By Michael Chin, Managing Director, Co-Head of Trading, Thomson Reuters Financial & Risk
Open platforms allow clients to leverage multiple best-of-breed components in order to enhance performance, reduce risk and cut costs.
Today’s trader needs to be able to connect to their counterparties, find liquidity, transact and prove best execution, with fewer resources than in years past. Fortunately, the rise of open trading platforms across the industry is helping to make this ask a reality, incorporating the key functions they require across the full trade life cycle, from pre-trade through post-trade.
Top trading platforms are often constructed from multiple proprietary and best-of-breed vendor systems, integrated to provide a seamless workflow and powered by a single source of market data to ensure consistency. They strive to meet the needs of market participants who demand openness, interoperability and connectivity between clients, partners, suppliers and their own employees.
In response to these demands, and in alignment with our open platform strategy for trading, Thomson Reuters acquired REDI, an award-winning, cross-asset execution management system, in January 2017. Through the acquisition, REDI is being integrated into both Eikon, our next generation financial markets desktop, and the Elektron market data platform. This integration provides a powerful buy-side trading workflow solution with interoperability between the platforms.
Challenges and trends
The need to adopt an open platform strategy is prompted by several macro trends that affect, in one way or another, all members of the financial industry.
First, there are pressures to minimize the total cost of ownership (TCO) of the trading stack and maximize scalability and agility. Financial firms are under intense cost constraints as regulation and competition are forcing a change in business models, and prompting a shift from products to platforms and from customers to communities. Cost-containment is likely to persist, acting as catalyst for technology innovation. Meanwhile, creating, distributing and monetizing new products and services will remain a challenge for both the buy and sell side.
Second, regulatory compliance is increasingly complex, costly and global. New obligations around transparency and risk management are coming into force, but within in a market structure that is still evolving in an unclear fashion.
Third, the momentum towards automation is relentless. Algorithmic trading extends across asset classes, while straight through processing, risk aggregation and liquidity fragmentation are driving further electronification . Next generation users also have greater technology expectations, forcing the creation of digital strategies and leading to the emergence of fintech firms that are disrupting existing operating models. The new financial consumer expects the same seamless, user-friendly experience for their trading platform as they have when making an online retail purchase or downloading a new smartphone app.
Finally, financial services are increasingly data and content driven. Greater market transparency is generating valuable new sources of data, but the task of aggregating and integrating these can be extremely resource intensive.
As a result of these trends, both the buy side and sell side are considering major changes in their technology choices. According to a recent survey by Aite Group, 58% of buy-side and 79% of sell-side firms are likely” or ”very likely” to consolidate and/or rationalize their trading infrastructure. They are turning to modular technologies that will help them scale, lower their TCO, offer frictionless integration and allow them to connect to the broadest set of content and liquidity partners for trading.
What is an open platform business?
An open platform business is unique in that it acquires, connects and matches disparate systems and networks to enable providers and consumers to do business, and does so without necessarily owning all the assets in the value chain.
Perhaps just as important, it’s a business model with a go-to-market mind set, and not just a technology approach.
Many of today’s wildly successful enterprises use this model. At a basic level, these businesses link together consumers and providers. They also treat every participant across the platform as a customer, and provide environments in which those participants can create value, both for themselves and for others.
Platform foundations
A successful open trading platform, such as the one we have built at Thomson Reuters, requires three critical building blocks: the tools, “gravitational pull” and the flow.
The tools are the mechanisms that allow customers and third parties to engage with and use the platform. These include application programming interfaces (APIs), technology platform access, contracting and permission services, network distribution capabilities and various developer instruments.
The “gravitational pull” incorporates those elements that make a platform a “must have” for market participants. These are unique news and specialist content sets, data delivery and aggregation tools, standards for ease of use and integration, unique search tools, a superior desktop experience and, importantly, human expertise.
The flow is made up of the participants themselves, who offer the connectivity and communications services and usage analytics that help bring together the community and facilitate transactions. By understanding what drives the value and transaction flow across communities, a platform operator can actually help to increase and sustain that flow.
Trading in an open platform world
Participants with an open platform community include exchanges and other trading venues, content and intelligence sources, banks and brokerages, regulators and central banks. They offer platform access, developer tools and APIs, as well as contracting, billing, permissioning and network distribution services. Consumers include asset and wealth managers, banks and brokerages, hedge funds and corporate treasuries, governments, regulators and central banks. They use a platform to transact, connect and communicate, as well as leverage analytics and end user tools and services.
The key concept and differentiator for the best platforms is to be “open”. This means allowing all participants to discover, create and deliver value, build relationships and transact.
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