Pinstriped suits in the boardroom vs. skinny jeans on a beanbag. One would think the trendy techies of Silicon Valley and city slickers of Wall Street have very little in common. So why, with the two culturally worlds apart, are we seeing some of the best and the brightest tech minds across investment banking seek inspiration from the likes of Facebook and Google?
For a while now, technology goliaths have been trying to solve underlying technology problems centred around scale—as more people continue to buy and sell online. Understandably, major financial institutions have looked at the vast infrastructure underpinning the Facebook and Google and thought: “we can learn from this!” Unfortunately, it is not that simple.
With millions of users browsing the web every day, it is not a financial catastrophe if Facebook fails to load ‘more posts’. In contrast, a transaction failing could cost the financial market in millions. These days, with electronic market makers ruling the roost, real-time is now essential. of the essence. When traders’ click on buy, that is the exact price they want to execute at. A millisecond later that price could have moved in the wrong direction. Therefore, unlike the tech behemoths concerned with scaling up to meet customer demand, in financial markets the primary focus should be around consistently maintaining flawless accuracy in a short and predictable time period.
Unfortunately, until now, banks have been more focused on updating their trading platforms to handle volumes. With volumes on Deutsche Börse cash market up 20% compared to the same period last year, it is not hard to see why. But while it may make sense to look at Facebook and Google architectures for answers, the reality is that this is not the way to address the specific problems in facing trading. Take the numerous geopolitical events triggering mass sell-offs in equity markets of late. The only way to profit from these short bouts of volatility is to ensure every execution request is processed as quickly and efficiently as possible. This gets to the heart of why real-time is so important.
But here lies the problem: banks can’t hope to achieve 21st century real-time trading environment with 20th century technology architecture. Therein lies the problem. A bank may currently be looking to replace its two-decade old matching engine or order management system (OMS). It could well be working just fine, only for the head of desk to anticipate that the system will not have the sophistication to quickly process a higher throughput of transactions in the future.
Investment banking needs to find a way to manage resilience while operating in real-time, as opposed to focusing on scale. The truth is the sector can look to consumer tech brands to solve parts of the problem, with business agility being one of them. Ultimately, they need to rethink, adapt and go beyond issues of scale in order to solve specific institutional trading problems. Until this is realised, it won’t just be cultural differences that set Silicon Valley and Wall Street apart from each other.