With Kieran Fitzpatrick, Head of FX at Broadway Technology, Eugene Markman, Vice President of Finance and Operations at MarketFactory, Annalisa Sarasini, Chief Business Development Officer, smartTrade Technologies and Fabrice Benouaich Director, Business Performance & Insight at Finastra.
What is XaaS and what factors have made it possible?
KF: XaaS or Everything as a Service is simply a flexible consumption model for technology. We’ve become familiar with Software (SaaS), Infrastructure (IaaS) and Platform (PaaS). Everything as a Service (XaaS) is a truly flexible, usage based, on-demand model for the provision of both products and services.
Key factors that have made XaaS possible include:
- The ubiquity and capabilities of Cloud Computing
- The wide-spread adoption of Agile and Dev/Ops practices
- Growing regulatory acceptance of Cloud
EM: XaaS is the ability to provide any service (Software , Hosting, Hardware etc) and charge for it on a subscription basis, so in principal leasing the service. The factors that have made it possible is achieving scale and leverage through technology.
AS: XaaS or Everything as a Service has been driven by more commoditized and cost-efficient technology combined with the increased trust and acceptance of cloud services.
What are the key benefits of XaaS?
KF: The major benefit of XaaS is operational efficiency. Rather than traditional up-front capital expenditure, products and services can be paid for on a usage basis. Opaque internal charge-back systems often make it difficult for business leaders to gauge their true cost of technology. XaaS allows for a more transparent and efficient operational model.
Business agility is another key benefit of XaaS. Technology teams and vendors can bring new products and services to market much more quickly.
Scaling on demand removes the time to procure and commission hardware. The same solution or additional capacity can be spun up in the cloud in minutes.
EM: The benefits of XaaS is that a client is able to purchase a solution and a rental cost which he can pay over time. The cost is fixed and contracted. The vendor has the benefit of having a contracted fixed revenue allowing them to plan much easier.
AS: Our clients say that being able to do more with less and focus on their business while smartTrade takes care of the technology and infrastructure is key. This translates into reduced total cost of ownership while reducing time to market combined with enhanced reliability and scalability.
FB: Multiple benefits come with XaaS. For example:
- No need for extensive up front capital expenditure in related IT infrastructure and staff.
- Offers fast set up and deployment by pre-installing and preconfiguring the solution in the cloud, hence avoiding classical delays usually resulting from software deployment.
- Simple upgrades supported by the XaaS provider who manages hardware and software updates and hence removes workload from the client.
- Enhanced accessibility as all what is needed is an internet connection
- Enhanced Scalability as XaaS usually offers much more flexibility to allow your business to grow
- Access to recent and up to date technology along with associated professional support, hence lowering operating risks and ensuring reliability, quality and performance.
Is this type of delivery model going to be become more attractive for FX market participants and if so why?
KF: This type of delivery model will become more attractive as market participants strive to manage costs. As budgets come under continued pressure, XaaS offers a more capital efficient and reduced cost operating model.
Innovation will also be key for those banks who seek to differentiate their offering and build more sustainable businesses. XaaS allows FX market participants to experiment with new offerings and more quickly and effectively bring new ideas to market.
EM: This model is becoming more attractive in FX. Vendors and ECNs have started to charge fixed fees for connecting to them to offset some of the risk of volume volatility. Traders like the fixed cost because it allows them to plan vs having their spend increase exponentially when volumes increase.
AS: FX market players feel the pressure to do more with less, go to market quickly without large in-house IT teams, and deliver innovative services/functionalities quickly to retain clients as well as comply to regulations. Being more cost-effective and agile is the name of the game. Our platform allows clients to leverage a solid technology stack and focus on their business, without having to worry about technology.
FB: Definitely it will. FX market participants operate in an increasing demanding business environment within a challenging macroeconomic environment:
- supporting regulatory changes in order to ensure risk reduction in financial markets, and to bring more clarity and protection to investors
- competing with multiple low costs asset management models
- multiple needs of restructuring referring to counterparties
- This all results in firms needing to quickly reshape the way revenues are generated.
Colossal efforts are thus being made by FX trading firms in order to cut down structural cost, to get rid of needless expenditure or infrastructure. The ultimate goal being put on delivering essential business related offerings along with global improvement for client engagement.
Hence, as being forced to change, a growing number of FX market participants choose to leverage multiple as a Service models (XaaS) providers over the cloud in order to benefit from a reasonably cheap infrastructure which offers scalability and safety.
What specific Software, Connectivity and Infrastructure as a service are they looking for and how is demand varying between sell and buyside players?
KF: For Sell and Buy-side participants, much of the trading and risk management stack is already available on a SaaS model already. Full stack solutions or best-of-breed component solutions such as Aggregation, Pricing and Order Management are in demand across both Sell and Buy side. Connectivity as a Service – co-located connection services with cross-connects - seems to grow increasingly commoditised. Banks and buy-side firms are also already heavy users of IaaS.
EM: Both sellside and buyside are now looking to fully outsource their solutions from connectivity to pricing engines, etc. The demand is even and similar on both the sellside and buyside.
