2018 and the Four C’s – Compliance, Cloud, Consolidation and Crypto
By Robert Dykes
As a CEO who runs an emerging institutional ‘FinTech’ company, I’m acutely aware of how competitive and demanding this market is. So much so that it took the New Year before I could finally take a deep breath and try to see the bigger picture – past and future.
To that end, I’d like to share what I felt were the highlights of 2018 and provide a few thoughts on where the market is headed for 2019 and what it will take to be successful.
MiFID II Preparation – Canary in the Compliance Coalmine
MiFID II continued to be a focal point for much of 2018, well after its January 3rd implementation deadline, as firms had challenges meeting the new best execution, reporting, and integration requirements.
Meeting these requirements tended to be quite painful for firms whose investment operations were heavily intertwined with legacy order and execution management systems (OEMS). The lack of flexibility in those systems, and the IT heroics needed to do integrations and upgrades made MiFID II readiness a lot tougher and more expensive to achieve that it should have been.
However, that wasn’t the case for TORA clients because they had the benefit of our cloud-based platform, the first in the industry to offer a complete, front-to-back MiFID II solution. Key MiFID II-related capabilities TORA delivered included:
- An AI-powered ‘AlgoWheel’ and AI-driven pre-trade analytics tool to help with best execution;
- Prebuilt, API-level integrations with MiFID II’s new ARM and APA entities for streamlined transaction and trade reporting;
- An updated and enhanced FIX specification to accommodate the new data that has to be shared among firms, counterparties, reporting entities, and regulators; and
- A partnership with OTAS, through which TORA clients gained access to specialized market analytics and trader intelligence.
With the features in the TORA platform, MiFID II preparations were an easy and straightforward process for our clients. Whereas, for firms with a legacy OEMS system the process was significantly longer, costlier, and more difficult.
That’s when we realized MiFID II was the canary in the compliance coalmine, the early warning signal to those with legacy platforms that it was finally time to make a change, because MiFID II won’t be the last regulatory mandate they will need to comply with.
Denying the future and sticking with outdated systems is a strategy doomed to failure. The time has come for firms to leave their on-premise, hardware-centric approaches behind. Instead, they need to start transitioning to a software-driven, cloud-based approach.
Preference for Complete Solutions Means Progress Required on All Fronts
Asset managers and hedge funds differentiate themselves on their strategies and investment prowess, and less on their investment systems. For that reason, firms don’t want to be in the IT business. They don’t want an array of point solutions, the integration of which requires an army of highly specialized technologists they have to hire.
Instead, firms prefer more complete solutions. They want top-notch functional capabilities combined in unified platforms that are straightforward to deploy, simple to integrate with other systems, and are easily adjusted to accommodate business or regulatory changes.
While covering a client’s workflow from the front- to back-office on a single platform was once the holy grail, it’s no longer enough. In a world filled with highly specialized components, the all-in-one vendors must constantly be adding the features and functionality that clients demand. This can be a tough balancing act, but I’m pleased to report that TORA met this challenge in 2018.
Among the long list of important new features and platform enhancements from TORA this past year were: a new reporting solution, a new ticketing system, improvements to our stock locate module, back-end enhancements to enable significantly higher trade volume capacity, improvements to TORA Compliance, and new portfolio rebalancing, post-trade TCA reporting and AI-based pre-trade TCA capabilities.
Industry Directions in 2019 and Beyond
As mentioned above, a major trend we see gaining traction in 2019 is the retirement of legacy systems. The day of reckoning for traditional OEMSs and other legacy systems has finally arrived. The downsides of those systems were painfully exposed in so many MiFID II readiness projects that the flexibility, reliability, and scalability of cloud-based alternatives is simply too compelling for firms to ignore any longer. The much lower total cost of ownership of those systems is icing on the cake.
Another industry development that unfolded in 2018 was consolidation among vendors in the OEMS space, with several of the leading providers being acquired by industry behemoths. What these acquisitions will mean to the service models and product roadmaps for these once independent and nimble vendors remains to be seen. Clients of these vendors are also raising concerns about how their proprietary trading and portfolio data will be handled by their new owners. It’s an interesting dynamic that bears watching.
Lastly, we are seeing – and actively participating in – the mainstreaming of AI in investment technology and the rise of institutional cryptocurrency trading. From machine learning to neural networks and machine-driven simulations, AI is popping up across the FinTech landscape. As previously mentioned, AI is already powering various elements of our MiFID II solution, including the AlgoWheel and our pre-trade analytics. Stay tuned because TORA will have more AI-related news coming in the months ahead.
As for institutional crypto trading, TORA launched Caspian in 2018, a joint venture with Kenetic, a leading blockchain and cryptocurrency investment firm. Caspian became the first company to provide institutional and experienced investors with a full-stack crypto trading and risk management platform, inclusive of sophisticated connectivity and interoperability across numerous digital asset exchanges.
Momentum for Forging Ahead
The product innovations detailed above helped TORA to achieve its 2018 growth and corporate development goals. Over the past 12 months, we signed one of Asia’s fastest growing hedge funds and displaced the most widely used OMS and EMS platforms at a global multi-billion AUM fund.
We also grew our business by more than 20% and increased our staff by 10%. It’s a great time to be an innovative institutional FinTech company and with the momentum we have now, 2019 promises to be a truly exceptional year.