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.
15
Dec
The Wave of Transparency is Upon Us
Today, Traders Magazine Online posted a story by John D’Antona Jr, entitled “Buyside Wants More Transparency of its Orders.” According to the article, “traders expressed these views on order routing disclosure on a panel at last week’s Investment Company Institute’s conference on equity trading in New York.” They go on to say that “daily disclosure of trading and routing data is fair and reasonable.”
So why hasn’t the sellside provided this information to their trading clients? The sellside firms generically referred to in the article claim that “[t]racking orders can be an arduous and time-consuming task…getting data from all the trading venues can increase the likelihood of information leakage, which compromises brokers’ desire to maintain customers’ privacy.” I think that argument has little merit. I believe the reason why sellside firms cannot provide, and do not provide this information is because they don’t have the middle office in place to capture, normalize and provide secure access to their buyside clients.
Brokerages need to provide this access and flexibility in order to keep its client base and protect revenue. The buyside wants to use this information, in part for compliance to see “where brokers receive rebates…[to] determine if the brokers are meeting their best execution obligations.” Those brokerages who do not provide daily access to this information risk losing their trade flow. As important, transparency and compliance obligations are growing and I can foresee a world very soon where in near-real-time, brokerages will have to make available this information to it’s customers.
It’s time for brokerages to quit limping along with outdated and ineffective spreadsheets and invest in technologies that have been around for the better part of the last decade. Falling behind isn’t an option.
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.
18
Oct
Lightspeed Financial’s middle office
We are pleased to announce our newest customer, Lightspeed Financial. 
Recent industry research indicates that leading brokerages will be those firms that proactively manage service and measure costs across their trading relationships. Lightspeed Financial, a leading provider of direct market access trading technology, risk management solutions, and brokerage services for professional retail active traders and institutional investors, is an example of a leading brokerage.
Lightspeed Financial CEO, Stephen Ehrlich, says, “As a broker dealer with a sophisticated and growing client base, it is imperative that we employ equally as sophisticated and transparent services to manage our trading operations. By consolidating many of our middle-office functions with Firm58, we are able to accomplish those goals and achieve significant operation efficiencies in the process. This is a win for our clients and a win for us.”
We look forward to helping Lightspeed Financial continue to grow its firm and meet its post-trade goals. For more information about this announcement, please view the press release.
