A tech-driven future in financial markets
Just over 20 years ago, in our market’s continuous search for efficiency, the electronic trading model used globally in Equities found support amongst the Fixed Income community. Australia was an early adopter and so started the evolution that would streamline trading behaviours and processes.
It was very much evolution as opposed to revolution where often an “event” is required to supercharge it. In Australia, as with most developed global markets, the catalyst was the GFC, but the effects took a few more years to be felt here than in the UK/Europe and the US. Regardless, the foresight shown by a group of banks to start Yieldbroker, shows a willingness to embrace change and stay ahead of the curve.
The barriers we faced
As with the period that precedes new technology, there were certain barriers that hindered electronic trading from progressing in Australia 20 years ago. The first was securing funding for technology development and investment. This is no easy task, yet the banks were quick to commit.
Next, came the actual development of the technology itself. We had examples of what was available in other asset classes such as equities, but Fixed Income was/is a very different animal as well as being over-the-counter. So, if we were going to build something for the Australian market that was to get “take-up”, the technology must be developed from scratch.
And then there were bigger picture challenges to bridge – even if the technology was available and tangible, how could we connect to all the clients electronically? What were the implications from a regulatory perspective, and how could we navigate them while future-proofing ourselves?
Perhaps most importantly, people have a very well documented and natural resistance to major change. Whatever sort of pushback you’d expect to get in any industry facing disruption, you could be sure to double or triple it where the whole nature of the [trade] service model was up for change.
A recurring theme throughout any of the previous industrial revolutions is the concern that increasing mechanisation, automation and general technological advancement in work will replace people. But just as the steam engine improved commercial trade, and machinery changed the production line, digitising our financial markets has ultimately led to higher quality relationships and benefits for the industry.
Increasing transparency and changing human relationships
Administrative errors and operational risk were just some of the symptoms of manual trading. A dealer’s ability to get multiple prices quickly – and deal confidently as a result – was largely dependent on the telephone and personal relationships. For investors it was even more difficult and to compensate, they would have to ask a larger number of liquidity providers for pricing.
Improving connectivity and efficiency was, and still is, a major motivation for electronic trading companies like Yieldbroker; businesses seek to reduce friction in the trading process by becoming better connectors, both on price discovery and post-trade services.
But digitising our financial markets has changed the nature of the people relationships that once used to power the exchange of information in our industry. This level of change is difficult to adjust to, even though it’s brought about many positives.
It’s enabled sales people to engage with their clients on things that really matter – new and ongoing developments in the marketplace, and views and insights on trends. It’s these qualitative discussions that keep the client informed and abreast of the market. Likewise, it’s allowed portfolio managers and execution desks to focus on what they do best strategically, rather than get caught up in the minutiae of the transaction and manually satisfying their regulatory obligations.
Regulation and technology advancements
A major driver of the growth in platforms has been the ability to provide a tech solution to ever increasing regulatory demands. Whether it be driven by audit, behavioural or other requirements, an electronic solution provides peace of mind that a company’s obligations are being satisfied.
This has absolutely been the experience in jurisdictions such as Europe where the implementation of MiFID II reporting has had a significant impact. Whilst initially seen as onerous, it does help ensure a more transparent market for investors and market makers alike. In adoption, both user groups can be far more confident they’re not breaching their responsibilities. Furthermore, via the enhanced capacity for data collection, they gain far better understanding of the make-up of their respective business.
At Yieldbroker, historical trading data can be used to do anything from tracking relative performance of various organisations to optimising the whole trading process. The data can be used as a predictor of future investment performance or in optimising the use of one market maker over another for a certain type of trade. This works to all parties’ benefit in the long run, actually building trust.
A tech-driven future
Continuous innovation - particularly in how we use our data - is key to speeding up execution and reducing costs in financial markets in the future. Electronic trading platforms can capture accurate and timely data in a way that far outweighs any prior medium, and as technology becomes more sophisticated, so will the types of available data and how we use it as an industry.
For example, voice technology is being used to help financial institutions harvest their audio streams as structured text data to enhance front, middle and back-office workflows. Besides enhancing the efficiency of electronic trading systems, these audio streams can be stored for compliance requirements, or turned into a data stream that supports real-time analytics. To that end, algorithmic trading is becoming more prevalent with the overlay of data on the trading decision becoming de rigueur.
To enable firms to keep up, we too must evolve. That is why our major focus this year is to revamp our technology, rebuilding our platform to enable more bespoke functionality. The aim is to drive even greater efficiency in our business and enable us to better deliver trading methodologies in an electronic setting. An added benefit is enabling powerful data storage and analytics that helps our customers make better decisions faster.
Going forward, knowing what we know
As a technology business, Yieldbroker is working continually towards improving the technology that helps our customers do their jobs better. It’s not just about connecting them to the liquidity and efficiency they need, but more so, reducing the manual wrangling pre- and post-trade so they can focus on the strategic and creative - or human - aspects of their jobs.
We’ve always worked in close collaboration with our clients to develop solutions that are relevant and useful. And as technology continues to play a central role in how the market place works together, our goal is to ensure that all market participants are connected to the right solutions to become more informed and in control of their decisions.
With decades of experience building Australia’s electronic markets, we’re always happy to talk to you about getting that edge. Ask us about how we can help you improve your trading experience. Contact us today.
Anthony Robson, CEO Yieldbroker