Trading Communications is a sector in transition. When Symphony announced its Cloud9 Technologies acquisition in June, it was a significant moment that underlined trends of consolidation, integration and the need for community. There are more mergers and joint ventures on the way. As change and consolidation in the sector accelerates, what are the key considerations for trading floor technology managers?
Until recently, we referred to our core market as “Trader Voice” but the transition to a multichannel environment has been long in the making and we have ensured that our expertise stays one step ahead. Looking back to trading floor technology transformations 5 years ago, our consultants were already aware of the importance to traders of applications from companies like Bloomberg, Reuters and Symphony. UC platforms have also increased in prevalence, especially for internal communications. The pandemic has catalyzed change, forcing the adoption of applications like Zoom, and providing a high-pressure testing ground for soft clients that were rarely used before. WebEx has seen increased usage and MS Teams has also become ubiquitous since the start of 2020 although not as a primary Trading Communications channel.
Voice remains a primary medium that is important for structuring complex investment products and transacting high value trades. However, Chat/IM functionality is used for the majority of communications between the trading floor, support functions, and counterparties. The focus of technology managers is on facilitating streamlined workflows for trading staff while meeting legal and regulatory requirements. As cloud services are being embraced on the trading floor and across wider enterprise, bank technology managers now expect communications suppliers to offer genuine cloud offerings where capacity can be flexed up and down easily in line with demand. This paradigm shift is challenging for some suppliers but in all cases, there is a realization of the need to create communities that keep clients on-board as hardware becomes less mission-critical.
Bloomberg has been the standout creator of a trading community with IM functionality tied to its order and execution system. Cloud9 has a model that relies on communities of interest and it has performed well, especially in energy trading. C9 has enjoyed greater adoption over the past 18 months and it will be interesting, especially for Symphony, to see if critical mass has been achieved in other trading verticals. Other key players in the industry have all set up trading communities in recent years but the proprietary nature of their offerings limits their ability to grow.
Integration is the Key to Streamlining Workflow
A trading workflow encompasses the tasks and interactions leading up to a trade. For a sell side firm, it could involve contributions from Sales, Trading, Structurers, Treasury and Compliance as well as client counterparties. Relevant workflow systems include UC, the CRM and the order management system [OMS]. Communication modalities include voice, conferencing, IM, file sharing, social media, video and email. A McKinsey paper from 2015 highlighted how trading sales staff were spending as much as 38% of their time on the trade process and other administrative activity compared to 36% on client contact. We don’t believe that this situation has improved greatly in the interim. Integrating communications systems using CTI and APIs so that users can preserve desk space and screen real-estate while clicking easily between modalities – taking a chat to voice when necessary – and auto-completing fields in CRM and OMS systems is part of the future vision.
The streamlining of workflows is happening now but we still see siloed organizational structures that are not ready to support it. There is competitive advantage to be achieved here. A company that adopts the strategic goal of an integrated workspace which enables efficient workflows will empower itself to get ahead. To do this, the organizational structure needs to be aligned as much as the technology itself.
A secondary aspect to improving workflows is the centralizing of compliance, which we have recommended for years. Now we are seeing vendors like ShieldFC, Behavox and Relativity move in with an impressive range of integrations that encompass voice, compliance capture, transcription, CRM, OMS, UC, ERM systems, cloud providers and social media. Capture can be performed by most communication systems, the new approach sees this front-end functionality separated from storage, analytics, surveillance and trade reconstruction.
Managing the Trading Communication Transition
Each bank faces its own challenges, before achieving streamlined workflows. Some need to prioritize the remediation of end-of-life [EoL] and compliance risks; we see banks that have EoL risks with trading communications, voice capture, compliance storage and operating systems. Many are dependent on TDM networks that are scheduled for end-of-service by supplier and region over the next 4 years.
Even companies with a clear strategic vision realize that the changes required to achieve future technology environments can’t happen simultaneously. Once again, there are suppliers with offerings that can help to stabilize the situation and add value during the transition by helping systems to interoperate.
One example of a company that provides hybrid functionality is ComitFS whose elevated CTI click to dial solution enables Trader Voice suppliers and other applications to share private leased lines. They also provide start of day VR audio quality tests using a mean opinion score (MOS) capability. Another innovative offering comes from the Australian carrier Telstra. Trader Voice SIP Connect has several good features for an industry in transition. With a simple set up it creates a hybrid SIP environment that allows systems to interoperate, it records every line, regardless of endpoint. It also has PSTN integration which is very powerful for people who need to dial into hoots while working remotely or travelling on business.
Trading floor IT managers are digitizing their technology portfolios and seeking the cost saving, continuity and flexibility benefits of cloud. Prioritizing the improvement of trader workflows provides a strong reference point for strategic development and to achieve this, integration between systems needs to be optimized.
Integration is also important for technology vendors and we will increasingly see this facilitated through open APIs, acquisitions, and joint ventures. The well-established firms are using trading communities as barriers to entry and there is consolidation here too. For new companies trying to enter the market, innovation is the key. Rather than trying to replace existing suppliers, the prevalent approach is to integrate as widely as possible, providing added value to existing infrastructure as the digital transformation progresses. For the IT managers, the challenge is to select the right solutions both for the journey and for the final destination without users suffering a bumpy ride.