Identifying tomorrow’s problems today

As traders and asset man­agers start­ed work­ing from home ear­ly on in the coro­n­avirus pan­dem­ic, dif­fi­cul­ties began to emerge. In March, a Bloomberg report high­light­ed the issues in inter­views with bond traders from Colum­bia Thread­nee­dle and Thorn­burg Invest­ment Man­age­ment. 

The traders flagged how fixed-income trad­ing had been dis­rupt­ed by home work­ing because price for­ma­tion was so much slow­er.

It soon became clear that while banks and asset man­agers had been focused on dis­as­ter recov­ery sites to pro­tect against their main office ever being com­pro­mised, they had not fore­seen a sce­nario where work­ing from any site would be a prob­lem. It was what tech­nol­o­gists call a sin­gle point of fail­ure, or SPOF.

“Buy-side and sell-side insti­tu­tions were fac­ing an unprece­dent­ed sce­nario,” says Philippe Dudon, chief oper­at­ing offi­cer at deriv­a­tives plat­form Trad‑X.

“Pre­vi­ous­ly, work­ing remote­ly from home was seen as a last resort. Many banks had back-up offices set up, but peo­ple had to change the way they worked almost overnight. This shift in prac­tices nat­u­ral­ly had an impact on how trad­ing was con­duct­ed in the ear­ly weeks.”

Chris Walsh, chief exec­u­tive at Aca­di­a­Soft, agrees. “Traders had to adapt quick­ly,” he says. “Both buy and sell-side firms made dras­tic changes and had to adapt to brand-new ways of remote work­ing.”

Adapt they did. Research con­duct­ed by J.P. Mor­gan, report­ed in the Finan­cial Times, shows how the trad­ing of US Trea­suries changed as a result of the cri­sis. In the two years pri­or to the pan­dem­ic, only 50 per cent of trad­ing in this mar­ket had been exe­cut­ed elec­tron­i­cal­ly. But by June 2020, this soared to 77 per cent.

Identifying future issues

Months on from the ini­tial coro­n­avirus out­break, organ­i­sa­tions are evolv­ing their approach to iden­ti­fy future SPOFs. Finan­cial tech­nol­o­gy experts say broad­en­ing cyber­se­cu­ri­ty perime­ters may be a rel­a­tive­ly easy prob­lem to solve, but man­ag­ing oth­er oper­a­tional risks will need ded­i­cat­ed resources and plan­ning.

“Oper­a­tional risk will be min­imised through invest­ments in greater resilien­cy and scal­a­bil­i­ty,” says Walsh. “Finan­cial busi­ness­es will be under increased pres­sure to reduce costs and use mutu­alised ser­vices or plat­forms that can usu­al­ly assist in this goal.

“With video con­fer­enc­ing now becom­ing main­stream and mis­sion crit­i­cal, the capa­bil­i­ties will need to become more wide­ly and more seam­less­ly inte­grat­ed with apps to make work­flows more inter­ac­tive between users. This may cause some chal­lenges with inter­op­er­abil­i­ty between plat­forms, but tech­nol­o­gy will have to adapt.”

Workflows are key

Adam Toms, for­mer glob­al head of elec­tron­ic trad­ing at Nomu­ra turned chief exec­u­tive at Open­Fin Europe, explains that finan­cial insti­tu­tions will need to look close­ly at work­flows to iden­ti­fy poten­tial weak­ness­es.

“A com­mon chal­lenge has been the phys­i­cal work­space mov­ing from six screens to two,” he says. “With this comes the need to incor­po­rate all the desk­top appli­ca­tions nec­es­sary for a trader’s work­flow. How can they access these tech­nolo­gies, take advan­tage of the prob­lems they solve and put them to good use, while min­imis­ing the screen real estate they con­sume?”

Toms says com­pa­nies have realised the need for con­tex­tu­al work­flows, which link appli­ca­tions togeth­er dynam­i­cal­ly.  “Appli­ca­tion inter­op­er­abil­i­ty is a key focus for the mar­ket­place right now,” he says.

While tech­nol­o­gy can improve process­es, it also needs to be suf­fi­cient­ly robust, acces­si­ble and flex­i­ble for the demands of the work­force. The pan­dem­ic high­light­ed that some traders were unable to use sys­tems as they nor­mal­ly would do because they were work­ing remote­ly.

Reach for the cloud

To pre­vent sys­tem fail­ures in the future, some answers may lie in mak­ing bet­ter use of the cloud, says AcadiaSoft’s Walsh.

“Firms will be increas­ing­ly reliant on cloud apps to pro­vide work­forces with access to appli­ca­tions from remote loca­tions,” he says. “This will also ensure reg­u­lar sys­tem upgrades with­out the need for heavy-duty main­te­nance or dis­rup­tion to ser­vice. At the same time, secure elec­tron­ic autho­ri­sa­tion rather than wet sig­na­tures will become the stan­dard and replace the need for paper sig­na­tures.”

Of course, while look­ing for pos­si­ble chinks in their armour, firms will need to con­sid­er whether they have the tools and automa­tion in place to improve oper­a­tional effi­cien­cy con­tin­u­al­ly.

Firms will be increas­ing­ly reliant on cloud apps to pro­vide work­forces with access to appli­ca­tions from remote loca­tions

“Access to real-time data to view, under­stand and cor­rect errors and inef­fi­cien­cies with­in the trade life cycle will be cru­cial,” says Walsh. “Cre­at­ing indus­try-wide stan­dard­ised process­es wher­ev­er pos­si­ble is even more impor­tant in a remote envi­ron­ment where man­u­al meth­ods are dif­fi­cult or in some cas­es impos­si­ble to per­form.”

To find out more, read Resilience in Finan­cial Ser­vices

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