The Fixed Income and Derivatives market is in the midst of fundamental change, as trading migrates away from the phone and onto electronic venues. This move to e-trading has been triggered by the need to capture accurate data and report it to the regulators, combined with the need for liquidity, and the ongoing demand for efficiency gains in the middle- and back-office.

Technology is also recognised as one of the drivers of this change. However, the technology needs and expectations of market participants are also changing, with many large trading clients no longer wanting a full-service technology platform that leaves them unable to differentiate their services. Instead, sell- and buy-side trading firms are increasingly demanding modular services, which allow them to buy components for a non-differentiated or commoditised service, then add bespoke technology to support their particular strengths.

FICCtech Specialists

These tech providers are targeting the FICC markets with new and innovative technology services. FICCtechs have launched targeted services, which focus on resolving specific areas where processes are inefficient, often manual, and usually expensive. For example, in Fixed Income trading, market connectivity is a major issue, due to a seemingly constant stream of new trading platforms and exchanges. Also, managing data is a major industry theme, due to the potential opportunities for those who are able to extract the best insight (and most value) from the vast amount of available data.

The FICCtech market is responding to client needs by building a purer solution to the core issues – connectivity, data controls, process automation – without the unwanted packaging.

It’s a David vs Goliath story

The Goliaths, a handful of large technology providers, sell to the FICC market, offering enterprise platforms, which typically are expensive, take too long to implement and, most importantly, do not support firms trying to differentiate services by adding bespoke technology modules. For example, even though clients may simply want technology to manage connectivity, one large incumbent firm sells an end-to-end platform which includes many unwanted extras.

We spoke with two FICCtechs which are challenging the industry’s Goliaths

– TransFICC specialises in API translation and connectivity technology, to address the three issues of fragmentation, market data throughput and MiFID II/R regulation. Its ‘One API for eTrading’ delivers low latency, scalable and secure connectivity for banks and the buy-side trading in the fixed income and derivatives markets. Its clients face the challenge of having to connect their systems to the numerous new venues, and to manage upgrades on existing venues. The scale of the problem is evident, with there being 156 e-trading venues for fixed income and derivatives, operating more than 230 different APIs.

– Hudson Fintech has developed a front office workflow tool that offers automated trade processing for Repos and Securities Finance, with regulatory compliance built-in. Hudson resolves the issues faced by financial firms operating in the Repo market, namely the requirements for regulatory reporting and transparency, increased efficiency, improved risk management processes, data management and control, and balance sheet constraints. Its core technology uses ECS architecture (taken from the video games industry) which moves away from hierarchical systems. This means less interdependence, making integration simpler, supporting fast and easy deployment alongside existing systems.

Problem Solved

Many of these new FICCtechs are enabling financial firms to resolve specific issues on a defined budget, and to go live in a short time. This targeted approach aligns well with the growing demand for modular technology, and eases the decision making process, both of which are key to the sell- and buy-side tackling market changes on their own terms.