We are a few weeks into the New Year and we’ve seen Brexit come into full force and a new president take the helm in the United States—and still, the Earth keeps spinning. And isn’t that the nature of innovation? You may long for the days of closed-off hardware platforms or of open-outcry trading pits, but technology does not stop iterating and improving, no matter the day-to-day events that stem from politics.

Anyway, that ramp up was just a way to preview what I’ll be writing about this week—interoperability and exchange trading technologies…naturally!

Interop in 2021

At the beginning of January, I used this space to take a look back at some of the major application interoperability projects that took place in 2020. For this week’s column, let’s take a look at what needs to happen in 2021 to help this trend strengthen its roots and expand in the capital markets.

Now, normally I use this post to give my thoughts and opinions on various subjects—and interoperability has clearly been my favorite to discuss. But this week, I’m ceding control to let some actual experts—Mazy Dar (OpenFin) and Dan Schleifer (Cosaic)—discuss where the industry is heading.

Obviously, the key thing that needs to happen this year is to bring more people into the big tent. The danger for the interoperability movement is calcification, where banks, asset managers, and vendors fall into the so-called trough of disillusionment. Right now, everyone appears to be playing nice with one another, and it would seem that the pandemic did not set back interop projects significantly. But as interop champions leave organizations and as pressing needs around remote work demand more attention, it’s easy for firms to lose focus of these important-but-complex overhauls.

For Dar, the main focus is getting more major firms involved and to embrace the Financial Desktop Connectivity and Collaboration Consortium’s standards. FDC3 was founded in 2017 by OpenFin and contributed to by open-source foundation Finos. Members include JP Morgan, Refinitiv, FactSet, IHS Markit, and many others. While progress has been made, the industry is not where it needs to be from a “tipping point” perspective.

“I think as an industry, we were probably expecting to be further along by now,” Dar says. “We made a lot of progress [in 2020], but there’s still a ton more to do. Once you have that critical mass of apps, it helps everybody to prioritize.”

He says that capital markets firms understand the need for app interoperability, it’s that prioritization needs to become more important. The more firms that push forward with their interoperability efforts, it will put pressure on other vendors, banks, and buy-side firms to plug away or risk falling behind. While everyone wants to work on these initiatives, it’s a matter of prioritization. Right now, Dar says, firms are doing well when it comes to building interoperability between internal systems, but that next big step is working on inter-firm interoperability.

Another major issue that needs to be addressed is that while the interoperability standards around FDC3 are in place and improving—essentially, the foundation is set—some of the more real-world, in-the-thick-of-it complexities need to be ironed out.

So, take for example the idea of data leakage and security. Internal apps are able to talk to one another and they can also talk with external apps—and that’s the end-state goal, right? But, there’s information that is being transferred that is sometimes sensitive. Firms do not want external apps to know what their internal traders or portfolio managers are clicking on in every instance. So while the basics of interoperability are relatively straight forward, once you make those interactions more complex and wide reaching—which has to happen in order to get true interoperability throughout the industry and make these earlier efforts all worthwhile—then firms need to start to focus in on the complexities. Again, it’s a matter of prioritization.

“The concept of interoperability is simple and intuitive; it’s when you get into the implementation and some of those details that there’s complexities, and different individuals at different firms have different opinions about these things,” Dar says. “That’s where we’re in the middle of lots of these conversations trying to figure out how we can make it all work well together, and also how we accelerate the pace of getting all of the apps properly integrated.”

Cosaic’s Schleifer builds on that theme, saying that this year, security will come to the forefront for firms working on interoperability. While it’s important for apps to talk to one another, restricting which apps can talk to each other, what commands and data they can send, and how their integrity is verified, that will is becoming critically important. “Policy-based security controls, centralized logging and auditing, and third-party validation—such as pen tests and code reviews—all become top of mind for IT departments,” he says.

Schleifer adds that end-user firms are expecting all new vendors that they onboard—and even their existing vendors—to support basic FDC3 interoperability. Again, as more firms embrace the standards set out by FDC3, moving from a legacy container to an advanced smart desktop platform becomes much easier, which will allow trading firms to choose so-called best-of-breed platforms, Schleifer says.

