6
Jun
Automated Post-Trade Reporting is No Longer a Nice-to-Have
According to the May issue of Wall Street & Technology magazine, 2011 is the Year of Compliance and the Cloud. We’ve all heard the hype around cloud computing, and not a day goes by where you don’t hear about looming regulation and the impact it will have on the capital markets industry.
What is missing from the headlines is that client reporting is now a top priority among financial firms, with technology budget behind it. According to a recent survey by Aite Group, client reporting ranked at the top of the list in terms of capital markets firms’ IT priorities this year.
For those of us at Firm58 who spend our days working with institutional brokerages, bulge bracket firms, stock exchanges and execution venues, we are in the unique position to see how transformative client reporting can be to the business of trading.
Client reporting is no longer a simple report showing client trades or a client statement showing balances and positions that is distributed once a month via paper or – at best – a static report emailed monthly.
Today, client reporting has to be real-time because changes to rates need to happen quickly, adjustments about where to direct order flow must be timely, and everyone charged with the responsibility of revenue needs to see cost drivers on a daily basis. Whether it’s a high-level trend report or detailed trade data, this detailed information must be streamed in real-time to clients.
Firm58 clients use reporting to show more than just what they traded and when, but who they traded with and the total cost of the trade. Powerful search capabilities enable our clients to find data faster. Information aggregated in multiple ways by group, by asset, by contra party, by time, etc, provides unique perspectives and deeper insight. Trending analysis is then available to easily identify patterns and provide a high-level data perspective and easy access to details.
The competitive advantage our customers realize by way of client reporting is truly transformative. These firms have automated their access to critical information including the identification of their the top customers by revenue, volume, and cost.
Much has been written about the urgency of automating middle and back office processes, but we are now seeing that it’s no longer optional if a firm is serious about competing in today’s global economy. In a recent Firm58 survey of capital markets firms, 91% said their buy-side clients demand more transparency into the post-trade process than they did three years ago.
With increased competition driven by a poor economic environment, firms can no longer sit on the sidelines and rely on spreadsheets and slow manual processes. To keep existing clients and fight for new business, they have to do more. Understanding venue/exchanges costs changing daily and weekly by way of automated reporting is a good place to start.
15
Mar
Driving Growth with CSA Programs: The Buy-Side is Calling
Over the past several years, with the market meltdown and the ‘flash crash” last May, overall commission dollars have continued to fall in capital markets. In 2010, commission dollars were down over 20%. There are projections of another ~20% drop in commissions for 2011 as well.
In the years leading up to the meltdown, brokerages had been reducing their execution costs to retain and/or grow revenues. A large shift to electronic trading, algos, and improved smart order routing shaved points off commissions rates and lowered the costs of execution.
However, in the past two years, execution isn’t the only issue. The buy-side is actively looking for “alpha-generating” ideas through better research. It’s been reported that more than 75% of buy-side firms use some form of commission sharing arrangement (CSA) to gain access to the research they need to lure retail customers back and improve the overall picture in capital markets. The other 25% is increasingly moving toward the use of CSAs as well.
Bulge bracket firms continue to invest in research and technology as full-service brokers, because they can afford to do so. The rest of the execution-only brokers will find it increasingly difficult to compete for commission dollars without research and CSAs to entice the “alpha seeking” crowd.
In the past two years, Firm58 has helped some of the leading brokerages create and manage CSA programs through our hosted technology solution. Our Software as a Service (SaaS) subscription model lends itself to institutional brokerages of all sizes because infrastructure and hardware costs are eliminated.
Firm58 is committed to continuing our focus on CSA program management. Recently, we added Mike Plunkett to our Board of Directors. Mike was President of Instinet, a company that had one of the most successful and longest-running CSA programs, ever. Mike’s insight into the market is already translating into actionable solutions for our clients and our company.
How well prepared are you to handle this need for more and better research? Learn more about our CSA/soft dollar offering.
22
Dec
2010 Themes Confirmed: Transparency, Cost Reduction & Compliance Matter
For the past year, Firm58 has been beating the drum in support of a handful of trading themes including market complexity and rate structures, transparency & compliance, and TCA, among others. At times, it seemed like we were the only ones highlighting the urgency of these issues for broker dealers, execution venues and trading firms. As it turns out, we are not alone. The December 2010 issue of Traders Magazine echoes many of the aforementioned topics in their “2010 Review.”
