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Fintech

The platform to digital transformation in financial trading

Thomas Kennedy

11 May 2018

Digital transformation can help trading firms explore new environments and meet the contemporary challenges that they may have otherwise struggled with. Photography: Herbert Mayrl
Digital transformation can help trading firms explore new environments and meet the contemporary challenges that they may have otherwise struggled with. Photography: Herbert Mayrl

Digital transformation is a complex task for trading firms who want innovation to flourish while still managing costs. How are platform-centric services meeting this challenge with a dynamic approach to business processes?


  1. Trading firms are increasingly taking a strategic platform-centric approach to their business processes.
  2. Embracing digital transformation helps companies to be an estimated 26 percent more profitable and enjoy a 12 percent higher market valuation.
  3. Market structure is changing and opening up new innovations in non-equity trading.

Driving transformation is a complex task. Over the years, companies have built technology and processes on a trading desk-by-trading desk basis.

This has created inefficient processes, largely because the business environment has become more complex. New regulations have also added to the complexity, eroding profit margins.

However, solving regulatory challenges is not the business of financial services firms — trading and investing is. Firms are looking for smarter and more efficient allocation of capital.

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They have to balance the risks and opportunities that present themselves. This can be broken up into three major areas or trends.

  • Regulation: MIFID II has introduced more stringent best execution requirements with a greater focus on non-equity asset classes. Both MAS and SFC have issued a consultation paper and thematic review respectively.

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  • Trading: Better and more sophisticated analytics are differentiating trading services.
  • Automation: Market structure is changing and opening up new innovations in non-equity trading. There is an increase in the use of algorithms.

It is difficult to take advantage of opportunities while maintaining a business-as-usual modus operandi. Chief operating officers often quarter-back between business and technology with the ultimate aim of getting value for money.

Transformation requires fundamental and prodigious mindset shifts within an organization to ensure the firm goes in new directions and leaves traditional methods behind.

Firms embarking on a digital journey need to be able to challenge the status quo if they want to continuously deliver value to their customers and have a positive impact on their company’s fundamentals.

Culture is one of the most important factors to get right for any transformation process to be successful. If not, companies are at risk of going out of business.

This point was highlighted by Vanguard CIO John Marcante when quoting figures from the American Enterprise Foundation showing that U.S. corporations spent an average of 18 years on the S&P 500 index in 2011, compared with 61 years in 1958.

Marcante adds: “Today, companies are being replaced on the S&P 500 approximately every two weeks. Technology has driven this shift, and companies that want to succeed must understand how to merge technology with strategy.”

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Some of the objectives of transformation are stated below:

Cost optimization: Reducing duplication and rationalizing similar systems to result in consolidation of infrastructure.

Capex to opex: Optimize cash for investments rather than tying it up in singular projects.

Customer experience: Engaging with a customer in a digital way allows effective measurement and management of their experience with your products and services. This will help to retain and grow your customer base.

Culture: The biggest challenge to disrupting existing legacy processes are people who are resistant to change.

Business ecosystems: Micro-service architectures and discovery of services allows firms to achieve economies of scale and faster time to market whilst reducing cost.

Hybrid IT: Firms need to consider on-premise and off-premise solutions in an optimal way to produce maximized business benefits.

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Platform approach to business processes

Trading technology is becoming increasingly expensive to run internally, with firms having to grapple with the costs of running market data infrastructure and analytics technologies.

According to the MIT Center for Digital Business, companies that have embraced digital transformation are 26 percent more profitable than their average industry competitors, and enjoy a 12 percent higher market valuation.

Services-oriented architectures or platform services are a way to ensure the optimal mix of controlling cost and allowing innovation and digitization to happen.

As a result, firms are now taking a strategic platform-centric approach to business processes.

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Velocity Analytics service

The Velocity Analytics service takes care of non-differentiating business and IT processes while allowing users to develop value added capabilities.

There is a reduction in technical debt and easy disposition of technical assets through leasing models.

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Key highlights:

Managed Data

  • Data is mapped and supported from the feed into the analytics platform, e.g. the normalization of market data.
  • Data quality is serviced to an agreed standard.
  • Data can be dynamically adjusted on the fly — e.g. support for corporate actions or cancellations/corrections of tick data.

APIs

  • Easy-to-use data retrieval APIs.
  • Easy-to-use analytic APIs.

Other benefits

  • Ability to create custom analytics and apps on the platform.
  • Ability to publish third-party data into the platform, such as orders/executions and RFQ data.
  • Proactive support and monitoring 24/7.

In a fast-changing world, speed and nimbleness are vital to staying relevant.

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