THANK YOU FOR SUBSCRIBING
By Tim Thurman, CIO, Australian Securities Exchange (ASX)
Why ‘recreate the wheel’? This is a concept I often reflect over when deploying new software solutions. Why would I build a concept when someone or another firm has already manufactured and invested time and money doing so? For me, it doesn’t make any sense unless you are a top technology vendor making millions by selling software. It may be for competitive reasons but seriously, some forms of technology give you no competitive advantage. I have used this philosophy through most of my career and when faced with a problem or a business case, I always look for a ready-built solution. Of course, there is a level of customization required to fit the uniqueness of the market you’re in but let’s face it, certain technologies are very generic.
approach many firms are now taking is to look for global standards with generic software. Take for example: connectivity protocols. The majority of the capital markets have adopted FIX and with their backend using SWIFT or ISO standards, there is no need to build anything new when these standards create efficiencies for their clients. The large global investment banks connect to every market in the world, yet to create unique standards of connectivity for each would be very costly and these costs are passed down to their clients. A lot of companies source their software from third parties which is a very good model - here you have fixed Opex license fees and support costs, which are considerably cheaper than an army of software developers maintaining customized codes.
"In switching gears to talk about the latest trend, Blockchain has to be at the top of the list and for obvious reasons."
I recently read an article where one of the biggest investment banks in the world is considering shared software with its competitor purely to lower their operating costs. This is a trend that I think you will see more of in the future. In my career, I have had the opportunity to work for some of the largest investment banks in Canada and one day, I was challenged by my Managing Director to build a suite of algorithms that would make us stand out from our competitors. I had limited budget, yet needed a solution and after a detailed RFP process, we decided to white label a solution from a US investment bank. This was unheard of, however soon became the trend. Why build it when I can rent and white label through a brand, with software production ready out of the box. For me it comes down to how you implement, operate, and support the software that gives you a competitive advantage. Some companies in the capital markets purely operate on third party software and these are the companies who have lower Opex costs and higher shareholder value. The one problem you face is finding the right software provider, which I prefer to call ‘partners’. I’ve been fortunate enough to have been both a software provider as well as being a customer of a third party software provider, so I know how it works from both sides. When you get down to it you need to keep them honest and have your partners work for you. In my current capacity, I am working with a handful of third party software partners and even though some of them are competitors in their own worlds, for me they are true partners. One thing I look for when sourcing a new technology partner is their ability to create a partnership.
In switching gears to talk about the latest trend, Blockchain has to be at the top of the list and for obvious reasons. Although the technology itself has been around for many years, it’s only now that computing power has allowed us to fully benefit from its capabilities. However, one needs to be careful when thinking this technology will solve the problems of the world and I believe it still has a long way to go before its true power can be recognised. Organisations should start slow, test capabilities with a few simple user cases, validate how it works and then explore greater problems. The true power of blockchain will be how the capabilities of the ledgers interact with one another – this is the interoperability, the key to blockchain’s success. Creating standards which will allow the ledgers to interact will be the key. In the beginning, the hype was to build as many POCs of user-cases possible, however now that everyone has had a kick of the can, we can get down to creating standards around this new technology. A few firms are leading this charge and trying to create ISO standards for blockchain in the capital markets. We have a long way to go but the benefits of this new technology far outweigh the effort required to get there.