Despite the current economic turmoil, we have recently witnessed a frenetic race for ultra low latency, privileging speed over costs. But now the reality of these decisions is catching up and trading institutions are finding that the fastest is not always the strongest – much like the hare and the tortoise.
Being lean and controlling costs is a new priority for banks, focusing on their core business. We are seeing major changes in strategy, with organisations moving away from the extremely risky high frequency trading (HFT) which has become more popular and going back to basics where the focus is on servicing customers and offering brokerage services. These HFT teams are not simply disappearing but they are opening their own businesses, stepping outside global tier one banking institutions. The race for speed for these break away teams is still on.
As brokerage margins continue to decrease on mainstream asset classes, brokers are swiftly investing in electronic platforms for Swaps and FX. They do so in line with regulations such as MiFID II which is designed to bring greater transparency and promote best execution.
All this triggers new requirements to connect to multiple platforms worldwide and managing client connectivity on a global scale. Although major tier one banks have enough staff to manage these connections, the challenge is in leveraging new markets and connecting to new pools to survive in the near future.
Survival is not only a question of costs and economies of scale for small and large institutions. Externalising connectivity for market data, trading applications, electronic platforms and clients is key when focusing on core business and getting the most out of existing resources. Expansion into new markets is also essential to drive future success. Banks should look to partners offering quality SLAs and reliability to expand their reach and win the connectivity race.