UK financial services sector set to spend further on technology over next year according to survey by CBI and Price Waterhouse Coopers
The cost of operating an FX brokerage has increased significantly over recent times, however the cause of this has been largely due to the omnipresent will of global regulatory authorities to keep pace with the advanced technological methods used by FX traders to ensure that customer protection is achievable despite the borderless nature of FX, and the speed at which transactions are entered.
Going some way toward counteracting the cost of ensuring that client funds are secure, that transactions can be correctly accounted for in case of compliance inspections and ensuring capital adequacy requirements are met is the progress made in terms of technology, alleviating the need for many companies to invest in their own equipment, rather leasing cloud-hosted solutions with full maintainance contracts.
British companies operating in the financial services sector however have continued to invest substantially in technology and infrastructure, and according to a recent survey conducted by the Confederation of British Industries (CBI) and professional services consultancy Price Waterhouse Coopers which covered 87 companies in all aspects of financial services in Britain, in the next 12 months, 50% more respondants plan to increase spending on technology than those that are not.
Insurance brokers and securities trading firms were both identified by the results of the survey as sectors which will continue significant investment in information technology but it is banks that leads the way as they upgrade their systems, provide new services and reach new customers.
In the UK, home to the vast majority of institutional FX firms, there are still a large number of trading desks within banks that consider the single-dealer platform as a necessity rather than upgrade to multi-dealer platforms, as this enables greater control over ensuring that their customers are maintained and provided with service from one firm, rather than running the risk of fragmenting relationships with corporate customers by going down the multi-dealer route.
With this borne in mind, the cost of lowering latency between venues and trading desks, as well as implementing the necessary systems to conduct trade reporting in compliance with MiFID II and the European Market Infrastructure Regulation (EMIR) is a costly business as it is likely to require retail firms to comply as well as the large corporate trading desks.
David Andrews, CEO and founder of London-based Atom8, which provides its client base with MetaTrader 4 which accesses Dukascopy’s liquidity via the PrimeXM bridge solution, is aware of the commitment to increased technology infrastructure among his compatriots. “I confirm the increased spend on IT” Mr. Andrews explained to LeapRate today. “As an example, we are looking a new generation of social trading platform.”
As far as general progress is concerned, Mr. Andrews believes that “faciliatating the agency client to client execution model is the inevitable trend.” With regard to general sentiment within the UK, Mr. Andrews considers the economic outlook to be “reasonably positive but housing market prospects are such key supports to the prosperity sentiment, in the UK at least, therefore any wobbles in that sector or new hint of interest rate strengthening coming earlier than expected could quickly change the outlook.”
Mr. Andrews confirmed to LeapRate that Atom8 will be adopting the Tradeslide social trading solution, and is investigating the method by which investment managers will have to be licensed when the Financial Conduct Authority instigates such a requirement. He further explained to LeapRate that “Better volume will come from the automatic following and ability for retail traders to copy those who are making money, which has the virtuous effect of increasing balances and trade sizes, not to mention frequency of trades. I believe it worth the investment and I am keen to do this.”
When asked whether it is preferable to host in-house infrastructure within a brokerage firm as opposed to outsourcing, Mr. Andrews stated that “as new firm, I would start with a cloud based outsourcing arrangement. It gives resiliency by having a firm provide the solution as opposed to an individual employee.”
With Britain’s institutional FX center having become so competitive and globalized, the need for each participant to continue to advance its own cause in the face of technological exactness within all competitors has arisen, however with the European Commission’s continual disdain looming regarding the use of algorithmic technology, it could come to pass that even greater expenditure on technology may be required to uphold London as the world’s paramount location for institutional FX.