Calypso, Murex, OpenLink... Why there might still be hope for them in the future
I was asked if solutions like Calypso, Murex, OpenLink, FIS, Finastra, Orchestrade ... remain interesting for the future? Specially after my publication of “X-asset Front to Back solution, what a nightmare to implement!” article. Is the "ONE" global enterprise solution the claims to do everything for everyone in the Capital Markets still attractive with the advancement in micro-services, AI and cloud technologies?
This is my take and you are welcome to comment on my website.
After a lot of debate and discussions with banks CTO and head of desks (trading, risk, operations, collateral...), I came to this conclusion:
YES, if it is well redesigned to use micro-services cloud solutions and used for what it can do best.
Let us call these solutions the "Trading Book of Record (TBOR)".
Why a big "YES":
The beauty of "ONE" solution is that by default it is the "SINGLE SOURCE OF TRUTH". Imagine you have in one database the following information updated in real-time:
- Product definition
- Market Data
- Trade information
- Corporate Actions
- Cash flow
- Accounting entries
And this fact by itself is a very powerful one if banks know how to harvest this source of information.
However, facts also suggest that the cost of deploying and managing such TBOR solutions is exorbitantly HIGH. And due to the 'ONE' concept, time to market in different areas is slowed down, i.e. banks risk losing market shares (example: The Front Office wants to deploy a new functionality whereas the Back-Office is not keen to go through a costly testing and upgrade cycle, hence blocks the decision).
The good news is that new advancements in technology can help reduce the negative impacts of such solutions and you have to keep the "SINGLE SOURCE OF TRUTH" advantages.
How can we reduce this negative impact?
Moving some non-essential parts to cloud micro-services (by non-essential I mean no need to be part of a big TBOR solution). Care should be taken: Do not fall into the marketing pitch "Our solution is already on the cloud". There is a difference between having a solution built to work and leverage the power of the cloud and having the whole TBOR just distributed via the cloud. The later does not mean your TCO will be dramatically reduced. You still need to deploy, configure, maintain and upgrade the same way. Maybe the vendor takes on some areas but still it is still the old same infrastructure moved to a different distribution channel. It needs to be architected from the ground to connect to Micro-Services and move the rest in a multi-tenant infrastructure on the cloud to benefit from the "mutualization" of the infrastructure cost.
What can we move to a Micro-Service?
Managing counterparts’ info, keeping the history, making sure there are no duplicates, no garbage... is not the strong point of these TBOR solutions.
A micro-service where all counterpart (legal entities) information is stored and managed connected in real-time to the TBOR solution. This micro-service solution can have tools to clean-up this type of info, detect duplications, keep up better in managing KYC and AML and allows other solutions to benefit, at the end reduces cost.
Deal capture engines in these TBOR solutions need to evolve with regulations and compliances. A lot of data and validations need to happen during deal capture and these TBOR solutions are very slow to comply, and when they do you need to upgrade the whole application to get these new features. Imagine the cost :-(.
A micro-service that allows to capture all type of trade for your business with the necessary validations and feed the TBOR solution.
Then no need to upgrade the TBOR when a new regulatory request is required for a deal capture/validation, the micro-service solution will take care of it and you avoid a painful upgrade. In fact, you reduce the number of costly upgrades.
Intra-day Macro (not trader's desk) Risk Analysis:
Most serious banks extract the information from these TBOR solutions and dump them into their own OLAP solutions to analyze the risk. i.e. they do not rely on these TBOR to do the analysis job for them. And then feed the risk results back again into these solutions to have an integrated reporting.
A micro-service that is connected in real-time to the TBOR position update engines , receives the transactions, positions' details and corresponding market data, then dispatch this info to the right risk management solutions. Then the bank can use its own analytics and tools to analyze and visualize the risk the way it wants and take decisions.
Then feedback the results into the TBOR solution's reporting database to get integrated reports.
This also will allow the bank's risk management desk to move faster with their analytics enhancements, protect their IP and reduce their upgrade requirements for these TBOR solutions.
