Blog
When to use the B* word? When can blockchain actually help? August 20, 2016 | Kunal Nandwani

Quick decision making flowchart.


Branding your startup – How did uTrade do it? August 03, 2016 | Kunal Nandwani

Branding your Start-up

So you’ve jumped across all the hurdles in your way, put in sweat and blood, and invested countless hours to kick-off your start-up. Now how do you get noticed? For startups, it’s important to “go live” and start generating revenue before running out of initial capital. This definitely drives a sense of urgency to succeed quickly. Many entrepreneurs spend most of their time on the concept and its execution, but should also translate the startup’s big idea into a brand idea. Especially as they cross 3-5 years mark and become a real business. Your brand is your identity; it defines how your customers perceive you. It is the experience you deliver to your customers.

Think about the logos of some of the world’s most admired brands (Apple, Google, Amazon). How do you feel (emotionally) when you see their logos? A brand is so much more than a logo and a slogan, it is reputation and feeling.

We partnered with design start-up Yellow Cursor to help us do rebranding. It did not just mean changing the logo and a color change; the focus was also on the color palette, typography, imagery, tagline, perception, etc. We had to do lot of introspection to really answer some tough questions, which we do not think about it in our day to day lives. They summarized their research to come up with a One-line Pitch for the Brand: ‘Enabling Smarter Transactions’

We then hit the drawing board and came up with a number of possible designs, beginning with dozens of doodles:

We finally settled on the insignia shown below. Because, we are providing the explanation after this paragraph in depth

THE SHAPE

The insignia is built from two arrowheads – an upward and another downward. These arrows represent Trading (Up / Down) and Transactions (Inward / Outward). These arrows also form the half-letters U and T.

Enclosed in these arrowheads, at the core, is a motherboard which symbolizes technology. Two horizontal lines connect the motherboard to the outside world, showing the Open Source nature of the brand. The line also represents currency, as it is used in the symbols of dollars, pounds, euros, rupees, yen, yuan, bitcoins, etc.

The square creates a sense of equality and conformity. It is seen as stable and trusting. It also relates to the earth, with each of the four corners relating to the four points on a compass.

THE COLOURS

Blue stands for positivity, innovation, sophistication, energetic, credibility, integrity, reliability, loyalty and professionalism.

The upper half uses a tint of Blue and the lower half uses a shade of Blue.

THE FONT

The word ‘uTrade’ is written with Esphimere, a freely available, futuristic font.

Is this logo too simple?

Yes it is better. Like any ideas, its better to simplify logos too.

We tested our logo against, Timelessness, Portability, Scalability, Colour and Shape Psychology, Culture-Connect, Applicability and Simplicity.

This logo has passed all of these tests. The entire science converges to this logo. Furthermore, the concept helps us derive the branding for products and child / sister companies in the future.

Is it really necessary for a Growing Company to invest in Branding?

Simple answer maybe,

  • No, if you are in early stage and still trying to discover your real sustainable business model.
  • Yes, if you have come on the other side of tough startups ecosystem and are profitable now, and planning to scale.

Let’s face it. You’re in a crowded ecosystem. You need a more distinctive position than: “We’re disrupting X” or “We’re like, you know, the Uber of Y.” A meaningful brand strategy can help everyone understand why YOU matter and why they should care. Differentiation is key to survival as a startup, so you need to get this right.

In today’s hyper-competitive world, emotion is the secret of many of the world’s most successful brands. It can help your brand become more appealing, differentiated, and loved once you recognize its power. Developing a brand strategy that mixes both the rational and the emotional aspects of your brand will win both the hearts and minds of those people you are trying to capture.

Extraordinary things happen when an organization embraces a purposeful brand strategy. It drives new attitudes, beliefs, and behaviors across your team. It evolves your marketing, communications, and advertising. It inspires new product development. It makes your workplace more productive. It changes how people experience your brand. When companies adapt their behavior to live up to the brand promise, people notice. And that’s exactly the result you want.

Don’t wait too long to discover the true, authentic purpose of your brand, and define why it matters to the people that matter to your business. It should be well worth your time.