One big theme for Firm58 this year was the way in which brokers are re-inventing their client relationships, and now thinking about how to offer and measure the cost of research. The TABB research, Reinventing the Relationship: Institutional Brokerage Profitability and the September webinar we hosted with Larry Tabb covered this issue at many levels. The bottom line: Commission dollars are down 25% from 2008, and brokerages are struggling to find ways to keep their share, let alone increase that percentage. Traders Magazine addresses this issue in its article, “2010 Review: Agency Brokers Dive Into Research.
“Transparency has also been a big theme for Firm58 this year, and a recent poll in Traders Magazine supports the buyside’s desire for more transparency from the sellside.
A recent poll in Traders Magazine shows that 75% of respondents believe the sellside should provide more transparency as to where the buyside's orders are routed and how they are filled.
We believe there’s growing consensus, and as a result a change in compliance requirements coming that will require visibility into fees at a trade level, including child trades of large, complex orders. Where was it routed? How much did it cost? What rebates did it earn? These are all legitimate questions.
We addressed this in various times through our blogs, “The Wave of Transparency is Upon Us,” “Lightspeed Financial’s Middle Office,” and “Market Structure Changes Post Trade Needs.”
We look for transparency to be more than a buzzword next year and potentially a compliance requirement that will be difficult for many firms to address unless they have the right middle and back office infrastructure. Traders Magazine addresses this very topic in its article, “2010 Review: Dude, Where’s My Order?”
Another theme Firm58 addressed this year was the growing market structure complexity and the changes in fee structures. It’s widely known that Firm58 is the billing solution for many exchanges and execution venues. One of the reasons for our success in this market is our ability to model highly complex and ever-changing fee structures, the maker-taker models, and more. This past year, option markets started to offer liquidity rebates on some equities, and Firm58 has been right there helping them process these trade-related details. You can see an example of this in our work with the Boston Options Exchange (BOX).
Other options exchanges have begun to offer maker-taker rebate/fees, and that is highlighted in Traders Magazine’s, “2010 Review: Options Exchanges Cotton to Maker-Taker.” Just this week we announced our relationship with CBOE Holdings’ C2 Options Exchange.
Finally, Traders Magazine also has an article this month on TCA. The article, “TCA is OK But Needs Work” states that “institutions have expressed ‘disappointment’ and ‘frustration’ with trade-cost analysis’ inability to identify opportunities for institutions to improve overall performance by wringing new efficiencies out of the trading process.” This issue was at the heart of a recent post, “The Expanding Significance of Explicit Costs TCA“ by one of our founders and Managing Director, Sam Mele.
At the center of this TCA issue is the need for trading firms to have more information at their finger tips to make not only better decisions about trade routing and execution but client performance and profitability. With commission dollars significantly down, explicit cost TCA will become a much larger issue over the next two years. Brokerages that understand and address it will have a distinct advantage over their competition for those hard-earned and dwindling commission dollars.
Big themes, big issues, hard problems to solve. As a subscription-based software provider with a strong track record of success, Firm58 is well-positioned to help address these important revenue, cost reduction, and compliance issues for capital markets firmst large and small.
21
Dec
What Financial Services Can Learn from Telecom
In our work with leading financial services firms, we’re often surprised to learn of the large number of execution venues and broker dealers – both large and small – that continue to manage their billing processes using spreadsheets or outmoded systems. Why would manual processing of this standard back-office procedure be considered disadvantageous, or even dangerous? The answer is painfully simple: Today’s markets are competitive and only the strong will survive.
Industry Similarities
This call for modernized billing systems is a familiar song. It was sung loud and clear a decade ago when telecommunications was the fastest growing industry in the world. In order to remain competitive, telecom providers needed to update legacy systems, in order to consolidate services to a single bill, provide customers with access to call detail data and associated fees, track and invoice for taxes to growing a multitude of jurisdictions, and ultimately, position their companies for growth in a highly competitive global environment. The trend continues today in what some consider the third wave of evolution for billing services in the telecom industry.
A recent Booz & Company report, “Evolution or Revolution? Strategies for Telecom Billing Transformation” shows that billing improvements are now one of the top telecom IT priorities, with 71% of survey respondents placing it in the top three priorities for 2011. The study goes on to say, “Executives are experiencing firsthand the critical role of the billing process in supporting new products and pricing models, bringing them to market quickly, improving revenue capture, and reducing costs.”
Drivers of Change: An Industry Comparison
Despite the obvious differences between B2C and B2B industries, billing for financial services firms, in many ways, is similar to that of the telecommunications industry. Today’s financial firms need to process and invoice more complex trades and more parties, roll out competitive pricing in response to changing market conditions, and improve customer service in order to attract liquidity and differentiate. However, in contrast, capital markets firms are much further behind than their telecom counterparts.
