electronification has greatly diversified how bonds are traded.

In the face of greater choice and an evolving market, firms have to think increasingly about how their technology can give them an edge. From accessing liquidity to offering new trading protocols and analysing deep datasets – desks need powerful tools that can harness these functions, streamline workflows and allow them to operate without constraints.

One size does not fit all

Until recently, many of the systems that underpin how sophisticated financial services firms interact with fixed income markets have been acquired ‘off the peg’ – plug-and-play (in theory) trading technology that can be used by almost any firm. These systems have played a crucial role in helping firms modernise their trading operations rapidly. However, as technology marches on, newer, more nuanced means of delivering high-performance trading systems are emerging.

Despite their utility, there is a problem with these out-of-the-box systems. The technology is built to appeal to a mass market audience and therefore based on general assumptions of how desks trade. However, a boutique hedge fund using the same system as a traditional asset manager may have vastly different trading requirements – one size does not fit all.

Vendor systems give traders access to a set menu of predefined tools and functionality that they can pick and choose from, depending on their objectives. The issue is many of the tools that firms are paying for go unused, and anything off-menu is often out of the question - their main selling point is invariably connectivity with the other features having to be lived with rather than enjoyed. Where previously ‘off the peg’ solutions were perceived as the easiest and most cost-effective way to bolt on new trading capabilities – this is no longer the case.

Rewind to ten years ago; building a trading system from scratch would have been highly cost, time and labour-intensive. Possible disruption involved in builds – contending with prolonged and potentially costly business disruption if systems are unplugged or taken offline – sometimes outweighed the benefits of a bespoke trading system. In recent years, this has changed with advances in tech accelerators and the cloud – enabling new technology to be developed remotely and delivered on a much tighter timeline. Additionally, if and when liquidity moves to the cloud, with fixed income likely to be a frontrunner here, the connectivity selling point for these vendors also falls away.

These advances have brought sophisticated trading capabilities within reach of a growing number of firms – suddenly, unique systems built around specific workflows are no longer the preserve of elite trading firms with huge budgets. Advanced, purpose-built accelerator technologies are the new building blocks of the next wave of trading technology. This technology not only enables firms to get the exact functionality they need but also provides strong foundations on which to build in the long-term, futureproofing their businesses and providing opportunities to innovate much faster on an ongoing basis.

A bespoke future

In highly competitive and fast-moving markets, purpose-built workflows and functionality are essential. Firms across the buy and sell-side are considering how to approach trading technology and ensure that approaches stay innovative and well-suited to evolving markets long into the future.

Recent leaps forward have made taking control of their technology a far more feasible option for trading firms. This is a significant turning point as owned technology allows firms to define how they trade and differentiate their offerings, rather than relying on mass market systems designed around how a vendor thinks you should trade.

As tech adoption has come to define modern fixed income markets, desks now have a much greater say over how they want their technology to operate. Where systems have held traders back in the past, technology can be built around traders’ every need now and into the future.

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