Why does Blockchain matter? Feb 17, 2016 | Kunal Nandwani

Blockchain is likely to be the most hyped database in the current decade. It is the core technology that enabled bitcoin, which has had challenging ups and downs due to business reasons.

Blockchain has the ability to bring lot of efficiencies in how information is created, shared, accessed, secured, and relies upon crowd efforts for validating the correct information. Hence it is compared with the Internet revolution that started in late 90s. Similar to the early days of Internet revolution, Blockchain has lot of useless attempts of me-too players solving a meaningless problem. The important thing to understand is what is the core problem and can block-chain really help at all. 80% efforts should be allocated to validating the business scenario and the solution, blockchain implementation is likely to be the easier technology part (which has possibly scale challenges due to early stage nature of existing blockchain technologies available in the market, discussed further below).

What is Blockchain

Blockchain is basically a database. Blockchain is a distributed database. Blockchain is (arguably) a crowd-managed distributed database. Blockchain is a crowd-managed distributed secure database.

In a blockchain, copies of a ledger are “distributed” and validated by a consensus process, with multiple users independently verifying ledger changes.

Blockchain was invented as the technology to manage and run Bitcoin. As you may know, Bitcoin was the first digital currency, which was not governed by any Central Bank, no notes were printed, and it was largely up to the worldwide users to ensure it works, without any central authority. In Bitcoin, the most well-known blockchain application, tokenized transfers are made directly between payer and payee, effectively eliminating the credit and liquidity risk inherent in the fiat system.

Potential Applications of Blockchain

Decentralize everything is the core theme of blockchain. Since it successfully supported Bitcoin for years, its ready for experimentation in various other industries and use cases, including:

Digitization of Assets

A company or an authority or similar entity typically centralizes all the asset registrations. What if they could move to blockchain to make it more transparent, efficient, faster and secure. This could apply to - Housing / Cars registration - Luxury assets like paintings, diamonds with digital certificates

Various legal documents are signed by different parties and stored in physical / scanned format and possibly registered with any central authorities. It could securely move to digital format with standardized / custom contract and digital secure signatures embedded within the blockchain itself. Eventually this maybe used to introduce Smart Contracts which can be actionable events based on conditions like time, etc. For example, the Will of a person maybe to enable inheritance of his wealth upon a certain time or event like his death.

Crowd sourced platforms

Many platforms like Wikipedia could benefit dramatically from Blockchain’s information creation and management system.

Identity

Digital id creation for every individual, combining the decentralized blockchain identity verification can create the largest unique digital ids in the world, which various Governments in different countries have failed to do yet.

Financial Markets

Financial institutions including banks have inefficient processes, and legacy infrastructures to manage transactions. Various post trade transactions for payments (example in banks), clearing / settlement in securities world (stock markets), could be dramatically improved by using Blockchain.

But due to high overheads and delays in validating various blocks before the transaction, blockchain may not be useful in live trading processes as yet. This may change, as blockchain technology gets more mature, scalable and faster in the next few years.

Insurance

Blockchain transforms the way people manage identities and personal information, leading that could change the way insurers review risk and price the premiums. Blockchain applications in insurance are likely to start with digital identity systems and management of personal data. Smart contracts (where the outcome is pre-determined or even based) can help end users self administer their insurance policies.

Technical aspects of Blockchain

Blockchain is a sequential transaction database, which contains a continuously growing list of all the transactions, which have occurred in the system. All the recent valid transactions are bunched into a block (hence the name blockchain), which are then timestamped and stored using strong cryptography. Every new block added to the blockchain database, contains a hash (cryptographic hash) of the previous block, which makes it tamper-resistant. This is because changing any particular transaction in the blockchain database would change the hash of the block being tampered with, which would cascade to all the subsequent blocks added in the blockchain.

The blockchain database may be stored fully or partially by a set of nodes (and/or miners), which can verify any transaction being done on the blockchain and these act in “consensus”. Also, in a bitcoin blockchain, a miner has to solve a hard cryptographic problem to confirm/add a new block on the blockchain. This work done by miners is called proof-of-work (and the miners are adequately rewarded for this computationally expensive work being done by them). The proof-of-work makes the database resilient to attacks, as any attacker will need to have control on more than 51% of the computing power of the network to tamper with the transactional data.

