Several Trends Emerge─From Clouds to Algos─at BST's Euro Summit

Every week I try to provide my loyal readers with some interesting tidbits of knowledge or raise a thought-provoking question. These are based off interviews that I've conducted over the past week or so. But this week I'm going to cheat.

On Tuesday Buy-Side Technology held its annual European Summit, which was chaired by editor-in-chief Victor Anderson and attended by our UK-based reporters James Rundle and Steve Dew-Jones. So rather than try and be creative, I am going to recap their work and provide links to their stories, like any good blogger would do.

Batting leadoff we have Dew-Jones' piece on outsourcing and cloud computing. What really jumped out to me here was a comment made by Daniel Sullivan, executive director of the European operations vendor management group at JPMorgan Asset Management, about the increased prevalence of cloud-based solutions.

"NATO can't seem to keep hackers out of its installations, so what hope do the rest of us have?" he asked. "I'm terrified of the cloud to be perfectly honest. This is a hugely sensitive area in terms of maintaining and being secure about people's information and that's hard enough when you have one place where you know where that stuff is. When it starts getting even more distributed, it becomes even harder."

This is a thought that seems straight out of 2007, but considering the source, it's a fairly damning statement. Robert Johnson, head of front-office solutions at Mitsubishi UFJ Securities, was less forceful in his statements on the cloud, but noted that any user of a cloud-based product best have a good lawyer─you know, just in case─and that the most important part of signing a cloud contract is the exit strategy.

Rundle also covered the topic of the cloud as it was a hot topic at the event. For all this talk of this new (relatively speaking) technology, the definition has been stretched and distorted throughout the industry. I especially enjoyed Amar Banwait's response to the question of, "What is a private cloud?" Banwait, the director of trading at Midwestern Capital, said that a private cloud isn't actually a cloud at all.

"The definition I've heard of private cloud is where, say, you're an investment bank, and you run a miniature cloud in your datacenter," he says. "Equinix advertises private cloud, Eze Castle offers their own, and a lot of co-location facilities are advertised as private cloud. But if you look back at our first definition of cloud, does the private cloud fit that? Well, no, because you have to invest in hardware, so you're paying for resources that you're not using in the middle of the night. You have to buy new hardware for new demand, you have to manage the hard and software yourself. With resilience, what happens if your private cloud goes down - do you have a second cloud running? If you look at those factors, a private cloud isn't really a cloud in the traditional sense."

Rundle also looked at the regulatory bull's eye that has placed on high-frequency trading (HFT), especially in Europe.

Kee-Meng Tan, head of the electronic trading group in Europe for Knight Capital, gave the keynote address at the event. Anytime someone uses the term "whipping boy" while ripping on the New York Times, we'll it's worth taking notice.

"HFT has been a favorite whipping boy of the press, as well as policy makers since an ill-informed article in the New York Times proclaimed the practice to be front running, because it utilized cutting-edge technology to allow it to access markets in an ultra-fast manner," he says. "Most of us know what front-running is, and it is not front-running. The Flash Crash was also blamed on HFT, and continues to be, despite an SEC-CFTC report absolving it of blame. There have been countless academic reports supporting the fact that HFT tightens spreads, enhances liquidity, dampens volatility and lowers transaction costs."

Similarly, Dew-Jones covered a panel looking at the use of algorithms and how important speed is in today's environment.

The panelists stated that they are more worried about gaining alpha through performance rather than having the fastest gun in the West.

"For some of the guys, speed is definitively important, but by and large on the buy side with the asset management community, they would give up speed for a couple of basis points of performance," says Brendan McCarthy, director of global financial services firm. "What we are seeing across all clients, is a more focused approach to performance. People don't want to hear qualitative arguments for using a broker anymore─they want you to come into their office and justify quantitatively how your algos are performing. They want full disclosure in terms of what you're doing, how you're doing it, where the orders are routed, and they need to see exhaustive research and performance analysis to justify trading with you."

Got some thoughts and opinions on any of these subjects? Think that I'm being lazy by piggybacking off my colleagues' hard work? Send me an email at anthony.malakian@incisivemedia.com or call me at 646-490-3973. Otherwise, for those of you here in the US, enjoy the long weekend.