[ M A R K E T R E V I E W | F O R E I G N 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amounts of data are sent to systems which, at many large insti- tutions, are either considered to be legacy or simply outdated.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.