A sample visual representation of blockchain is done below:

Blockchain

Challenges of Blockchain

Scale: Cost of computing, energy consumption in mining for transactions becomes very high as the blockchain increases in size. Also, the growing size of blockchain can be a problem as any need node will need to replicate the blockchain, which may take many days.

Speed Currently, maximum no. of transactions supported in public bitcoin blockchain are 7 per second, with proof of work / validations in place.

Recourse / Modifications: Its virtually impossible to modify a transaction once it is put in place.

Private versus public vs mixed: Public blockchains can scale but make process slower, Private ones can be faster but then the use case for blockchain needs to be clear (otherwise a simple shared database may work) and mixed permission based blockchains are in fairly nascent stages yet. Adoption and integration For any disruption, the integration and replacement of current systems and workflows are the biggest challenge. It makes it harder for banks to adopt any change quickly. Legal challenges For any disputes arising from blockchain transactions, there are various loopholes where the existing legal frameworks and courts may not be able to resolve the disputes easily. Future of Blockchain Its possible that blockchain may go through an internet like bubble bust and boom cycle, just compressed into lesser timeframe as shown below.

API Economy: Why every tech company needs an API Strategy? May 29, 2015 | Kunal Nandwani, Harwinder Sidhu

Businesses run a variety of applications, each containing and holding data vital to the needs of an organization. These applications cannot operate in isolation and eventually; there is a need to integrate them with various other applications. This is primarily driven by complex business needs, which call for information and resources, to be shared across the boundaries of these applications.

This interconnection and overlap of business applications and the information sharing across boundaries of application has led to an emergence of Application Programming Interfaces (APIs), which encapsulate and hide the details of one application from another and enable them to share data and information with the surrounding applications. This leads to better insights into data and showing the linkages with various data sets.

APIs have become more than a tool to connect various applications and their data. But, these APIs have become business enablers. Facebook launched its Facebook Platform in 2007, which led to an immediate opening up of social data, which could be leveraged by the third-party developers. Zynga is a prominent example of this era, which led to its tremendous growth leveraging on the social network’s wide reach and popularity. Within a year of Facebook Platform’s launch, there were at least 33,000 applications, which were running on the Facebook platform, which led users to engage with Facebook in newer ways which would never have been possible before.

Also, apart from having a public API like Facebook, there are a lot of products provide an API, using which developers can extend the functionality of the core product. Atlassian products like JIRA have an API, which extend the core functionality of the product. This makes the users of the product sticky and allows the product to be used in ways, in which the original developers might never have intended. Such usage of API presents a great business case, where you retain customers on the strength of the API and its supporting plugins, which makes the product sticky. There are many examples of businesses, where the core business is to provide an API for the consumers. Twilio is an example, which makes messaging, voice calling available as an API. Google Maps API completely changed the way mapping was done before by incumbents like Mapquest or TomTom etc and made it available to a wide array of applications and in turn generating revenues for Google and empowering businesses like Uber.

Several large major online and technology platforms scale mainly because of the APIs structure. For example in the travel industry, Hotels sell their rooms on their online website and also offer the same through APIs to Travel websites like Expedia, MakemyTrip etc. Traveller feedback is shared through the apis of Tripadvisor. Further level of aggregation is done by likes of Kayak.com which access the expedia, makemytrip apis and get the user best prices. Online Users get a one stop content (aggregated), analytics, and various other features through merging of several APIs on a single platform.

Amazon, one of the largest e-commerce companies, offers its content and products on APIs to Junglee and several other similar price comparison websites. Amazon also sources various products from different offline / online sellers through their APIs.