He adds, though, that basic interop isn’t enough—creating custom workflows will take on greater importance for users in 2021.

“Within our client base, we’ve seen that once users see that their applications can talk together, they start to get creative designing custom workflows,” he says. “Rarely are processes in capital markets as simple as sending a security or entity identifier—they’re complex, multi-step processes involving multiple applications, business logic, and user interaction. Business and technology teams will closely collaborate and quickly iterate on time-saving workflow designs, with quantifiable ROI.”

• Read more: This week, we wrote about how Pictet Asset Management has been working with Cosaic for a bit over a year, and has used Finsemble to automate heavy workflows in FX pricing, money market yields, and credit. Click here to read more.

And he notes that workflows extend beyond the desktop. “Most workflows don’t start and end with a single person; they extend from front to middle office, or from the buy side to the sell side,” he says. “Interoperability can do the same—extending workflows to multiple people or even firms, using networks like Symphony or Bloomberg Enterprise IB Chat.”

I asked these two gentlemen for their thoughts on interoperability going into 2020, and even despite the tumult unleashed by Covid-19, they were fairly spot on. We’ll check back in at the end of 2021 to see just how accurate their opinions and predications were.

Silencing Open-Outcry Pits

I think that my greatest regret—as it pertains to covering the world of financial technology, anyway—is that I never had a chance to sit in the middle of the Chicago or New York mercantile exchanges’ pits during their heydays.

Many years ago, I flew out to Tokyo to interview Yoshinori Suzuki, who was then the chief information officer of Japan Exchange Group. He gave me a tour of the old Tokyo Stock Exchange building, including the “trading floor”, which consisted of a few maintenance personnel making sure nothing was out of whack. The silence throughout the building was deafening.

A couple weeks after I returned state side, I was in Chicago having lunch with David Downey, the CEO of the now-defunct OneChicago exchange. We were at a bar down the street from the CME, and I was telling him about how JPX felt a bit somber, as there were a precious-few humans walking the halls and floors. He then proceeded to regale me with tales of the CME Pit and how the traders would come to the bar we were at to…unwind.

I believe that this is where I’m supposed to write something about “it’s a bygone era”. I mean, it is. I remember when I went to the New York Stock Exchange to interview Stacey Cunningham in 2019—how you liking this next-level name-dropping?!—and she talked about the importance of having actual humans on the trading floor, but there’s no way to compare today’s NYSE trading floor with that of the 20^th century. And, as Max Bowie noted last year, the pandemic only made it more clear just how antiquated proper trading floors have become in the technological, cloud-driven world that we now live in.

Anyway, I bring this up because the London Metal Exchange (LME) published a discussion paper that proposed shutting down its “Ring” open-outcry trading floor, where commodities trading has been conducted in-person since 1877.

This announcement set forth a flurry of stories about the closing of trading floors around the globe. But, it makes sense to get rid of the LME’s famed ring-shaped pit. As Josephine Gallagher reported, this proposal was created not just because of a years-long trend and Covid disruption—the company has invested heavily in technology and improving its trading technology. Prior to the proposed Ring closure, the LME’s head of market development, Robin Martin, spoke to Jo about how the exchange has spent the last 24 months upgrading its futures trading platform, LMEselect. This isn’t a knee-jerk reaction—it’s simply evolution.

Say it with me now, all at once: EXCHANGES ARE TECHNOLOGY COMPANIES. Those that embrace this fact, will be the acquirer. Those that do not embrace this fact, will be the acquiree…or worse. Hell, even those that do embrace this fact could one day be acquired simply to help a dinosaur play catchup. And make no mistake about it—technology will make dinosaurs of all of us. (You think there’s a lot of job security in journalism? Shiiiiiiiiiiiiiiiiit.)

Finally, one last major regret: Max said that the headline for the LME story should’ve been, “‘Lord of the Ring’ No More”, and he’s right, it should’ve been that. Regrets, I’ve had a few.

The image at the top of the page is “The Colza (Harvesting Rapeseed)” by Jules Breton, courtesy of The National Gallery of Art.