For trading firms, the age-old question regarding technology has been whether to buy or to build.
But a third option has emerged as optimal for some organizations: buy and build.
“Firms want flexibility, control and the ability to measure their performance,” said Jesper Alfredsson, president of Orc Americas. “Technology vendors can offer an innovative alternative -- the option to build and buy. This addresses the buy-vs.-build dilemma because you can buy flexibility to build proprietarily.”
Large global banks, the standard-bearers of institutional trading, traditionally have built their own trading infrastructures. But amid heightened concerns about operating costs in challenging markets, as well as a reassessment of what is the core business, firms such as Citigroup and UBS have been buying more of their technology.
“Due to the rising costs involved in running a business and current market conditions, we have seen that quite a few firms are re-evaluating how much they should build,” Alfredsson told Markets Media.
Alfredsson cited Orc Tbricks as a platform that lends itself to a buy-and-build arrangement. “Orc Tbricks is a high-performance, modular infrastructure with an open and flexible app-based solution for trading, pricing and risk,” he said.
“When it comes to a trading system, firms want to leverage their ‘secret sauce’, or proprietary trading logic and this cannot be part of an out-of-the-box solution,” Alfredsson continued. “However, there are parts of any trading system that are generic, for example connectivity to trade on an exchange and modules for managing market data, transactions and position. These are infrastructure components that need to be in each and every trading system so it makes less sense to build them.”
According to Alfredsson, Orc Tbricks provides trading-system must-haves such as low latency and high-performance market connectivity, and its app-based component allows users to build or adjust the trading logic to their precise specifications. “It's the logic but it's also the workflow and how things are displayed and visualized to the trader,” he said.
As its name suggest, Orc Tbricks is built out of bricks, or well-defined components, that perform specific tasks. “Having that modular, brick-based architecture makes it easier to address changes and implement improvements without having to re-architect the whole system,” Alfredsson explained. “This is a real advantage, not having to re-architect everything every time there is a change in the market, whether it’s market data, performance, functionality, or regulatory demands. If we change a brick, and you have written a related app, you won't even notice the change because we keep the API between apps and bricks.”
Chicago-based Allston Trading has built some of its own trading technology, and the electronic market maker also stays abreast of what third-party providers can deliver. “If we can find a product that meets our needs cost-effectively, we buy it,” said Nancy Stern, executive vice president and general counsel at Allston. “We are continuously evaluating whether third-party solutions can save us money.”
Allston buys and builds in the area of surveillance reports, as the company has developed its technology own and also uses a vendor product. “We are comparing the effectiveness of the two systems,” Stern said. “We know our business better than anyone, but sometimes it helps to have access to a third party’s ideas. Maintenance is also an issue -- we are evaluating whether the third-party provider adapts the system more quickly than we are able to.”
In a broad sense, “market conditions and cost pressures are forcing firms to rethink how they spend their resources,” Alfredsson said. “Build what makes sense to build, and buy what's more generic and doesn't really make sense for most firms to spend a lot of time on.”
Featured image /Dollar Photo Club