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Overcoming the challenges of migration

Older technology is underperforming, as are the services built upon it.

Where a financial institution has placed significant investment in a core system over many years there comes a point where the technology and architecture are no longer able meet the demands of the current business processes in many key areas. The system becomes legacy and itself becomes an operational risk to the continued success of the business. Yet the thought of replacing old with new is daunting. 

Systems migration has its own skill set however, and for organisations that have focused on evolution rather than transformation those skills are not readily available to help. By recognising the issues and challenges of migration, some modern technology companies have developed these skills as part of their core competence. Finding a new technology and architecture that can transform the operational capability from an organisation that has the experience and skill to help manage the move is critical to success, as is the willingness to approach old problems with a new mind-set. 

Recognising strengths

The strengths of modern technology and architecture are there, post-migration, to the benefit of the entire post-trade operation. 

In a modern service-based architecture, trade processing and operational tasks are broken down into services each performing their own tasks asynchronously and publishing the outcome to other services through message buses.  Trades are booked, then enriched, allocated, confirmed, instructed and finally settled through independent services in a chain of events. 

The immediate advantage in having a service-based architecture is scalability. Each part of the chain operates at its own pace and is not hampered if other services or modules it interacts with are operating at a different pace.  Trades can be booked at high speed whilst other components which are less time-sensitive such as generating accounting records can operate in their own time.  De-coupling these removes massive bottlenecks that exist in legacy systems. 

When trading activity spikes, a front office system can process trade flows in real time, and post-trade componentised services can ‘catch up’ on processing when volumes drop. 

The move to a cloud-deployed architecture also brings significant benefit when coupled with these architectures. A large increase in volumes is well supported via the distributed computing model. New computing power can be brought online instantly to handle spikes in activity adding to the scalability of the new technology.

Furthermore, scalability isn’t just about volume spikes. Modern investors are increasingly looking to trade a much wider variety of products as new products such as digital tokens come to market and these require brokers to be able to service those needs.  Traditional systems are asset-class centric: Equities, FX, Listed Derivatives, OTC Derivatives, etc. have historically been served by siloed systems built to process a single asset class. Today scalability across asset classes and functions is a must-have to keep up with this demand and this requires technology designed from the ground-up to be genuinely cross-asset.

Plug and Play Nirvana

Systems that are open and expose well defined APIs that follow industry standards allow banks and brokers to integrate these seamlessly into their ecosystems and enhance a vendor system’s capabilities by overlaying these with their own processes.  A modular architecture ensures that each domain is served by the best available technology.

Furthermore, breaking the monolith removes the painful need for big-bang upgrades as vendor modules can be replaced or upgraded independently of each other.

Defining objectives

When looking at the capabilities of new operational platforms the business objectives must be at the forefront of the decision-making process. The arguments about scalability, efficiency and flexibility are important but they must relate to the individual organisation to be relevant. Each business must define the objectives of change as that allows for the rational assessment of the benefits that migration can bring.

This assessment needs to look across not just the technology and architecture, but also focus on existing business processes. A key trapping of older legacy systems is the way they have been bent out of shape to support new functions, and that drives the way staff adapt to cope with their limitations.  The opportunity to redefine these processes to take advantage of new technology is a vital and quantifiable objective of a migration.

Building bridges

The very idea of moving large scale datasets that are the life blood of a business is daunting. The migration plan must accommodate the transfer of data and transactions that are updating in real-time in the existing platform right up to the point of go-live.  Flexible API technology combined with modern ETL tools provide for a smooth data migration and automated take-on reconciliations.  Putting in place these bridges allows repeated test trials that mitigate potential risks at the point of switchover.

Measuring success

Go-live and breathe! It is not the end however as the positive impact of a significant migration must be demonstrable.  A vital component of the migration is to measure and show the effective use of new technology and better business processes to the business, covering:

  • efficiency gains through automated data processing and increased STP through the post-trade operation.
  • ability to scale rapidly to handle peaks in trading activity.
  • flexibility to adapt to business opportunity and to grow.

Conclusions

Whether driven by regulatory or cost concerns, or to support business expansion plans, migrating off legacy platforms can be a daunting task for any bank or broker.  This can become a once in a generation opportunity to update dated processes in order to deliver operational efficiencies and increased scalability.  This is best achieved with a modern modular offering open APIs and a technology partner with the experience and vision to support the business.  Embracing change is a necessary step to achieve long term ambitions and plans and it needn’t be a painful one.

 

 

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Daniel Geddes

Daniel Geddes

Global Head of Product Management

Torstone Technology

Member since

08 Apr

Location

London

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This post is from a series of posts in the group:

Capital Markets Technology

Front Office Trading Trends and Technologies...


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