As the world becomes more global and interconnected, financial markets are no longer restricted to their local jurisdictions. As banks move into new markets, they are looking to create better efficiency and interoperability in order to remain competitive in this international arena.

The Financial Services industry is constantly facing costs which come with increasing demands to innovate, driven by competition and regulation, particularly in fixed income and foreign exchange OTC markets, placing ever-increasing pressure on individual organisations’ internal resources and systems. To help stabilise the financial markets in the wake of the 2008 crash, the industry has had to face a slew of new regulations year after year. While good for the industry as a whole, these new regulations pose serious challenges for firms who have to allocate resources away from developing core business strategies in order to meet their extensive compliance obligations. Failure to comply can result in serious penalties and reputational damage, which can create further competitive disadvantages for the organisation or even mean the termination of a business line, function or division.

Solving regulatory and market challenges requires a significant amount of human resource to keep pace with, understand and document the changing landscape, often alongside a significant change in technology. Trying to solve this challenge by developing ideas at incubation level on an institution by institution basis as well as collaboratively, demands substantial investment by each individual institution in areas that provide limited or no competitive advantage. There is a growing appreciation for how Etrading Software generates the advantages that come with collaboration to develop industry-wide utility solutions, thereby freeing firms to create competitive advantage elsewhere.

The move to electronic trading in fixed income and other asset classes puts pressure on firms to update their existing legacy systems and get to grips with the aggregation and standardisation of data or risk being left behind.

As more OTC trading turns electronic, there is a need for ease of connectivity to the ever-changing universe of exchanges and alternative liquidity venues in order to access the increasingly fragmented pools of liquidity. The data flowing down these connections also needs to be harmonised and sifted for quality. Finally, building standardised workflows to process the data is essential to allow firms to benefit from cross-border efficiencies, harmonised data, and realise the all-important marginal gains that interoperability can offer.

As the pace of electronification has increased, a few incumbent vendors have established the requisite connectivity between liquidity providers and liquidity takers. There is evidence to support the argument that the vendor-client interests become less aligned over time as the vendor’s dominance grows, with potential loss of governance for financial institutions and the increased risk of disintermediation between such institutions and their clients. This vendor dominance has slowed the pace of innovation in many cases and increased costs, at a time when market participants continue to struggle with sourcing real-time liquidity.