Easier upgrades and a competitive advantage with cloud-based OEMS
It’s a great time to be in the financial services sector. The rapid pace of change makes almost anything seem possible. New products and technologies are popping up faster than ever and radically different ways of doing business are being seriously considered instead of dismissed out of hand.
Much of this innovation has been unleashed by cloud computing. Cloud-based systems and applications leave most of the constraints of the old physical computing world behind. That’s how they deliver major benefits, including more flexible, responsive, and scalable functionality delivered with significantly lower costs.
But beyond the obvious benefits, the cloud offers other advantages that further strengthen its business case. An important one is how much safer, smoother, and easier it makes the upgrade process.
For some context, let’s look back at the upgrade situation before the cloud’s arrival.
Over the past two decades, our industry made great technological advances. Using mostly dedicated hardware and proprietary software, we added new functionality for handling much higher transaction volumes at much faster speeds. We integrated formerly separated processes, added powerful analytics, and more.
Sure, it was great functionality, but it was built on a foundation of dedicated hardware and proprietary software, so it wasn’t very flexible. Then factor in all the subsequent development, integrations and bolt-ons, and we had a big complexity problem.
One focal point of this complexity problem is the upgrade process. With our legacy systems, making even small changes must be approached slowly and carefully. That’s because downtime due to an upgrade failure can be catastrophic.
So, upgrades go through long, drawn out processes. With development prioritization, testing, and scheduling, ‘Go-Live’ dates are often pushed out for months. It takes so long that innovators get demotivated and let their good ideas die out altogether. When upgrades finally do happen, they’re as nerve-wracking as ever.
Then there are the costs. A recent report by Greenwich Associates estimated that upgrades are costing firms between $3M to $5M a year, not including indirect costs.
Let’s consider an example from the world of order and execution management systems (OEMS) and its ramifications.
Maintaining a Competitive Advantage
One of the reasons buy-side firms upgrade their OEMSs is to access new functionality, such as new algorithms provided by the sell-side. Always under pressure to differentiate themselves, brokers constantly develop new parameters and make other changes to their algos to give their buy-side clients a trading edge.
In fact, brokers are developing algos faster than the buy side can incorporate them. The reason is the complexity involved in upgrading the buy side’s legacy resources. With a legacy OEMS, where the software is unique per client site, the vendor first needs to prioritize its client list to decide who they can offer the new algo to, and when. And then each client, one-by-one, needs to agree on a day, typically after hours or over a weekend, when at least one person from trading, operations, portfolio management and compliance can be available to test and approve the upgrade. The result is that a client may miss out on using a new and improved version of an algo for months or longer.
Cloud-based solutions can greatly reduce or eliminate these challenges, offering a faster and easier way to conduct system and application upgrades and to maintain a competitive advantage.
The Solution: Cloud-Based with Unified Back End
Transitioning to the cloud approach is especially challenging in our industry. With the need for zero downtime, high security, and no compliance hiccups, these moves have their own complexities and risks, but they are largely temporary.
Once firms get through their transitions, the benefits are indeed compelling. Less hardware, dynamic provisioning, near-effortless upgrades, and unmatched reliability and scalability make an enormous difference in operations.
One characteristic that is highly desirable in cloud-based systems is a unified back end. Just like with on-prem systems, many cloud-based solutions have more than one version in production for different customers. Having a single, unified code base that underpins all production versions, and supports backward and forward compatibility between all of them, is key.
With a unified back end, upgrades and enhancements, like implementing a new broker algo, are streamlined affairs that are more like updating an app on a mobile phone than the high-stakes, nail-biting affairs of old. The OEMS vendor makes the algo upgrade available to all clients at the same time, one person at the client site can download and install the new software, and just as easily roll it back if anything goes wrong. There are OEMSs with unified back-ends now available on the market, including TORA’s solution.
Easier, Safer and Faster Upgrades – Another Good Reason to Move to the Cloud
Transitioning investment management operations to the cloud is a major strategic shift for firms, but one that offers clear-cut advantages. On top of all the other benefits, the cloud’s easier upgrade process gets us out from under the complexity problems of our legacy systems.
Because it lets firms unlock more operational agility and efficiency, and quickly adopt the tools that will keep them competitive, embracing the cloud is a winning strategy.
By Oren Blonstein
Managing Director, TORA
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Oren Blonstein is Managing Director and head of product management for TORA, a leading global provider of advanced investment management technologies supporting the full trading lifecycle.