Capitalising on change in ever-shifting EU markets

By Frank Guerrera of Solace Systems

How can European financial firms ensure their technological infrastructure supports their business goals, when the business and the technological environment is in a constant state of flux?

I suggest that they focus on their core business and look to service providers for help elsewhere. Service providers can now deliver more nimble content-aware networks to help the financial enterprise respond to change.

The EU is still in its infancy, struggling to expand without collapsing, introducing sweeping new regulatory change with MiFID (Markets in Financial Instruments Directive), and introducing fundamental economic, political and social change. The technological infrastructure of EU markets reflects these changes and, of course, the rate of technological change is exponential. So how can C-level executives find the best way to balance tomorrow’s new investment with today’s basic requirements? How do you cope with the three-way explosion in real time data volumes, lower latency requirements and increasing complexity? And how do you respond to MiFID so it means more than ‘comply or die’?

Ockham’s Razor offers us the simplest and best solution: focus on being the best at your core business and look to trusted partners to provide managed services well suited to their own core business.

CIOs and CTOs are at the very crux of these pressures, as they implement technology solutions that provide competitive advantage. Your fundamental role is to guide the business through complex financial, economic and technological territory. Aligning business and technological issues is the biggest and most critical part of the job. Fortunately, change also brings opportunity: there is a major technological and business shift taking place that will serve the savvy CIO/CTO very well. Service provider CEOs are under the gun to grow their business by moving up the value chain with enterprise customers. They are investing heavily in new technologies that capitalise on their core competency of delivering SLA driven scalable services, but at a new level of capability, where their underlying networks are content-aware and application-enabled.

One of the key technological drivers for this change is finally becoming an accepted truism: faster software, more middleware, more servers and more staff are not the answers. The capital and operating expenditures are crippling for the enterprise, and there is a better way. By moving application logic and business rules into the network, service providers and enterprise customers gain a more nimble, intelligent network that identifies content, routes it more efficiently, reduces latency times, and offers a measurable trading advantage. Developments in message filtering and routing at the hardware level offer a way to meet the following three critical financial network requirements.

Content-aware networks offer a peer-to-peer architecture with a single application interface and no customer premise ticker plant. Data travels from exchanges to the client site without passing through a point of consolidation and only the data streams that traders or applications need flow to the customer site. This means that trading algorithms are processed faster because more processing time is available, and new exchanges or enhancements are implemented without changes to the enterprise network. Flexible, low-latency market data delivered as managed services are becoming fundamental capabilities of service provider networks.

The same peer-to-peer architecture eliminates the need for Financial Information eXchange (FIX) servers onsite, and offers performance, scalability and trading advantages, including dynamic, content-based message routing, message normalisation, translation between different versions of FIX, and lower latency times. By moving business logic onto the network, trading, routing and security rules are managed centrally, while supporting the high traffic volumes generated by the largest broker-dealers and meeting Europe’s diverse business environments.

MiFID will change, dramatically, the way European markets work, but the real challenge is for the CIO/CTO to enable real-time and long-term reporting, and manage more information than ever. Under the directive, securities firms will be obliged to execute orders on the best possible terms and maintain extensive records as proof. Firms will also be required make their quotes public, and to post-trade data for equities trades.

Here’s a new rule of thumb: A compliance-aware network is a content-aware network. With intelligent routing and networking, every message that flows through the system can be tracked and managed to assure full compliance with MiFID standards. Service providers with a content-aware network will be able to provide you with the source of each message, who received it, and when, down to the millisecond. Now, you have full visibility into identities, orders, pre and post-trade data, and best execution information. The business benefits of this approach go beyond compliance with MiFID to include scalability, added services and untlimately, a competitive advantage for the firm.

The winds of change bring both challenge and opportunity. Content-aware and application-enabled networking hardware is changing network architecture again. The good news is that CIO’s and CTO’s will benefit and be able to focus on and meet long-term business objectives.