Fintech cannot be any different. Lot of fragmented information and processing is done across platforms. uTrade provides an API on top of its Algo Trading platform – muTrade. The API is publicly available on Github and allows proprietary traders to develop their own trading algorithms, which they do not need to share with anyone. Whilst we provide several inbuilt algorithms (more than 50 algos currently); we understand that various traders would like to build their own different proprietary algorithm, and we should be able to help them with market access, risk management etc. Within the platform, there is no distinct advantage to an algorithm that runs internally versus the algorithm that runs on an API and they both perform at the ultra low latencies (~10 micros) offered by the muTrade Algo Trading platform. This lets uTrade focus on the best and ultra low latency trading platform and the traders can focus on their strengths and use their prop strategies and logics, for their own benefit.

APIs economy in today’s digital world is the paramount necessity for all technology and Internet based companies. However, the way they are being consumed may change (for better) in the coming years. It would be interesting to see how the APIs shape and change even further, the way business is done in future.

Open Source Products in Financial Technology Mar 10, 2015 | Harwinder Sidhu

Open Source software has taken the world by storm over the last two decades or so. If you look under the hood of any of the big software applications, you will see a number of open source libraries being used in the product. For example, if we look at the number of libraries being used in the Adobe Reader XI, the list of third party license/notices run into 61 pages, with a variety of open source software being used ranging from graphics libraries to compression and even some libraries from marquee projects like Open Office, Mozilla and the Android projects.

However, we do not see many domain specific application softwares in the open source world. Things are slowly moving into this direction, but there is a lot of progress to be made. And, this may be the next big thing in the open source world, where one would see new companies release mainstream application products which are open source, with an “Open Core” business model and giving the Traditional vendor companies a run for their money with their quality, feature set and rapid innovation.

Benefits of Open Source Software

It is now widely know the immense benefits of open source products:

  • Quality - Open Source leads to more high quality-products or libraries. I would mention the example of Boost libraries for C++, which is a very high quality peer-reviewed cross-platform C++ libraries.

    Also, making a product open source leads to more set of eyes looking at the code, thus enabling more peer review of code and probably, leading to faster fixing of defects as well.

  • Innovation - When you have open source products, there is a likelihood that more people would be using your product in the way you would never have imagined. This leads to feature requests and often redesign of the applications, making them better in general.

  • No Vendor lock-in - Since you have the source code, there is no need to be locked into a particular vendor when looking for upgrades and maintenance of the product. An open source ecosystem leads to more service providers, who would work be more than willing to enhance and maintain upgrades or fulfulling special requirements of the client.

  • Transparency - Software cannot get more transparent than this. With an open source product with significant community,

  • Security - Obscurity does not help when it comes to information security in software products. Open Source software leads to a healthier and more secure products.

  • Stand on the shoulder of giants - Lots of great open source software has been possible because of the large number of open source projects which done been done before. A lot of “big data” applications and frameworks may not had been possible without Hadoop.

OSS being used in Financial Firms

If you look at technology stacks in any of the large institutions (particularly, financial institutions, as we are in the financial technology space), one would see a large number of open source products being used everywhere.

Compilers

GCC and Clang have been leading the way in terms of feature support for C/C++ compilers and they have been way ahead of the commercial competitors, in terms of the new C++11 standard support.

Application servers

<

Open Source Technology Platforms

Given the fact that fundamentally most technology platforms within capital markets do very similar things (access information, manage trades and risk, comply with regulation, etc.), there could be a significant growth potential in the market to collaborate constructively. They can leverage off latest and greatest open source technologies and developing technology solutions for the financial markets in an open-source fashion, leading to lower cost of platform development, deployment and use that is highly desired by various financial services players (especially in the current market conditions where there is a massive slow-down since last few years and the revenue / profit model of these participants has been significantly eroded, and the requirement to spend to technology is only increasing) and let the niche players build their specialty or specific premium solutions on top of the core open source core financial services technology solutions.

Rise of electronic / low touch trading

Investors will need less and less hand holding from brokers and their traders. They will do more self-directed trading with the ease of use of technology. The western and developed markets have already seen this trend in the past decade (around 70% of American and 50% of European trading is driven by electronic tools); the emerging markets will move towards a similar ratio of technology driven trading. The trading workflow will move to more web and hand-device based platforms.

