By David Brown, Chief Operating Officer, IPC writes how
In the financial services industry, no firm is an island unto itself. In fact, that’s the very reason that firms are referred to as market participants – because each and every financial services provider is a participant in a global marketplace. Every market participant has a place in the greater market structure, which is itself an interdependent network. Asset and fund managers depend on brokers and market makers for access to liquidity. Brokers and market makers in turn depend on the existence of trading venues and exchanges to source liquidity. Market activity is underpinned by data, which is consolidated and supplied by market data vendors. It’s a community, in which every member plays a unique and vital role.
Communities, network effects and resilience
Metcalfe’s Law is a well-established principle in telecommunications that characterises many of the network effects and benefits of connected communities, such as the Internet and social networking. The greater the number of participants in a connected community, the greater the value derived by all participants from the community. This creates a self-reinforcing “virtuous circle”.
Large, connected communities create resilience. Imagine, if you will, a scenario in which an emergent virus is sweeping the globe. Some of your traders are at home under quarantine. Others, reluctant to use public transport, have opted for your DR site instead. Your counterparties are all experiencing the same issues. Pricing on venues is all over the place, bid-ask spreads are widening and it’s unclear where the liquidity really lies. You need to continue servicing clients, making prices, accessing liquidity and managing risk.
For firms that are highly dependent on a small group of venues and counterparties for market access, this spells disaster. But for those with access to a large, diverse community, this is an opportunity to shine, to demonstrate real differentiation from competitors.
A large, diverse community offers its participants connectivity to a readymade global financial ecosystem – one that includes a wide variety of counterparties for price discovery, liquidity and execution, such as broker/dealers, inter-dealer brokers, exchanges, alternative trading systems, multilateral trading facilities, electronic communication networks, dark pools, hedge funds, asset managers, institutional investors, trade lifecycle services and market data providers. In other words, the information that firms need to find liquidity, and the ability to access it.
The need for speed
Take away market access, and the right connectivity to the right connections, and it becomes impossible to trade. The constant streams of communication between community members – orders, quotes, confirmations, post-trade data – all rely on common interfaces and protocols, and on the underlying infrastructure that supports these. Speed is of the essence, not only in the timing of individual trade executions, but also in the ability of firms to quickly connect to new market participants.
Digital transformation, and the everyday integration of technology in our lives, has had an unprecedented impact on workplace cultures and structures. Digital transformation has compelled workplaces to become much more flexible, mobile, innovative, and to a certain degree, deconstructed: traders can’t afford to have connectivity issues interfering with generating alpha, sourcing liquidity or mitigating risk.
Communication builds relationships, relationships build trust
Sometimes, though, it’s not all about speed. Communication in a community is also about relationships – the relationships that are built over years of trust and trading together, and that have endured and survived through assorted financial crises, flash crashes, geopolitical turmoil and technology glitches. Sometimes communication is about the ability to pick up the phone and talk to a trusted counterparty. This brings us to access: the ability for market participants to access their community in the way that’s best for the specific circumstances at any given time, whether it’s via a FIX connection or a direct API, whether via voice or chat, and the ability to switch between these modes of communication as needed.
Communities for the future
Increasingly, new technologies require collaboration and data sharing amongst a community in order for members to benefit. The true power of the public cloud comes from the ability to access shared data and shared utilities on demand, and to leverage the input of multiple participants. Or blockchain and distributed ledger technologies – these fundamentally rely on a community coming together to deliver a shared infrastructure, from which everyone can benefit.
As the market evolves, new participants can benefit from simplified access to a community that can support their business. Let’s look at the emerging digital assets and cryptocurrency sector. It’s a new market, yet one which still relies on fundamentals: access to investors, liquidity and data. Without access to an open community – one in which innovators and traditional market participants can easily find and connect to one another – new entrants will find it overwhelmingly difficult to establish themselves.
What can IPC offer?
With these objectives in mind, the IPC Connexus Cloud for data, voice and enterprise connectivity enables market participants to trade faster, be more agile, and enhance their competitive advantages. IPC’s Connexus Cloud is one of the largest, secure and compliant high-performance private networks, focused exclusively on the financial markets community. Users are able to take advantage of the dynamic, “readymade” Connexus integrated ecosystem.
Connexus Cloud is the fabric that unites an ecosystem of more than 6,600 capital market firms and +100,000 end users across 750 cities in over 60 countries around the world.
With an organisation’s best performance in mind, IPC’s Connexus Cloud is a holistic community-based solution, providing secure mission-critical connectivity, from order creation and placement, to trade execution, clearing, settlement, reporting and market data delivery.
Our Connexus Labs enable fintechs and innovators to test their product in a supportive environment, and paves the way to accessing this global community of users.
Our diverse partnerships and open architecture reflect the value that we place on working together with like-mined industry leaders. It’s the power of this community to connect and collaborate, and to shape the industry of the future, that we’d like to share with global financial market participants.
This article was previously published by IPC, a client of The Realization Group, HERE
*****
More articles from The Realization Group clients