If telecom is in the midst of its third wave of innovation, capital markets firms are slow to recognize the first. Arguably, with more money flowing through the financial system, as well as an increased focus on regulatory and compliance requirements following the global economic crisis in 2008, automating billing and revenue management processes should be much higher on the list of priorities for any broker dealer or execution venue that wants to thrive during this recovery period and beyond. The lack of focus, priority and urgency demonstrates that capital markets firms have yet to recognize the strategic benefits of billing beyond simple automation.
A Blind Eye Does Not Beget Better Billing Practices
Manual billing may have been an acceptable way of dealing with month-end invoicing back when there were fewer execution venues and trades moved through the system mostly intact. But today, in a high-frequency world that eschews latency of any kind, trade complexity is the norm. And with trade complexity comes errors, inefficiency, and delays. Today, few firms can confidently and more importantly — immediately — answer these questions:
- Were we overcharged?
- Did we receive all of the rebates to which we are entitled?
- Was the correct rate applied to that trade?
- Do we have easy access to historical trade detail in the event of an audit or compliance requirement?
- How quickly can we implement a price change?
Today, there are a number of billing solutions built specifically for capital markets firms. These systems automate bill-related activities including calculation, presentation, and collection. Solutions such as those offered by Firm58 support revenue-generating efforts by helping firms implement flexible pricing models and cost-plus billing in order to support new high-frequency clients and provide detailed analytics about their revenue streams. In addition, firms offering Software as a Service (SaaS) platforms allow for web-based access to post-trade details to enable self-service in near real-time.
Bracing for the Future
During the late ‘90s, telecom companies experienced a challenging regulatory and competitive environment. On the regulatory front, the Telecommunications Act of 1996 passed with a goal to “open up markets to competition by removing regulatory barriers to entry,” forcing regional phone companies to open up their networks to inter-carriers. In quid pro quo fashion, this act also allowed regional phone companies to provide long distance services, unfortunately regional phone companies needed to develop a billing system, adding huge costs and delaying market entry. Ironically, as regional phone companies focused on developing a long distance billing solution and compensation solution for inter-carriers, the small inter-carriers focused on their product offering. The inter-carriers began to offer more complex bundled services (email, phone, dial-up, paging), which the regional phone companies had a difficult time billing for.
For those telecom firms whose billing systems could not scale in support of new wireless products and complex pricing requirements, the future was bleak and in some cases, ended in buy-out, merger or bankruptcy.
If similar technology revolutions in other industries are taken into account, there is no question that modernized billing capability for capital markets is a strategic differentiator. What remains to be seen is who will emerge victorious and who will be cast away while the sea change passes them by.
18
Nov
SaaS and Firm58 (Part 3 of 3)
My previous two posts in this series provided a high-level overview of SaaS and explained the differences between SaaS and other common deployment models in the financial services industry. This final post explores how Firm58 differentiates its SaaS platform and why global exchanges, broker dealers and trading firms trust Firm58 to manage billing, deliver daily profitability reporting and strategic insights via detailed post-trade data, and ultimately improve the efficiency and accuracy of their middle and back office functions.
An Industry in Transition
There is plenty of evidence to suggest the SaaS delivery model is on the rise for financial services firms. A 2009 IDC study claimed U.S. firms will spend 45% of their IT budgets on SaaS applications and Wall Street & Technology magazine predicted 2010 is the Year of the Back Office where even the largest Wall Street powerhouses “are turning to hosted software for non-core functions.” This tech spending trend will continue into next year according to a recent report from Ovum predicting a 4.5% rise in tech spending in 2011.
From the early days of Salesforce and its ubiquitous CRM offering to email and other collaboration tools delivered as hosted solutions, more and more firms are embracing the benefits of SaaS. Beyond the economics, SaaS makes a lot of business sense. Firm58’s customers see the competitive value of differentiating their proprietary strategies, their talent, and their approach to customer service rather than focusing limited IT resources on developing and maintaining the ultimate billing, compensation, or P&L system. Those functions are not core to their business, and they can easily be outsourced to trusted providers like Firm58. Our solution is not only economical and easy to deploy, but it continues to get better, so the value to our customers increases over time.
Building a Trusted Platform
For some capital markets firms, the idea of allowing post-trade data to exist outside the company’s walls is often a non-starter. What these firms don’t realize is that many of today’s hosted service providers have undergone third-party audits to ensure their systems are secure and reliably managed. Firm58 completed a SAS 70 audit in 2009 providing verification of these internal controls and financial requirements for our clients. Today, we are proud to claim some of the largest global exchanges and bulge bracket firms as customers.