Low latency trading growth will slow down; given the massive investment required to push it to faster speeds (example Chip based / FPGA trading platform cost is very high and the potential returns do not justify the investment)

Self-learning machines leading to virtual and artificially intelligent trading is an area that may witness some reasonable growth.

Virtual simulation of trading environment and virtual trading may meet advances in the gaming industry.

Enhanced User Experience

The user experience for traders would continue to dramatically improve with the ease of information access, simpler and automated trading workflows (like 1 touch or even no touch fully automated trading).

Devices interactivity enhancements

As people become more mobile and the technology through cloud and various computing devices (mobile, tablets, laptops) support the ease and continuity of platform access, the boundaries between all these devices would be blurred and the user would seamlessly pick up any device in any location and be able to access information and trade into any financial markets. The optimization between the location, cloud access, computing power used, based on the proximity and the markets to be traded could lead to interesting business opportunities.

Social driven trading

Social networks would play an important role in the trading life-cycle as the information sharing becomes faster, more trust-able and the investor sentiment analysis becomes more feasible through the social platforms like Twitter, Facebook etc. Social collaboration and interactivity may lead to better trading ideas which can create more value over time.

Blurring of boundaries between capital markets players

There is likely to be more competition across the value chain of financial services players like brokers would continue to match orders like exchanges do, exchanges would offer broker alike trading and algo platforms so as to control the shift of liquidity, institutional investors may also get into broker and exchange roles somewhat to avoid information leakage etc.

There would also be a large consolidation among various capital market participants. And the competition among exchanges, brokers, investors would continue to become more global as world becomes .

Rise of regulation:

The regulatory bodies will try to control the increase in adoption of technologies within the financial services (given that s very hard for them to follow, understand and regulate the innovation in the market) leading to slower future growth in innovative ways of trading. There will be a shift towards more transparent modes of trading (example move from OTC to exchange listed / cleared products).

Tomcat is more or less the standard application container for most Java applications. In the J2EE space, JBoss is as prevalent as WebSphere.

Databases

MySQL and PostgreSQL have led the way for most open source databases. And, in today’s you will not find many applications which do not support one of these two leading open source databases.

Web Browsers

Firefox and Chromium have been the first browsers with support for most of the upcoming standards, be it features in the latest HTML5 standard or CSS standards. Microsoft Internet Explorer has been more of a laggard in this space. Also, commercial browser vendor Opera has ditched their own browser rendering engine Presto in favour of Webkit (Blink, actually).

Open Source Products in Financial Technology

Financial Institutions have been using open source projects throughout their technology stack. Full-suite application software is probably the last mile, where the financial institutions and the industry, in general, can adopt open source produts and bring the associated benefits for everyone in the ecosystem.

Increasingly, there have been products in Financial Technology, which are open source and are being widely adopted. QuickFIX is unarguably the most widely used FIX engine, which is probably being used in all the financial firms (big or small). And, OpenGamma has coming up really well as an open-source Risk and Margining system, which is increasingly being deployed across various financial firms.

Another notable mention is FinTP product by Allevo, which is a very well respected product in the payments and financial transaction processing industry. Allevo has release the core engine of their product FinTP under GPLv3 license and the source code is available on github.

In the capital markets space, there have been products like Marketcetera, Tradelink, Lodestone (Deutsche Bank initiative), which have tried to fill that gap with varying success. We, at uTrade, believe there is an enormous scope here to create a truly world class open source product in capital markets space. uTrade had participated in the Fintech Innovation Labs program last year and presented why Open Source in Capital Markets would work.

We would like to announce that we are opening up the core of our multi-asset trading platform and various other components/modules, which we have created over the past 3+ years. We would offer all this codebase to the community for criticism, adoption, contributions and collaborative development, which we think, will enable us to improve this product with the help of the vast open source community. All this code will be offered under a very liberal Apache License. We’ll be releasing this product on our github page in the next 2-3 months. Watch out !!!

