Are Platforms the New Business Model for Trading?

By David Brown, Chief Operating Officer, IPC

Are platforms the new business model for trading? The answer may depend on how you think about platforms and what they can provide – and on whether you believe that the platform model is indeed “new”, or whether trading, to some extent, has always depended on platforms!

How do we even begin to define a term as flexible in usage as “platform”? Well, at the most basic level, we could say that a platform may be any business model that creates value by facilitating exchanges – of goods, services, or communications – between two or more interdependent groups. In order to make these exchanges happen, platforms create large, scalable networks of users and resources for on-demand access, whose network benefits can be harnessed and leveraged. In other words, platforms create communities and ecosystems with network effects that allow users to interact and transact with one another, in a secure, trustworthy environment.

A brief history of platforms in trading

So far, so theoretical! Let’s look at this in practice, in the real world of financial markets. At the very outset of banking as we know it, the “platform” on which transactions were executed consisted of a merchant sitting on a bench, making two-way prices and offering financing in a (literal) marketplace.

Modern trading venues and exchanges are platforms on which multiple market participants meet, interact and execute with one another. These platforms, such as Bloomberg, Tradeweb and FXAll, provide a high-regulated, secure, resilient environment, with rules and on-boarding processes that instil trust in their user base. There are hundreds of such platforms globally.

New entrants to the market – regardless of whether they are asset managers, liquidity providers or brokers – must on-board to a plethora of disparate platforms in order to create sufficient presence and to guarantee market access. In the worst case, a new market participant might need to build dozens of FIX and other API connections to these venues – a high barrier to entry. The alternative would be to use an intermediary, an equally unpalatable solution for most, due to the erosion of margins and potential latency impacts.

As the market evolved, enterprising technologists began to build solutions to these problems. Some offered a one-stop shop for market connectivity, via gateway products that could interface to a firm’s in-house trading system. This was a step forward, but still posed challenges around upgrades to interfaces as a result of new regulatory requirements or enhancements to trading protocols, which still required in-house integration development and testing work.

The rise and rise of the platform-as-infrastructure

Software as a Service (SaaS) was the next logical step. Delivering software on a per-user basis, these solutions are scalable, cost-efficient, and best of all, don’t require internal upgrades every time new functionality is deployed. This also marked the migration of the “platform as a single port of access” to the user’s desktop. In 2018, 81% of buy-side firms were using third party order management systems (source: Greenwich Associates) – provided on a SaaS basis.

Fast forward to 2020, and the rise to prominence of cloud technology, big data, and artificial intelligence / machine learning. As IT infrastructure has become more and more of a commodity, CIOs have shifted their attention toward finding services that enable them to plan, procure, and orchestrate cloud services from multiple vendors, across a mixture of public and private clouds, from a single pane of glass.

That is, CIOs are increasingly looking for a single point of access to an entire ecosystem of vendors, service providers and other market participants: a platform, if you will! And in an ideal world, this platform needs to allow seamless integration and interoperability of multiple technology paradigms, not just access to the latest cloud and SaaS offerings. Market participants demand agility – the ability to integrate high-touch and low-touch trading strategies, reach counterparties rapidly, and access diverse sources of liquidity globally. These are tricky requirements to balance, in a tough commercial environment. Balancing the status quo with access to the latest technology infrastructure, and business-as-usual with genuinely disruptive innovation, is a challenge for any CIO.

And the answer is…

So here’s the crux of the challenge: where can you find a single platform that provides access not only to existing markets and counterparties, in all the asset classes in which your firm currently trades, via all the channels that your sales and trading teams currently rely on, but also to new asset classes, and to all the emergent technologies and data sources that you need in order to build out your AI and algorithms, or to drive your intelligent automation projects?

This is the platform that we provide at IPC. Our technology infrastructure powers a multi-modal platform and unparalleled community that together provide a comprehensive solution for end-to-end connectivity, facilitating secure information flow to financial customers globally. IPC’s commercial and technical flexibility allows the customer many options to connect and consume services, whether on premise or via private, public or hybrid cloud delivery. And our diverse global ecosystem enables a unique, unified industry solution for interconnecting counterparties and empowering direct end-user accessibility.

Our platform builds communities

Our aim is to seamlessly interconnect the global financial community, providing world-wide access to all markets, participants, applications and content sets across a seamless cloud and enterprise-based delivery platform. To do this, we recognise the need to be open, open in our thinking and open in our architecture. We value the idea of working together with our customers, whether they be exchanges, vendors or fintechs. We are open to innovation and open to supporting innovation, as we support the development of communities around brand new asset classes and emerging technology paradigms.

At IPC, we understand the power of community and the core role of the platform in facilitating communities within our ecosystem. Our mindset is to be the connector, and to help clients do their business better, by bringing them access to the wider community. As a firm that has been operating in this space for over 50 years, connecting people and connecting opportunities is in our DNA. It’s our signature, our claim.

 © 2020 IPC Systems, Inc. All Rights Reserved. The contents of this publication are intended for general information purposes only and should not be construed as legal or regulatory advice.