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Trends in FX e-trading in 2018: Buy-AND-Build Disruptor 2018

Today’s Technology Enigma

In a world of consolidating vendors, shrinking profits and constrained budgets, there has never been a greater need to differentiate yourself using technology. The Buy-vs-Build argument has never produced a clear winner:

– BUY and you are immediately limited, do you still have an edge? Will the technology juggernauts value an off-the-shelf client?

– BUILD and you have higher costs, you’re less adaptable and may lose out on the latest technology innovationsSo how do you amalgamate market standardisation and company customisation? Buy-AND-Build!

Why does Buy-AND-Build exist?

A lack of diversity in the vendor space has made it increasingly difficult to differentiate yourself from your competitors. The limited in-house budgets are focused on areas of differentiation, previously it was the whole technology stack but are now much more niche. The total number of vendors throughout 2018 has continued to consolidate through acquisitions so an outright technology purchase often leads to duplicating a competitor rather than creating a differentiated offering.

Complexity of e-trading:

In 2018 the e-trading workflow has become increasingly complex. As Tier-2 and Tier-3 participants seek to differentiate themselves in the market their focus has turned to unique products. These products and markets are serviced by a diversity of technology but the end clients are increasingly demanding simplified access channels. This puts an increasing technology onus on the sell-side to invest heavily in unifying their client experience moving budgets away from core trading technology.

Vendors drive for profitability:

The logic of simplification and productisation has been well established for vendors and 3rd party technology. Firstly the feature land-grab while in the growth phase of the business to acquire clients, customised functionality is on a first-come-first-served basis until the product reaches maturity. Once significant market share has been established the goal is then to standardise the client deployments to minimise support and maximise revenues. The leading platforms with largest market share such as Bloomberg have successfully pioneered the one-size-fits-all model and in turn much of the market in FX and Equities is captured by similarly successful participants like FXall, FXConnect, Fidessa, SmartTrade, Broadway etc. Given the spiralling costs of in-house solutions the deployment of a comprehensive, trading + e-distribution solution from a single vendor has had high appeal.

Development Frameworks and CEP providers:

For some capable in-house teams they turned towards development frameworks or complex event processing systems. The goal being to build a fully customised in-house system without having to reinvent all the low level tools for trading and execution. However, the challenge in capital markets quickly become that generic tools were often not specific enough to the needs of financial technology to compete effectively with the fully in-house solutions or vendor products. Often even the framework components were being re-written to support the necessary latencies and specialities of the industry.

The Buy-AND-Build revolution:

This vendor segment has tried to balance the strengths and weaknesses of a choice between purchasing a fully off the shelf solution and a complete in-house build. Vendors have for many years serviced this segment which provides highly focused technology but in a completely open architecture to allow progressive integration and customisation. The Buy-AND-Build market presents clients with a fully off-the-shelf product that is both modular and flexible to the in-house enhancements and developments of the customer.

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