Technology and People Make Cross-Asset Platforms Challenging, Panelists Say

"If you look at some smaller trading companies, they do trade across asset classes in small teams," says Peter van Kleef, managing director at Lakeview Capital Market Services. "There's not a question that it can be done, but the thing is that, in larger companies, generalists are harder to come by. People have started in equities and stayed in equities, or fixed income, but they haven't been across the organization."

In contrast, he continues, smaller firms tend to rotate staff across various disciplines such as equities desks, fixed-income desks or foreign exchange (FX), which allows them to overcome differentiation. In addition, the use of industry-standard messaging languages such as FIX has made sending orders to the market relatively uniform as a process, regardless of asset class.

Distinct Differences
Although FIX, XML and other languages are streamlining the processes behind trading, it's the broader differences between asset classes that can prove challenging, particularly in how electronically they trade. This can vary wildly from instrument to instrument, which makes a single platform for trading all asset classes an unrealistic prospect for now, until methods align in the future.

"Although we like to say that we're going to have a unified approach to trading across all asset classes, we're not quite there," says Igor Lobanov, enterprise architect at Legal & General Investment Management. "Equities are traded completely electronically, but it's not the same for fixed income, and certainly not for derivatives and over-the-counter (OTC) products. They're converging, but there are differences, and it will take years before we get to a position where it will be absolutely the same in terms of trading, and it will become natural to trade from a single platform."

Others even question the practicality of a single platform. Lakeview's Van Kleef, for instance, argues that instead of investing enormous resources into the development of a unified software product for this trading activity, buy-side firms would be better served by investigating the ways in which distinct, specialized platforms interact with one another.

It will take years before [asset classes] get to a position where it will be absolutely the same in terms of trading, and it will become natural to trade from a single platform.

"There's a bit of an illusion around an all-singing, all-dancing single platform," he says. "What's more important is that you have different frameworks, and they can exchange data via standard protocols. If you have the data in one format, it's important to be able to move it from one framework to another without really altering it. As long as they can communicate, it's fairly easy to integrate. Building a monster that can do everything from trading to risk, compliance, accounting and other areas is a huge task. Realistically, you'll always have specialists in a certain area, but you have to ensure that the components can talk to each other."

Data Breadth
As well as with trading methods, some panelists raised the point that convergence is necessary for changing basic ways in which traders operate. Equities traders, for instance, will be familiar with using a narrow range of market data in their day-to-day lives, however experienced derivatives traders will often incorporate credit data, FX, bond data and other feeds related to the underlying components of the instruments they deal with. The efficiency of equities technology, which has been the longest of all asset classes to trade electronically, coupled with the broad range of information used by the derivatives world, is a key component of developing a true cross-asset capability.

Moderated by Jon Rushman, professor of practice at Warwick Business School, the panel also included Matt Gibbs, product manager at Linedata, and Stewart Orrell, managing director for global capital markets at Equinix.

The Bottom Line

• While it is possible to have small, cross-asset teams, the lack of generalists in trading makes this difficult, particularly at large organizations where roles are more specialized.
• The discrepancy between asset classes in terms of how instruments are traded also means that unified, single platforms are several years off, although standardization efforts through languages such as FIX are easing this challenge.
• There remains a data usage question ─ while derivatives traders are used to taking in multiple feeds of data, equities professionals will not necessarily be as acclimatized in this regard. A convergence between the two disciplines is necessary as a prerequisite to true cross-asset trading.