As regular readers of this column are well aware, I think that there’s a growing belief in application interoperability as being essential to product development. And it’s this belief that is underpinning the evolutions that we’re seeing in the world of financial technology. One of the main challenges to app interop, though, is that it takes on different shapes and shades, which makes for strange bedfellows.

Earlier today, we published an examination of OpenFin’s involvement in the set of standards it helped birth: FDC3. The tl;dr of it is this: OpenFin and its CEO, Mazy Dar, are still very much public proponents of FDC3, though sources have told our Reb Natale that there’s a concern among industry participants that they are giving up on the idea of FDC3 as an industry-led, open-source initiative. Again, while Dar refutes this, these sources point to the release of its latest offering, Workspace and its recently canceled Finos membership, as proof that it’s going in a different direction.

The fact is that for this sort of open-source interoperability to work, it requires vendors and banks to work together in good faith. As a result, it creates this awkward environment where the main vendors in the app interop space—OpenFin, Cosaic, and Glue42—are working together, but they are also competing against one another. And the same is true of banks, which love a consortium when it serves their needs, but after a while they often like to go off on their own because they think they can do it bigger, better, and faster.

We’ve written a lot about specific app interoperability projects underway in the capital markets and how vendors in the space are evolving their offerings. We’re going to keep on doing that because these projects will serve as the foundation of what the trading ecosystem of tomorrow will look like. But from time to time, it’s also important to take a look at the relationships in the space because true adoption of this form of interop requires vendors and banks with varied economic desires to put aside their differences.

I have a ton of respect for Mazy and what he and his team have built at OpenFin, and for his championing of interoperability and open-source. Quite frankly, if it wasn’t for his efforts, I wouldn’t be writing so much about this subject. So when he says that he is still a supporter of FDC3 and, by extension, Finos, I absolutely take him at his word.

The way that I view this article that we published today is that it’s something of a State of the Union for FDC3 and app interop. There are concerns that have been made public, and there’s plenty of it—and I could use other words—expressed behind closed doors. Hopefully this article helps to set the record straight for those who care about this space.

Have thoughts on the article, interop, or anything in between, I’d love to hear them: anthony.malakian@infopro-digital.com.

‘Exponential technologies’

In December, Likhit Wagle, general manager of IBM’s Banking & Financial Markets unit, spoke with Wei-Shen Wong on the Waters Wavelength Podcast. The conversation centered around—as you might expect—the public cloud and the challenges and opportunities therein. I found the conversation to be incredibly informative and since then I’ve wanted to talk to him. Well, I recently had that opportunity.

As you can read here, we talked about the changing nature of trading, specifically around how the pandemic showed that decentralized trading can work. In fact, he believes that decentralized trading is inevitable. Click on that link to see why he thinks that and how that belief plays into IBM’s new Cloud Satellite offering. For this column, though, I’d like to talk more about the tech advancements and philosophical reasons behind Wagle’s opinions.

First, it’s important to note that for Wagle, “decentralized” does not mean every trader working remotely from their own home. Rather, he compares it to a hub-and-spoke model, where a bank’s headquarters is still in a major trading center, but where the bank creates “a single-digit” number of new locations in less traditional locations. 

Now let’s look at the tech. In a recent report titled “The Future of Trading Floors”, IBM talked the advancement of “exponential technologies” as being a key driving force toward a decentralized future. When I asked Wagle to define what that term means, he broke it down into a handful of parts.

“Probably the most important one is AI,” he said. As more data is needed to find unique trading insights that deliver alpha, you need AI—and, specifically, machine learning—“to sift through reams and reams and reams of information to come up with conclusions quickly.”

Then there’s cloud—and, specifically, public cloud—with which capital markets firms are becoming increasingly comfortable.

After that, you can look at the progress being made in surveillance, encryption, and cyber defense. When it came to monitoring for illegal trader behavior or the need to protect sensitive documents in the past, he noted that solutions had been deployed in “exclusively a centralized way, but now it’s possible to do that in a very decentralized way.”

It’s important to remember that IBM has a dog in each of these fights, as it’s a leader in cloud, AI, and surveillance and encryption. But…does that mean Wagle is wrong? You might not use IBM for cloud, AI, or surveillance, but that undoubtedly is where a lot of the tech expenditures at the banks, exchanges, asset managers, and vendors are going.

Cloud makes it easier to store and process vast quantities of data at a time when trading firms cannot get enough data to analyze. As Wagle says, if you actually want to do something with that data, you need machine learning, natural language processing, and other forms of AI to find correlations and extract pertinent information quickly. And if you want to be able to work more remotely and with more flexibility, you need good surveillance and encryption tools.

Actually, if this is all starting to sound a bit familiar, it’s because these are some of the themes that are driving the interoperability movement. So I asked him about whether or not he thought interop was as transformative as I believe it to be:

“In the capital markets, in a funny kind of way, what the pandemic has done is actually slowed down the transformation of the industry. If I look at the consumer or retail banking industry, they are really accelerating to become digital businesses because they are facing massive threats from Big Tech companies like the PayPals, the Squares, and the Stripes,” he said.

Business was good for trading firms as a result of increased volatility, but those returns aren’t sustainable. “I think the super profits that they’ve got from the very unusual levels of trading activity has postponed that a little bit—it’s hiding the fact that they have a fundamental problem, and it’s going to come back.”

He says that trading firms will need to cut about 35-40% out of its cost base as trading activities return to normal in order to stay ahead of capital requirements. That will, in turn, push them further toward as-a-service tools and managed service offerings.

Now, the question becomes this: Will it be your traditional software providers leading the charge and proactively helping trading firms to use these “exponential technologies,” or will it be the more nimble fintech startup community that provides the disruption?

“It would not surprise me at all if you got a lot of fintech activity in that space to make that interoperability possible. There’s a wall of money-seeking opportunities that [the banks] can actually fund.”

Again…I don’t think he’s wrong. What do you think: anthony.malakian@infopro-digital.com.

The image at the top of the page is “Fighting Horses” by Théodore Géricault, courtesy of the Cleveland Museum of Art’s open-access program.