Managing CSA, Ops memos, ISDA, Clearing, ... agreements are a headache and these TBOR solutions are not really built to do that. And if they try to do it, it will be very archaic.
A micro-service taking care of scanning and uploading all these contracts, and feeding the enterprise solution with the necessary clauses needed for pricing, optimization (collateral), netting, ...
This is an area that is changing and reviewed constantly. These TBOR solutions in order to meet regulatory requirements will push you for frequent costly upgrades and tests.
A micro-service that takes the required trade, positions and corresponding market data info from the TBOR solution and return back the initial margin calculations. Then if a methodology needs to change or a new market needs to be added you do not go through a large upgrade cycle.
This is where a lot of manual work and validations need to happen. By TLC I mean functions like: Exercise, Prolongations, Assignments, Expiration, Termination, …
A dedicated Micro-Service that receives trade information and their corresponding market data, runs the necessary Trade Life Cycle event and feedbacks the TIBOR with the results. Then the Micro-Service can be tailored made to cater specific events not native to the TIBOR. This will allow faster time to market for some products.
What else can we move to Micro-Services?
We can push further where best to strip these TBOR solutions (Pricing, Matching, Netting, Reconciliation, Reporting ...). The idea is to reduce as reasonable as possible the footprint in the banks of these solutions while still benefiting from the "One Source of Truth" concept. We need to reduce the frequency of costly upgrades and allow a quicker time-to-market for important functionalities.
So why keep a TIBOR?
I do not believe in transforming everything into micro-services, we have to be careful not to repeat history when banks had hundreds of "best of breeds" solutions and they really suffered from reconciliations and integrated reporting.
One major fact often forgotten and misused regarding the TBOR solution: You have tremendous amount of data historized for years in the TBOR waiting to be used. This is a blessing for regulatory reporting like MiFIR for example and this is where the areas of Big Data and Machine Learning can play a major role in harvesting this data for sales, marketing and investment strategies.
Nowhere else you will have such clean, meaningful data archived for years in one database.
Imagine the following scenario: When the bank wants to run a global simulation on "what-if" for Market Data and Behavior assumptions to test multiple impacts (Market risk, Liquidity Risk, Credit risk, Margin calls, Collateral needs, Operation efficiency...) at the same time, understands and optimizes its balance sheet (a subject that will be published soon on www.fintekminds.com) and identifies which client/portfolio will be impacted by such simulations; there's nothing that can beat a TBOR solution. It is just one example, but we can have many others to show the value of a TBOR. And this is the true power of "ONE" single solution which in my opinion is difficult to replace today.
Quick word on Machine Learning and TBOR:
The banks will kill to have clean processed data on financial market, trades, positions, strategies, ... to find their AI engines. The search for Big Data in financial industry will be a major trends in the coming years. Well surprise! the TBOR has all this data clean , processed and ready to be used.
Who is striping the TBOR:
Looking for companies that specialize in Capital Market Micro-Services, I found an interesting one I got in touch with. And they happened to be doing exactly that : Striping the TBOR to make solutions in Capital Markets more accessible, more agile and reduce the TCO.
“These views above are confirmed after speaking with Stephen Murphy (CEO of Genesis Global).
According to Stephen two key areas his clients are working with the Genesis Global micro-services solutions are in the Trade Life-Cycle and Deal Capture space. One of the largest global clearing houses took a best of breed approach leveraging the Genesis Global micro-services framework to implement a new automated Trade Life-Cycle solution across a variety of asset classes giving them considerable cost savings and agility to deliver new product offerings. In the “Deal Capture” space one of the largest Latin America investment firms use Genesis Global’s hosted solution allowing their bankers, sales and traders to capture their full deals lifecycle globally. Using Genesis has allowed them to innovate and bring new product offerings to their clients in an extremely agile and efficient way whilst still maintaining full regulatory compliance.
The approach of Genesis Global clients has been to identify target areas within TBOR solutions that are show to be highly in-efficient or that need improvement to improve efficiency and then to use the Genesis technology to change and enhance functionality very efficiently.”
This is my own point of view, but would love to hear yours. Do not hesitate to comment on Fintekminds forum.
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