AS: Everyone looks for low latency connectivity, aggregation, smart order routing, big data and analytics.The sell-side goes beyond that, we see most of our clients and prospects looking for a full end-to-end solution including connectivity, aggregation, SOR, OMS, distribution, risk management. While buy-side clients want an EMS, and OMS if they don’t have anything in place yet.
FB: Buyside players are much more prone to using IT service based models (instead of in-house built technology). Hosting services is the preferred choice for supporting most of their systems (e.g trade management systems, or trading systems). Most latency-sensitive buyside firms are searching for very fast connectivity and ultra performant data storage. Other buy side firms prefer to work over public cloud, hence avoiding the costs related to internal cloud management, and leveraging more costs reduction possibilities.
Sell side players are definitely more risk sensitive, and decide in most of the cases to fully control their environment. Those prefer to adopt an hybrid model (leveraging private clouds for sensitive resources, and public cloud for less critical, strategical, or less confidential matters (testing as an example).
What other forms of XaaS could be utilised by FX? For example Disaster Recovery as a service or Regulatory Compliance as a service etc?
KF: Regulatory Compliance seems a strong candidate for a Service type model – clear requirements that are non-differentiating. Distributed ledger based solutions offer the ultimate XaaS advantage – ultimately replacing entire middle and back office functions.
EM: Disaster Recovery, KYC, Regulatory, Trade Capture, Risk, Trade Processing, TCA, trade matching, trade netting, clearing, credit allocation, credit utilization, credit monitoring, service monitoring, accounting.
AS:We already offer Disaster Recovery to clients as well as multi-centre deployments where multiple sites are live at the same time in different FX hubs. Then compliance and analytics which normally require lots of storage (ie tick data) and computing power. We have seen increasing demand for reports on LPs, clients, performance, best execution, etc.
FB: Trading Technology as a Service is an example which aims to provide:
- Efficient and intelligent trading platforms offering improved and clearer access to FX liquidity
- Development/extension of asset classes
- Accesses to new services and applications via new technologies offered in the cloud
- Sophisticated APIs for developers offering accesses to very restricted infrastructures, allowing seamless management as a service on connectivity and market infrastructures.
- Statistical tools for allowing firms to check multiple factors on a daily basis (trades, fill rates, liquidity, latency etc.).
- pricing engines and pricing distribution as a Service (leveraged by a growing number of institutional firms).
Market data as Service is another example. Suppliers collect pertinent data (market data or reference data) via direct links on multiple sources (exchanges, venues, data vendor). Whole information amassed is processed (restructured, completed etc.), then made available for distribution to market participants over the cloud.
Are there some processes within FX trading that can’t benefit from or are unlikely to be deployed via XaaS?
KF: Low latency / high-frequency applications remain outside the XaaS sweet spot. There remains a reluctance to store very sensitive client information outside the firm’s control. Indeed, there are jurisdictions where cloud computing usage remain highly restricted.
AS: Storage and access to client data are extremely sensitive and we have seen very stringent requirements, especially within our Switzerland based clients. By working with them we now offer a solution that allows client data to stay on the client side so the hosted part doesn’t have access to that data.
What risks are associated with these type of delivery models?
KF: High availability and redundant capabilities must be a given. It’s vital that firms have appropriate controls in place to manage service-based delivery models.
AS: One of the biggest risks is if a provider doesn’t own the full technology stack as the dependency on 3rd parties can be lethal if things go wrong. For this reason, we own and manage the full stack, we do not use any 3rd parties other than renting cabinets at various data centres and we are also SOC2 Type 2 certified.
FB: Expending operations into the cloud, means transferring more and more infrastructure and applications to the corresponding hosting third party. As a result many firms may risk exceeding reliance on their provider and be subject to additional operational complications during their provider’s policies change, or structural change.
Lack of alignments between standards among different public cloud providers can also bring much complexity for managing multiple resources available through several providers.
Finally organizational changes induced when shifting to a cloud based approach may trigger some reluctance within the existing organization which should be considered in order to ensure this major change.
What factors should influence a trading firm’s choice of provider?
KF: When selecting a provider, trading firms should look to partners with a proven track-record of designing, implementing and managing service-based solutions. Does the firm “eat its own dog food?” External certification, such as SOC 2, provides increased assurance as to the firm’s capabilities.
EM: Trading firms should make sure their vendor’s goals and roadmap is aligned with their plans. SaaS firms do not create custom software but leverage software built for the client community.
AS: Obvious ones such as having a solid track record of successfully providing similar solutions for a significant number of years as well as follow the sun support and presence in all main financial hubs. And then references, being able to talk to existing clients that have been using the solution and independent certifications such as SOC2.
FB: Partners must have a mandatory security framework implemented in order to fit with financial activity field’s hardened requirements focused around customer data confidentiality.
Trading firms have also to verify the flexibility level offered on the provider side in order to address infrastructure/application customization.
Trading firms also neec to clarify accurately the risk-liability sharing with the provider
Finally trading firms need to verify that a provider could offer multiple possibilities referring to data localization across borders.
Certifications are also important for respected cloud providers e.g SOC1&2 or ISAE 3402.