Social Benefits of HFT and Algo Trading - Regulators should embrace them Jun 18, 2013 | Kunal Nandwani

The tremendous growth in financial trading volumes in the last couple of decades has been made possible only with the use of technology. Technology has helped in

  • automating the dissemination of market data and other relevant information by exchanges and trading participants

  • capturing and consolidation of market data from various exchanges and other sources of relevant information

  • making complex calculations on live and historic data, leading to trade decisions

  • trading and managing risk

  • lowering the latency and cost of trading

  • various post-trade processes

Technology is heavily and generally efficiently used by brokers (providing various retail and institutional investors access to financial markets), high frequency traders (who trade in huge volumes aggregating small profits in as many trades as possible, this typically includes arbitrageurs and market makers), quant algo traders (who use quantitative models to predict the future prices etc.), exchanges (who are the liquidity aggregators forming markets), and various other market participants. Each stake holder mentioned above has a significant role in the orderly functioning of the financial markets. Comprehensive Risk Management is the foremost requirement in managing these financial trading businesses.

There has been a major backlash against the financial firms (primarily the ones driven by technology including HFT firms) especially since the Flash Crash - European regulator wanting Half-second delay before execution of a trade or cancelling an order in a bid to temper incentives of trading fast.

It’s like introducing a speed breaker on a high way. People will drive very fast up to the breaker, and speed up again once they cross it. It’s not that hard for HFT firms to adjust their trading algorithms to accommodate for this regulatory change and still do what they intend to do.

  • Indian regulator proposed that the exchanges to accept orders alternately from a co-location member (whose servers are located in the same physical location as the exchange) and a non co-location member.

Depending upon the cost-benefit analysis, an HFT firm can setup a co-location server and a server in proximity to the exchange and alternate sending of these orders through those 2 servers by adjusting their strategy.

  • Capping the order to trade ratios for all market participants.

Technically the algos can work around this as well. But this can certainly help reduce some over-fishing in the market(i.e. algos sending too many smaller orders at wide limit prices and then cancelling them to search for trading opportunities which are not easily transparent).

  • Certain regulators trying to have HFT players notify the exchange or the regulator of the algos used by them

Its part of Germany and s regulatory system, but does not curb the automated trading related over-trading triggers as the regulators or exchanges will not easily be able to understand the detailed functioning of the algos. They can only try and ensure the HFT firms ensure sound risk management and follow the practices strictly at the time of algo approval or audit.

  • Retail Investor has a disadvantage and cannot access the same arbitrage opportunities due to lack of access to same technology as HFT firms

Retail Investor should not be trying to do sub second arbitrage the market in the first place. It’s like saying a cyclist cannot ride as fast as a car on a high-way and car-drivers should be stopped or slowed down. Retail investors should look to take slightly longer term view as they had been doing historically.

  • Institutional investors can also not compete with the HFT firms’ rise in technology

HFT firms had been driving the use of technology and advancement to low latency trading. In their constant RnD process, they have stepped up in the technology value chain and have enabled the Institutional investors with good and efficient trading tools at affordable prices. For example, execution algorithms like VWAP, Smart Routers were not available to Institutional Investors a decade or two ago, but HFT firms led RnD and trading styles have made execution algorithms available to other Institutional as well as Retail Investors indirectly. Also, the objective of the Institutional Investors is typically to manage portfolios over with longer horizon targets rather than intra-day small price movements.

  • HFT firms lead to market failures and crisis like Flash Crash in 2010, Knight Capital’s loss in 2012, etc.

In the absence of HFT, there had been ample crises in the financial industry (and in several other industries too) including the LTCM Crisis in 1998, Sub-Prime crisis in 2007, where the human processes have led to major crisis in the markets. The use of technology if managed well and regulated efficiently can actually reduce the probability and scale of such events.

For example, If an airplane crashes, it does not make the Air Travel a bad business. Air travel brings lots of benefits to our social and economic growth that it’s worth it despite rare unfortunate crashes. The regulators in that industry focus on ensuring the safety of passengers and plans is an utmost priority for the airlines.

In a similar way, HFT firms understand the risk management priority and usually target to mitigate and manage risk first, and then focus on profits.

HFT firms actually help in providing better liquidity in the market, lower cost of trading, tighter spreads, that help institutional investors and retail investors in getting their executions at better prices. Use of technology in the trading value chain has lead to split second order executions

  • Imposing extra-taxes on HFT (like a regulatory proposal out there in Germany). Make it expensive for HFT players and reduce their net profits.

