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.