Published by Intelligent Trading Technology
As global trading markets continue to evolve, moving from high-touch to low-touch trading solutions and beginning to benefit from hybrid products, we caught up with Ullink chief product officer, Richard Bentley, to talk about his take on market direction, the rise of managed services, and the products firms need to implement to keep pace with ongoing developments in electronic trading.
Intelligent Trading Technology (ITT): How has the global trading market evolved over the past few years?
Richard Bentley: For some years, macro market drivers have been regulation and automation. Consequently, sell-side firms have looked to cut costs and eliminate less profitable business, while focusing on efficient trade execution at scale. Buy-side firms have also been scrutinising costs, as well as best execution.
Over the past few years, there has been a rebalance in the sell-side, with a shift from high-touch order management to low-touch direct market access (DMA). This is being met by products that support higher volumes of flow and require less human intervention.
ITT: What is the current state-of-play on electronification in the market?
Richard Bentley: Electronification is spreading across asset classes and geographies. As it increases, voice trading is decreasing, largely as a result of regulation. Electronification runs through the buy-side and sell-side, supported by the emergence of the FIX protocol as a means of transferring orders. Exchange-traded products are already electronified and OTC products will follow.
ITT: What technology challenges do trading organisations face?
Richard Bentley: Technology challenges are often the result of regulatory pressures, particularly on costs and margins. For example, unbundling research and execution commissions.
From the sell-side perspective, the need is to do more with less, essentially more execution of more products but at less cost and in a compliant way. The focus of attention here needs to be on how to scale individual traders and move them into the world where most of the trade flow is automated. The trader can then focus on managing exceptions. Traditional high-touch order management systems (OMS) are not suitable for exception based workflows. Traders need highly configured low-touch solutions in the new world of high trading flows.
ITT: How can Ullink help firms tackle these challenges?
Richard Bentley: Our focus since Day 1 has been on the emerging world of electronic trading. We were among the first vendors to adopt FIX for communication. We then moved up the value chain to introduce new services based on FIX connectivity.
We had products for low-touch DMA trading 10 years ago. We also had high-touch technology solutions, but decided to build a new platform for low touch as it requires fundamentally different architecture. We still invest in and sell high-touch solutions, which are tightly integrated with our low-touch environment.
We designed the low-touch platform from the ground up to support trade volumes running into millions of orders a day and provide traders with rich tools for tasks such as flexible exception management. Similarly, a light front end with sophisticated filters allows traders, by way of example, to type in a client name and see in real time how the client’s orders are doing in the market. This is powerful, and we couldn’t do it with a high-touch OMS.
While our low-touch portfolio is our strongest growth area, our offer also includes high-touch, middle-office and connectivity technology, as well as services for client connectivity and onboarding. Following the acquisition of Nyfix from ICE, we run one of the largest FIX global networks.
ITT: How can the company help firms reduce the cost of trading while maintaining accuracy and efficiency?
Richard Bentley: Cost is a driver for the sell-side in a market that is increasingly illiquid and complex. By using low-touch technology, one trader can do the equivalent business of 10 traders using high-touch technology.
To support accuracy and efficiency, Ullink provides pre-trade risk technology in the trading flow that validates orders, but does not add undue latency. The company’s smart order router (SOR) meets stipulations around best execution. These two technology elements are critical to low-touch trading.
ITT: What challenges does MiFID II present to trading organisations and how is Ullink supporting its customers here?
Richard Bentley: MiFID II has a fundamental impact on trading. Ullink is helping its customers in two ways: the company has upgraded and enhanced its portfolio to meet MiFID II requirements; and it has developed products to cover new and extended aspects of MiFID II such as trade reporting, transaction reporting and record keeping. Most recently, we have developed a request for quotes (RFQ) management and reporting solution that can retrieve quotes not only from brokers, but also from new trading venues under MiFID II.
ITT: Looking at trading solutions, how are trading organisations approaching low-touch and high-touch solutions? Is there convergence here?
Richard Bentley: Smaller brokers are looking to expand high-touch capabilities with low-touch offerings. They want integrated solutions, preferably delivered as managed services. Large firms often have home grown low-touch DMA capabilities, but also need to be able to move flow from a low-touch to high-touch environment. For example, if a low-touch trade is seen as a market risk by a trader it can be moved to the blotter of a high-touch trader who can work it as a care order. Interoperability between low-touch and high-touch desks is essential. Ullink can interoperate its low-touch solutions with other vendors’ high-touch solutions.
ITT: To what extent are firms transitioning from enterprise solutions to managed services?
Richard Bentley: We are seeing a trend towards vendor managed and hosted services. Ullink was an early entrant into managed services and about 75% of our business is based on our managed platform. That said, we still offer enterprise solutions, which find favour with Tier 1 firms and organisations in countries such as Switzerland and Singapore where there are in-country data rules. We also offer hybrid solutions, perhaps where a customer provides hardware in their new data centre and Ullink installs and manages the software.
ITT: How is demand for connectivity shaping up and how is Ullink meeting the demand?
Richard Bentley: Over the past five years, firms have been asking for not only connectivity software, but also connectivity that is hosted as a managed service. From a DMA perspective, outsourcing connectivity is being driven by MiFID II, which requires all trading firms within its scope to integrate with new market gateways using new application programming interfaces (APIs). A vendor can do this cost effectively. Market connectivity as a service is also emerging and Ullink is well positioned here.
ITT: How are smart order routers (SORs) developing to meet the needs of today’s trading environment?
Richard Bentley: MiFID II changes the market structure by minimising dark pools and introducing more lit venues and systematic internalisers. It also extends best execution requirements. This has resulted in a new generation of SORs that are fundamental to low-touch trading across multiple venues. Ullink offers a SOR, it is ready for MiFID II and can be customised to other regulatory regimes such as the US RegNMS.
ITT: Finally, how do you expect the market to develop going forward?
Richard Bentley: High-touch trading won’t go away, but low-touch trading is growing and will catch up with it. We are starting to see the interaction capabilities of high-touch OMS solutions in low-touch solutions and the beginning of a move towards more of a continuum in which a single platform will support a low-touch high flow as well as the risk capabilities of high-touch solutions. This convergence will be driven by cross-asset growth in low-touch flows coupled to the ongoing requirement for traders to manage flows.