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and price streams, as seemingly
infinite amounts of data are sent to
systems which, at many large insti-
tutions, are either considered to be
legacy or simply outdated.
Alongside this, fragmentation in
FX is a significant issue to contend
with. Banks typically connect to
between 40 and 70 data and price
streams, combining bank-to-bank
streams and venues depending on
“We need the agility to make sure
we aren’t backed into a corner and
don’t buy a system that becomes
‘old-school’ legacy in six months’
time.”
RICHARD DE ROOS, HEAD OF FX, STANDARD BANK
the institution, although in core
FX markets there is significantly
more concentration with around
10 major venues including EBS
and Reuters. The rise of FinTech
vendors and new ideas in the FX
space means it is in fact possible to
trade with everyone in the market,
but trading with everyone can in
some cases result in sub-optimal
execution, with high rejections and
often frustrated liquidity providers.
“Typically, the larger the buy-side
firm or bank, the more connections
they have, which means more data
to manage. The larger institutions
have numerous legacy systems
internally, which often work on
legacy technology, not always the
newest and most robust,” says
Steve Toland, co-founder of trading
connectivity firm, TransFICC.
“In the past, many banks tried
building everything in-house, ef-
fectively fuelling a technology arms
race. Many are stuck in this old
way of thinking, but now commod-
itised data services and application
programming interface (APIs) can
be externalised to a utility.”
58 // TheTrade // Summer 2018
E X C H A N G E ]
Modular approach
Technology at lar ge sell-side firms
needs to work hard and fast to keep
pace with the FX market. In recent
years, when the now deemed
controversial last look method and
use of speed bumps was largely
popular, the risk of publishing stale
prices or receiving high reject rates
was a little easier to control. But
now the latency-sensitive nature of
the market means the use of legacy
systems at large FX institutions
is becoming more problematic.
Those systems cannot cope with
the amount of data and therefore
cannot provide useful information
based on the data, which is crucial
for big players in FX trading.
“When it comes to legacy systems
in FX, they can be a hindrance es-
pecially due to the increasing need
for big data and analytics,” explains
Mpumi Makhubu, manager of eFX
products at Standard Bank. “It’s
difficult for legacy systems to hold
that type of data and provide accu-
rate information. Transaction cost
analysis (TCA) and best execution
are particularly difficult to leverage
when using legacy systems. In
most cases legacy systems are also
manually operated, which means
there is a far greater risk as they
are prone to human error.”
Banks considered to be ‘techno-
logically advanced’ are respond-
ing to market data challenges
by updating legacy data servers,
analytics and storage hardware,
but when it comes to technology,
the sell-side has to make a decision
whether to seek help from industry
vendors or confront the chal-
lenge in-house. The “build versus
buy” debate around technology
continues to rage across the entire
financial services industry, with
industry participants seeking
the right balance between both
methods when it comes to legacy
systems.