Such moves will either move the HFT firms to alternate venues or countries with lower or no taxes or hurt their profits up to a certain point, beyond which it does not make sense for them to be in the business (as some German HFT players are pondering to shut down)

Regulators across the world should embrace the constructive technology developments in financial markets that support growth of businesses and the economies. Their goal should be to understand the market behaviour, advancements in technology, bring transparency to the market, introduce risk management measures like a kill switch (for cancelling all trades when things go wrong), push for stronger stress testing of automation tools, enforce compliance, track patterns that may lead to systemic risks, and lead to a solid and comprehensive risk management across the financial industry.

Open Source Technology for Financial Services Nov 26, 2012 | Kunal Nandwani

Financial services plays an important role in the and their functioning. Following the credit crisis (2008), and its various consequences (deleveraging, lesser sophisticated financial products, shift towards increased regulation and transparency, reduced transaction volumes and margins, etc.) have lead to a massive shrinking of the financial services market size. This has led to a large down-sizing amongst the key participants including brokers, investment banks, exchanges, technology vendors, institutional investors (funds), etc.

With the above mentioned business scenario in mind, and the fact that all these participants need technology for automation, growth and even sustenance of their business, do we need every participant (10,000s of brokers, 100s of exchanges, 1000s of technology vendors, 100s of regulators, 100,000s of investment firms worldwide) developing fundamentally very similar technology for their business. For example,

  • if a regulator wants brokers to report every trade on behalf of their clients in a certain way, should we have various brokers and various vendors develop the same solution?

  • if a broker needs to connect to an exchange, or update its connectivity protocol to the exchange as per the exchange requirements, should we have various brokers and technology vendors spend their limited resources in doing the same work?

  • in accordance with the latest regulations like MiFid, Basel, etc., should we have all Investment banks develop technologies to deal with the calculation and management of corporate level risk, liquidity, capital ratios, accounting policies?

  • if an exchange or a regulator enhances the risk management policies, or trading workflow (to achieve best execution etc.), should each trading technology vendor and broker develop the same enhancement in their technology?

The above examples highlight a massive duplication of efforts that go on in an in-efficient financial services sector. When the resources are limited, times are tough (since last 5 years and for foreseeable future), the business model of the sector is being redefined; how could we afford such a duplication in efforts? Should we not try and find common solutions which work for most participants, and have other participants develop the premium technology and service solutions?

Similar initiatives led by open source technology platforms in other domains like Operating systems (Linux), FIX trading engine (QuickFIX), Web browsers (Mozilla Firefox), Web server (Apache), Web scripting language (PERL) have proven to be very productive for different technology eco-systems.

Open source technology primarily means that source code of an application is included in its compiled version, freely distributed (possibly with some re-selling / licensing constraints) and it leads to various developers across the world using that code, enhancing it to their custom requirements, and contributing back to the overall open source code repository. In medium to long term, it leads to enhanced and corrected technologies, and creates a deep platform which is widely used by various developers and users around.

We can broadly divide the financial services technologies into a few categories like Trading Platforms (including order management systems, algorithms, over-the-counter trading platforms, client connectivity system, exchange adapters for orders / executions and market data), Risk Management Systems (pre-trade and post-trade), Corporate level systems (for accounting, back office, etc.), Regulatory and Compliance reporting systems, Data management systems (including analytics), Exchange technologies, etc. Experts into these systems may contribute for a wider productive cause and help create the Financial-services Open Source Technology (lets term this as FOST). Such an initiative, while disruptive and leading to some winners and losers (hence it will be widely criticised first), can be the right collaborative and productive initiative for the future.

Potential criticisms (picking top 3 that come to my mind):

My software system is very complex and sophisticated, no open source can replace it : If you can build it, most likely others can as well. Please try and be realistic. If your system is really that sophisticated and complex, consider sharing it with others through FOST if you feel the initiative is valuable for eco-system over time, else you may continue to work independently.

