Phased approach delivers rapid tech benefits


In an environment where technology is constantly evolving and customer preferences can change rapidly, Caplin’s agile approach to project development enables banks to see a rapid return on their investment.

The banking sector has a patchy record at best when it comes to implementing major technology projects. Despite massive expenditure on hardware, software and consultancy – research from Celent suggests that European banks alone spent more than $70bn on software and information technology in 2017 – institutions are often left unsatisfied with the end result.

Lengthy implementation cycles are a significant factor in banks’ dissatisfaction with large scale projects, which is why Caplin’s preferred engagement model is to start small with a ‘lite’ proof of concept and analysis phase. This is commercially less risky than a full project while allowing for planning of the ‘main event’ and leaving the customer with working software and collateral that they can show around the organisation and use to build support for the larger project.

Agile software development is not a new concept. The agile ‘manifesto’ was written in 2001 by a group of developers who suggested that producing working software was more important than creating mountains of documentation and that vendors should prioritise customer collaboration and the ability to respond to change.

This approach allows new products to be brought to market more quickly and scaled more rapidly than under conventional development processes. Our projects are delivered in two-weekly ‘sprints’ with tight feedback loops for each cycle, which enable us to quickly identify what is working well and build on the elements of the project that are meeting the client’s objectives.

The agile approach to development has been implemented across trading markets, enabling banks to test new products and get them in front of their customers in as little as a few weeks. Because the process is completed in such a short timeframe it is possible to demonstrate value very quickly.

The key here is to focus on the highest value functions that need to be delivered. In many cases developers are asked to work on multiple projects simultaneously, even though the reality is that they will only ever be able to deliver a small fraction of these projects to completion.

Another benefit for banks in adopting an agile approach is that they can quickly adapt the development process to reflect feedback from customers and react more rapidly to changes in the regulatory environment.

This is vital in fast-moving markets where an application could be effectively redundant by the time it goes through the conventional development process – too much forward planning doesn’t always work!

Mobile trading on the move says survey


After some unexpected results in 2017, the latest survey of FX traders conducted by JP Morgan reveals a level of enthusiasm for mobile trading that more accurately reflects what we have seen in the field over the last number of years.

JP Morgan has been in the vanguard of mobile FX trading. In that context, the findings of its 2017 survey – most notably, that fewer than one in three (31%) of FX traders were likely to use a mobile trading app – were surprising, particularly when stacked up against feedback from our inaugural FX survey.

Our research underlined the fact that retail banking is far ahead of corporate and institutional banking in terms of using mobile app trading services to reduce the burden on hard-pressed sales teams, with most banks citing regulatory and compliance issues as the major obstacle to the adoption of the technology.

However, the survey showed that the buy-side wants to go mobile and that the sell-side may be underestimating this appetite. We found that while most buy-side firms believed market participants were already demanding the ability to view and manage orders on their mobile, the majority of sell-side firms believed that demand would not reach this level for a number of years.

Data from JP Morgan’s 2018 survey is more in line with our experience, with the number of traders expecting to use a mobile trading app more than doubling over the last 12 months. Almost two thirds (61%) now say they are either ‘extremely likely’ or ‘somewhat likely’ to use a mobile trading app this year. This figure is significant given that 34% of the traders surveyed said their company policy prevents any mobile use.

Much is made of the perceived security and compliance concerns of mobile trading, but the reality is that trading through a phone app and trading remotely on a laptop are no different from a security perspective. Indeed, security and compliance concerns have forced mobile trading solutions to be even more secure.

The effective implementation of mobile management systems requires mobile users in most firms to use secure passcodes to access their phones and secure login to an app using two-factor authentication provides additional assurance. Misplaced devices can be remotely wiped and mechanisms such as authentication patterns at the point of execution have largely eliminated unauthorised trading and errors.

The key feature of mobile trading is undoubtedly usability – clients that prioritise advanced features and extremely competitive pricing are more likely to be drawn to multi-dealer channels or complex desktop offerings.

The mobile experience is much more about making trading easy and convenient and building brand loyalty with corporate clients. Native notifications are also useful, helping clients stay on top of their positions and reducing the need for bank sales teams to call clients to let them know their orders have filled.

The positive side of MiFID II


Most of the discussion around MiFID II in an FX context has been pitched in fairly negative terms – yet the industry has much to gain from the clarity the directive will bring to the trading process.

It is understandable that some market participants have viewed the implementation of the new rules with trepidation given that they are required to provide a greater degree of detail around their trade execution.

However, it is also understandable that traders want to see the same level of transparency in FX that they see in equity or fixed income trading.

We have seen that banks are using MiFID II to improve transparency around the FX trading process. By reporting on price construction and displaying cost to the client, the sales desk ‘owns’ this P+L to a greater extent.

