Innovation in Focus Roundtable (NYC): IT moving beyond being solely an enabler of fixed income trading

Celent’s Securities & Investments team (S&I) hosted an exclusive and very well-attended roundtable event in New York last week. The topic of the event was Innovation in Focus: Eight Great Technologies in Fixed Income You Should Care About. The emphasis was on front-office technology for fixed income across cash and derivatives. While the event and discussion were exclusively for attendees, some broader, key points emerged. Axel Pierron, SVP of Celent’s S&I practice, made the point that increasingly technology is not an enabler but actually is the business. This seemed to resonate with the audience, but participants including the largest dealers also observed how much technology actually costs them and their somewhat messy organizations. Thus, while they agree, marrying the implementation of technology services to profitability can be a difficult sell internally. I presented the content and moderated the session for about an hour and a half. While the technologies discussed are exclusive to attendees, the following overall key themes emerged from the discussion: • The buyside are not getting what they want, feel empowered, and are looking for (sometimes free up-front) technology to disrupt and disintermediate the business. While dealers can facilitate and clear the business (i.e. leverage the balance sheet) the buyside wants to control execution more thoroughly. • Dealers are looking for incremental ways to be more efficient with trading that does not require them to change dramatically or make large capital investment. • Upstart venues are challenging the incumbents with new matching methodologies, including client-to-client. Existing market centers may have heard it all before, point to their own market share, and think low liquidity is a really hard issue to solve. While they may have a point about trading in continuous, liquid markets, this is not the case in discontinuous, illiquid markets. • There are innovative, horizontally-oriented technology companies ready to play an increasing role in fixed income, but they have a lot of convincing to do to get dealers to change and embrace third party technology wholeheartedly in the front office. Attendees were very curious about which technologies Celent thought were differentiated and stayed for additional networking. Other chatter focused on the continued foot dragging of dealers, complaints about the lack of transparency and liquidity in the market structure, further grumbling about expensive IT and operations, and skepticism about new venues (radically) altering the competitive landscape. Most interesting, perhaps, was the willingness of dealers to increasingly consider cooperation more among their peer group to solve problems. In other words, with all the parallel dealer investment in non-differentiating technology, shared services/utility models may make more sense in front-office environments. Overall, the feedback from attendees was very positive so Celent will be holding other exclusive Innovation on Focus events across the globe, starting with London. Stay tuned.