Rise of workflow as the buy side's low-key hero

The goal is to build a “single source of truth” to cut costs, make better trading decisions and react quickly to new regulation

Pulling it all together: Challenges and opportunities for banks preparing for FRTB regulation
Pull it together: small vendors helping buy side integrate various parts of the business

For buy-side firms, a low-key business need is gaining prominence amid the pursuit of aggregation, analytics and automation: workflow.

Better workflow – the bridging of systems for efficient use – is becoming a priority for these firms as their operations undergo a digital transformation. The problem is, the disparate best-of-breed products used in their technology stack often do not speak easily to each other. And solving that is crucial to managing trading and business risks.

In response, vendors are being brought in to properly connect the plumbing and so reap the benefits individual digital products promise. Buy-side firms have been adding to their technology stack to tackle regulatory and market-driven pressures. The goal now is to build a “single source of truth” to help cut costs, inform trading decisions and react quickly to regulatory shifts.

“Organisations are looking to become more efficient and effective to match the fact that the revenue side is struggling,” says Michael Talbot, managing director with Deloitte risk and financial advisory. “So they are looking at ways to use the workflow to address those macro drivers – not only risks, not only regulation.”

The economics of the buy-side business are changing in a way that requires them to do more with fewer people. Additionally, regulators are making stronger demands for such firms to show transparency in their dealings. In this environment, vendors with technology that can link products, venues and systems together – and so deliver efficiencies – are seen having an advantage.

“You have a whole ecosystem of tools that the industry is still trying to figure out how to use,” Talbot says. “Whether or not, and how you stitch them together and use these resources, is what leading organisations are doing today.”

The buy side put most of its technology spending into data and order management systems in 2018, and those budgets are expected to bump up 10% this year, a recent study from Greenwich Associates found. That suggests a rising interest in what infrastructure can do for the business.

Deloitte’s Talbot, who helps buy-side clients with operations and technology transformation, says right now there is plenty of focus on the front-office, trading and middle-office functions. In choosing vendor partners, firms are looking to strike a balance between what they do internally to generate alpha and what they can outsource to a third party, he says.

There is no shortage of problem-specific vendors in financial services, but small vendors are chipping away at the incumbents. Understanding how the buy side works is where some providers come up short, says Ben Ernest-Jones, FX product manager at Quod Financial.

“The buy side also wants its solutions to use as few vendors as possible,” Ernest-Jones says. “So it is a balancing act between not wanting to rip out all of your trading systems and not wanting to end up with a dozen different vendors who are solving problems independently of each other.”

For the buy side to get better technology, more collaboration is needed with more established providers, according to Stephen Murphy, chief executive of markets-focused software developer Genesis. Genesis itself recently worked with specialist prime broker Linear Investments on a real-time portfolio margin product, and supplied workflow and automation tools for three LCH projects.

He also notes that in trading, decisions are driven by data at every stage. But that data needs to be consistent and in a single place to be of use to the buy side, Murphy says.

“People want to be able to react to change better now. To do that, they know they need to understand their data to be able to build workflow and/or to be able to turn very quickly when the market changes,” he says.

“Ultimately, traders are looking for opportunities and/or trying to manage risk. With a lot of this data coming into one place… if you have the right dashboards around that, you can make much better trading decisions or you can give advice and/or feedback to your clients in real time, and be proactive versus reactive,” he adds.

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