What about stability, security of the modules offered on FOST? : Is a collaborative effort. We should look up to everyone to selflessly help drive this initiative. In general, open source technologies offer better performance, better security, and more flexibility at competitive cost.

How will such a product be maintained, enhanced, customized, and serviced? my business depends on it : Linux is a very good example. You can use the basic products directly at no cost. You may test it and customize it to your needs. For its premium versions there are products like Red Hat that provide customization and support (FYI, Red Hat is a multi-billion dollar company, so money can be made through the open source technology initiatives). We expect various other companies to come up and offer premium service models on top of FOST.

The key benefit remains a lower cost technology solution for financial services (this cost is typically very high ranging from 10%-50% of the participants overall cost) and the creation of a more efficient, productive, educative, innovative and collaborative eco-system.

Please help spread the word and lets debate this constructively.

Future of Capital Markets Nov 19, 2012 | Kunal Nandwani

Financial trading has grown from manual to electronic to automated with the use of algorithms in the last few decades. The increased adoption of technology will lead to disruptive trends in the current decade and drive exponential growth in newer business segments created within the capital markets (like additional liquidity that was generated by Algo/HFT players in the last few years) . We will possibly witness some of the following trends:

Open Source Technology Platforms

Given the fact that fundamentally most technology platforms within capital markets do very similar things (access information, manage trades and risk, comply with regulation, etc.), there could be a significant growth potential in the market to collaborate constructively. They can leverage off latest and greatest open source technologies and developing technology solutions for the financial markets in an open-source fashion, leading to lower cost of platform development, deployment and use that is highly desired by various financial services players (especially in the current market conditions where there is a massive slow-down since last few years and the revenue / profit model of these participants has been significantly eroded, and the requirement to spend to technology is only increasing) and let the niche players build their specialty or specific premium solutions on top of the core open source core financial services technology solutions.

Rise of electronic / low touch trading

Investors will need less and less hand holding from brokers and their traders. They will do more self-directed trading with the ease of use of technology. The western and developed markets have already seen this trend in the past decade (around 70% of American and 50% of European trading is driven by electronic tools); the emerging markets will move towards a similar ratio of technology driven trading. The trading workflow will move to more web and hand-device based platforms.

Low latency trading growth will slow down; given the massive investment required to push it to faster speeds (example Chip based / FPGA trading platform cost is very high and the potential returns do not justify the investment)

Self-learning machines leading to virtual and artificially intelligent trading is an area that may witness some reasonable growth.

Virtual simulation of trading environment and virtual trading may meet advances in the gaming industry.

Enhanced User Experience

The user experience for traders would continue to dramatically improve with the ease of information access, simpler and automated trading workflows (like 1 touch or even no touch fully automated trading).

Devices interactivity enhancements

As people become more mobile and the technology through cloud and various computing devices (mobile, tablets, laptops) support the ease and continuity of platform access, the boundaries between all these devices would be blurred and the user would seamlessly pick up any device in any location and be able to access information and trade into any financial markets. The optimization between the location, cloud access, computing power used, based on the proximity and the markets to be traded could lead to interesting business opportunities.

Social driven trading

Social networks would play an important role in the trading life-cycle as the information sharing becomes faster, more trust-able and the investor sentiment analysis becomes more feasible through the social platforms like Twitter, Facebook etc. Social collaboration and interactivity may lead to better trading ideas which can create more value over time.

Blurring of boundaries between capital markets players

There is likely to be more competition across the value chain of financial services players like brokers would continue to match orders like exchanges do, exchanges would offer broker alike trading and algo platforms so as to control the shift of liquidity, institutional investors may also get into broker and exchange roles somewhat to avoid information leakage etc.

There would also be a large consolidation among various capital market participants. And the competition among exchanges, brokers, investors would continue to become more global as world becomes .

Rise of regulation:

The regulatory bodies will try to control the increase in adoption of technologies within the financial services (given that s very hard for them to follow, understand and regulate the innovation in the market) leading to slower future growth in innovative ways of trading. There will be a shift towards more transparent modes of trading (example move from OTC to exchange listed / cleared products).

Copyright © 2016 uTrade. All rights reserved.