Markets Media recently caught up with Josh Holden, Chief Information Officer at OpenDoor Trading, which operates a trading platform for off-the-run Treasuries and TIPS.
One hears a lot about fintech these days -- various concepts, developments, iterations, etc. But how exactly does financial technology improve efficiency and end users' experience?
Technology, at its core, is really about designing and implementing better tools. These improved tools can then be used to make existing processes more efficient, leading to faster clearing of risk and thus lower overhead. Due to competitive forces, a good chunk of those savings is passed on to market participants. New tools can also be used to deliver new products to users – think Lending Club or Bitcoin.
What are the challenges and opportunities specific to the fixed income market with regard to technology and its applications?
The Fixed Income market is not immune to the standard problems that arise when new technologies enter a marketplace. Entrenched participants with large investments in status quo business processes are usually quite reluctant to embrace new tools and technologies. Those currently 'winning' the battle are often quite reasonably concerned about upsetting the apple cart. Interestingly enough, even those participants who are 'losing' market share can find it very hard to risk adopting new technologies. This can be due to many factors: the costs of technological investment, lack of confidence in the ability to apply the new tools effectively, or process-based blockers like connectivity and workflow, to name a few.
The flip side of all of these impediments to technological advancement is ultimately a set of opportunities for the individuals and firms who can find ways to overcome these challenges.
How important is technology vis-a-vis personal relationships? How do the two best work together.
Since the Industrial Revolution, technology has almost always been feared as a replacement for human involvement. If, however, we accept the idea that technology is merely a better set of tools, this fear quickly unravels. In financial markets, relationships are not only still critically important, but even more so. Freed of the more mundane aspects of price discovery, execution, and transaction processing, participants can focus on the more important values that good relationships bring – better market color, more aligned overall interests, and better service as a whole.
You've worked at big Wall Street institutions. How does the development and application of technology differ at a large organization vs. a smaller startup/emerging firm?
Throughout my trading career, I always tried to bring the technology team as close to the desk as possible – to build the best toolkit we can. In that respect, my view is a little unique. That said, at large institutions (and all of Wall Street qualifies), you’re never starting with a blank sheet of paper. There are always existing processes and workflows that you have to 'play nice’ with. It’s also very hard to find the resources to implement any particular project plan – you’re always competing with other internal priorities. As a result, the approach looks much more like what machine learning folks would call a constrained local optimization. Essentially, you get to spend money only when you have to, try to get a few quick wins, and call it a day.
At a startup, there is far greater freedom to design novel approaches to problems. This can (hopefully) lead to ultimately a better, global, optimization. The challenge for startups is often getting the search space right – too narrow and you basically become outsourced IT, too wide and you wind up trying to boil the ocean.
What are OpenDoor's key differentiating technology(s) and how do they improve client UX?
With our first trades, OpenDoor changed the market structure of the US Treasury Market for the first time in literally decades. Buy-side accounts could now match – anonymously – with other market participants including other buy-side firms. These trades have all settled seamlessly via Clearing Dealers in an FCM-style structure. Dealers’ principal desks can participate as well, and have helped create a deep, actionable pool of liquidity in market segments (Off-the-runs and TIPS) that sorely need it. This is all enabled by a great technology stack, clean UI delivered via OpenFin, and a great team here at OpenDoor.
What is the future of fintech?
I think the future will be significantly more open-source and open-standards than we currently see. This model performs extremely well in other quantitative disciplines and should really be the norm for financial development as well. The idea that there are walled gardens that can’t communicate cleanly without significant development effort on both sides is kind of crazy. Likewise, users will increasingly demand new ways of transacting that address their concerns – anonymity, trading costs, liquidity, etc. rather than a one-size-fits-all approach. At OpenDoor, we’re proud to be among the firms bringing these novel approaches to market.