This is significant because banks are facing unprecedented pressure on costs. Margins are shrinking and as a result headcount is falling, so it is vitally important for FX sales desks to be able to justify their existence.

One of the most effective means of underlining their importance is to improve efficiency. This can be achieved by getting clients to self-serve but having a management information system to demonstrate value and proactivity in increasing margin/wallet share.

That means client trades can be attributed even if they are done on a self-service basis, increasing the visibility of eFX across the investment banking arm by highlighting the profitability of the sales desk relative to its modest headcount.

Intelligent institutions are overcoming budgetary constraints, using the compliance budgets allocated to MiFID II to re-tool existing systems to the overall benefit of the user.

In conjunction with the Global Code of Conduct, MiFID II has also created a more level playing field within the FX industry. The ability to demonstrate full compliance is vital to maintaining market credibility and will also serve to limit the impact of firms who have used technology to distort the market.

ThomsonReuters integrates all of its FX transaction venues into next-generation FX Trading desktop


Thomson Reuters has announced they are integrating all of their FX transaction venues into next-generation FX Trading desktop, to streamline access to liquidity for the FX community; including advanced portfolio order management system for buy-side participants. The integration will include:

  • Request For Quote service -RFQ (FXall QuickTrade)
  • Continuous streaming prices -ESP (Bank Stream)
  • Central limit order books-CLOB (Matching, Order Book)
  • Conversational dealing platform (Dealing)

The new FX Trading desktop will also include Continue reading

Here Comes HTML5 for Financial Markets (Greenwich Associates)


Came across this white paper from Greenwich Associates (from Jun 15) on the adoption of HTML5 within financial markets.

The report is based on interviews with 149 financial institutions, and found that technologists are rapidly shifting their focus toward the application needs of users, rather than the underlying operating system (OS). The focus is now on ‘The cloud, HTML5 and mobile’ (as was clearly identified in Caplin’s HTML5 in 2013: Where Next?  and Trading on the move white papers).

HTML5, is swiftly proving itself by delivering native, real-time financial applications that are OS and device agnostic. However, many who are unsure about even the near-term future of their OS and device requirements still aren’t devising an HTML5 strategy. This lack of planning may leave many ill-prepared for an OS or device upheaval within their firm.

Windows 7 still main desktop OS within Continue reading

Fastmatch launches relationship based liquidity provision


Fastmatch, the FX ECN which reported average daily FX volumes of $9.2bln in August, has just announced they have started providing fully disclosed ‘relationship’ based liquidity provision (one-to-one trading) at brokerage rates of $1 per million/side notional traded. Having built successful low-cost anonymous ECN with wide connectivity, it clearly makes sense for them to extend their offering and start offering relationship based liquidity.

7th October update: 

Less than a month after announcing the new relationship based FX provision, Fastmatch announced that they completed their first relationship based trade between Citadel Securities and a Tier 1 bank.

According to Fastmatch CEO, Dmitri Galinov:

“We had a tremendous response from clients and liquidity providers to our new, global, low-cost, fully disclosed trading offering,”

“At their request, we are pleased to provide our clients with a more customised experience, with one-to-one trading functionality at super-competitive prices. This is an area of the market that has grown nicely and we are keen to provide our clients with direct trading with their customers using FastMatch’s state-of-the-art technology.”

Fastmatch ADVFastmatch average daily volumes in $bn/day

This move appears a response to the success of EBSDirect, which has shown the strong demand for relationship based liquidity provision.

It will be interesting to see whether Fastmatch manages to gain traction with their new service, and at the same rate as EBSDirect. Although EBS doesn’t separate out the EBSDirect volumes, I have managed from various press releases to build a picture of the growth of the service as shown in the chart below. EBSDirect appears to have grown from nothing to nearly 20% of volumes in under two years.

EBSDirect1

EBS daily volumes showing EBSDirect in $bn/day and as % of total volumes

Moving legacy SDPs to HTML5 (in stages)


Given the ubiquitous ‘write once, deploy anywhere’ nature of HTML5, it’s not surprising that almost all new Single-Dealer Platforms (SDPs) are being written in HTML5.

The trend started a while back, and in his 2013 white paper, HTML5 in 2013: Where Next? (2nd one in the list), Patrick Myles, Caplin CTO identified three key reasons why everyone was moving to HTML5:

  • The move to cloud delivered services and Internet distributed applications has driven the need for lightweight, access-anywhere GUIs.
  • Apple and Google have embraced HTML5 as the future, building new-generation browsers themselves for the first time.
  • The drive to mobile and tablets, and the desire to re-use apps and code across platforms

Although, as Myles pointed out, there are challenges with HTML5, as it lacked many of the enterprise development features and tooling that developers expect and need to efficiently build large-scale, maintainable apps. It’s still evolving, meaning not all features are universally supported. Continue reading