Firm58 customers own their data and always will. We protect our customer’s critical information with financial-grade security infrastructure both when interacting via a web browser or transmitting data for processing FIX connections or file uploads. All communication between a browser and the platform includes 128-bit SSL encryption, application security requiring strict password and login rules, and permission-based roles within the application configured to our customer’s specific business requirements. All file or FIX-based data transmissions are secured via private VPN connections or secure copies with certificates directed at secured, “jailed” locations. For more detailed information about our security practices, send us an email request.
Managed Multi-Tenant
In my first post, I cited one of reasons the ASP model was not successful was because “the total cost of ownership between the traditional and ASP model is nearly the same.” Essentially, ASP providers were unable to gain the economies of scale to make the costs beneficial to the customer.
SaaS solves this problem by introducing the concept of a multi-tenant application, whereby a single instance of the application runs multiple customers. Multi-tenancy allows the software vendor to reduce expenses through economies of scale and pass on the savings onto the customer.
In an industry characterized by high speed and high volume, coupled with extremely sensitive data, we had to be creative in the way we addressed multi-tenant issues in the design of the Firm58 SaaS platform. Our solution allows all customers to run in a single instance – reaping the core benefits of a SaaS model – but enabling a tunable, isolated, and secure container to ensure customer data is segregated and not co-mingled.
Firm58 has a range of customers from small floor brokers that process a 1,000 trades per day to large exchanges and banks that process millions of trades a day. Through our Managed Multi-Tenant architecture we can adjust the processing resources for each customer, similar to the way cloud service providers dynamically alter processing resources. Customers that have millions of trades per day or complex calculations and analytics can be allocated more processing power to get their work done sooner.
Finally, because our application performs billing and other post-trade functions, if there’s a need to replay a day, any customer has the flexibility to reset to a prior point in time. Our managed multi-tenant architecture achieves scalability without mixing customer data in the same database objects.
Firm58 has developed a scalable, secure SaaS platform that is uniquely suited to address middle- and back-office trade operations. We’re energized to be at the forefront of a transitioning industry as more capital markets firms move toward hosted software to manage their fees, commissions, and payouts.
19
Oct
The Logical Solution to Complexity
Complexity in financial markets has increased dramatically with the advent of electronic trading, expanding venue options, and diverse types of instruments. In addition, there is more data than ever before, not just in terms of quantity, but also in terms of dimension — more slices and dices, so to speak. The increase in data complexity and quantity has driven increasingly sophisticated models for calculating fees, commissions, and payouts. Companies have geographically dispersed branches dealing in numerous markets and across diverse product lines. As a result, these firms end up with complicated schemes for figuring out what they owe and to whom, as well as what they earned and where they earned it. On top of all this, companies today, like consumers, expect information to be available at the click of a mouse.
As the Director of Product Management at Firm58, I’m always on the lookout for new ways to improve the flexibility of our software in keeping with our mission to manage fees, commissions, and payouts with solutions that set the pace for our industry. One way we do this is with a new feature called Logical Expressions. Logical Expressions allow our customers to represent multi-layered structures of conditional expressions that determine which trades will get rated by a particular rate scheme. Logical Expressions route trades as they enter our software to ensure that fees, commissions, and payouts are calculated accurately.
Virtually any type of granular data can be used in a Logical Expression. For example, the data points may include a trade’s asset, the liquidity type, the trader, the quantity, the price, the clearing firm, or the exchange. In fact, Logical Expressions support more than 170 out-of-the-box trade attributes. In addition, the feature accommodates data from Firm58’s new Flex Values functionality, which means that virtually any information our customers send us can be used for routing via Logical Expressions.
Here are just some of the capabilities of Logical Expressions:
- Inclusive or Exclusive Logic determines if a particular calculation applies when the condition is true, or when it is not. For example, a condition may be true when the exchange is NYSE, or when the exchange is any exchange except NYSE.
- Nested Expressions combines groups of sub-expressions on an “if any of these are true” or an “if all of these are true” basis. For example, a condition may be true when the exchange is NYSE or NASDAQ or Boston Stock Exchange, or it is only true if the exchange is NYSE and the trade adds liquidity.
- Matching breaks apart symbolic information and applies logic based upon wildcard pattern matching in key financial data variables. For example, a condition may be true when the asset symbol is IB*, which would match IBM, IBN, IBKC, and so on.
- Natural Language Expression translates each logical expression into an English-like statement automatically for easy verification and troubleshooting.
Want to learn more about how Logical Expressions and Firm58’s rating engine can help you streamline your company’s calculation of fees, commissions, and payouts? Fill out the contact form at the bottom of this page.
