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Why trading firms are shifting to market infrastructure managed services

Specialist companies are increasingly helping trading organisations run their market infrastructure on a subscription basis, according to specialists speaking at a recent webinar.

A growing number of trading organisations are unlocking new operational efficiencies and cutting costs by appointing specialist firms to manage their trading infrastructure.

Nicolas Bonnet, Director, Global Connectivity Product at ICE said the shift from an ownership to subscription model was occurring across industries, although managing ultra-low latency requirements was a particular challenge for trading firms.

“You want your talent to focus on producing alpha, leveraging their skills and knowledge, and I think this is where managed services can bring a lot to the table,” he said.

Bonnet also commented “The other things that we see is the time to market. We are going through a very volatile time and trading desks are identifying new opportunities – they want to move quickly but the internal IT teams may not be able to keep up the pace given competing priorities.”

Audience polls during the webinar found ease of hardware and scalability, as well as potentially lower costs and faster times to resolve hardware failures, was driving the trend.

About 60% of the audience expected it to produce significant operational and business benefits, with speakers citing cost efficiencies around OPEX versus CAPEX, speed to adopt the latest technology, and ability to leverage external consulting expertise.

What are the drivers of change for moving from in-house hardware procurement and management to managed services at your trading organization (multiple answer)?

What extent of business and operational benefits would your organization expect to gain from adopting third-party procurement and managed services?

One observation was that the provision of managed infrastructure was now more mature and broadly accepted by the marketplace, which was overcoming historical points of resistance around a lack of availability and understanding about the service.

A second audience poll found more than one-third were already using third-party procurement and managed services while almost half were considering the option.

What is your organization's interest in moving from ownership of hosted hardware in your trading infrastructure to third-party procurement and managed services?

Several ways were suggested how trading firms can effectively work with a third-party to implement managed infrastructure services:

  • Choose the right partner. Assess their track record and conduct a vendor risk assessment procedure that asks questions such as who else uses their service, and what is the vendor’s probability of default? What damage limitation measures can be put in place in a worst case scenario?
  • Identify the specific business problem your firm is trying to address and the challenges. These might be technical requirements such as latency or business issues such as budget limitations or geographic challenges.
  • Review service level agreements (SLAs) that provide the right support, such as during trading hours, and address extreme situations. Any service that is outsourced needs to be reliable and able to be supported.
  • Potentially take a phased approach by building a business case around a relatively simple service, such as a hosted feed, and successfully implement it before expanding the service. This can build trust in the relationship.

Bonnet said ICE had recently worked with a customer to launch a low latency trading desk in multiple locations, initially starting with one site in the US as a test.

“What we managed to bring to the table was our respective core competencies at ICE and Techary, our managed services provider: data services, hosting, connectivity, hardware management, and we particularly helped with the choice of hardware. I remember seeing conversations down to the chip level with the customer, just to see how we could help them design the solution to make the most of the latency.”