Revenge of the Saas

In addition to alluding shamelessly to Star Wars, the title of this blog is also a bit of a misnomer.

For nearly twenty years, there’s been an ongoing battle in the front office between deployed software solutions and SaaS models, with one replacing the other based upon changing staff needs and firm proclivities.

Today, the war seems just about over, and while SaaS may not have needed “revenge,” it certainly has come out on top. Regulation and (arguably) common sense have changed the selection process for technology provision and selection.

Buy-side firms are now more conscious than ever about cost and even more critically, stability. To be competitive, these firms must be cognizant of explicit and implicit (read: hidden and pernicious!) costs, often referred to these days as TCO (total cost of ownership). They are aware, too often through painful experience, that what is promised isn’t always what is delivered, and that just because software is “on-premises” doesn’t mean it is stable or that you’re done paying for it.

This is not to say that the days of deployed solutions are numbered. There will always be privacy sensitive organizations that want to keep all data “in-house,” or those who swear by on-premises software’s customizability. The reality is, however, that these arguments for deployed solutions are increasingly losing some of their lustre.

With the advent of bolstered security, improved customization capabilities, and increasing reliability, it’s no surprise that most of today’s biggest vendors are now moving to a service model of trading software, so much so that terms like ‘L.M.S.’ have become everyday acronyms.

SaaS is the wave of the future, and that’s a good thing. Fears of lacking customizability, ‘secret recipes’ becoming homogenized, and other arguments against subscription software are, in my opinion, unfounded.

With all this in mind, here are some thoughts on what your trading platform should do, and why you should be trading on SaaS software:

Changing Landscape

In the good old days, when you picked up the phone and said “EMS,” the response was often “I need 20 immediately!” Now, the answer is probably closer to “4,” and even in the nimble alternative investment space, “immediate” is closer to 6 months as the one person making the decision has morphed into a risk averse hedge of a decision web.

This is not just an effect of regulation, but also of the due diligence required in the face of competition and squeezing margins. In this new reality, failed implementations cannot be swept under the rug (anecdotally, I know of one large vendor with a 50% failure rate!).

And not to mention, once you’ve gone through the RFI process — engaged the consultant, had the demos, gone to boot-camp, had the second round, then the final round, and finally made your selection – months have passed and its high time to play with the shiny new toy.

In this landscape of extended timetables and risk, you don’t have time for further delays or failure. Deploying new technologies should not be a headache and implementations should not fail. With SaaS capabilities, all that is needed is a login destination and you’re off.

Crisis Averted…Because It Never Happened

Before proceeding any further, let’s get one thing straight. Just because your software is “hosted” doesn’t mean it’s SaaS. True SaaS may in fact be your own little (or massive) piece of the cloud, but that should not mean it is just local to you.

SaaS should mean (and certainly can be!) Global, Highly Available, and Persistent across regions. In short, relying solely on “painting” software for a global platform is risky. Doing so ties you to one central deployment, and if that goes down, your disaster relief policy will have to be strident. Based on most deployed architectures, we’re talking anywhere from 30 minutes to an hour before you get up and trading, with a chance that your book has been replicated.

The power of SaaS means that in the case of failure, you should barely notice a blip before you’re up and running. “What happens when your platform goes down?” is a question I don’t hear often enough, though in an ideal world, it shouldn’t have to be asked at all.

TS’s platform, as one humble example, has a backbone capable of rendering the question useless. It is Global, has 9 Points of Presence (POP), and is Highly Available. This means that should an outage occur, a login is automatically switched to the nearest POP, all the while keeping your positions consistent, as they are constantly shared over a highly-secured SaaS infrastructure.

In not-so-humble terms, THAT’s the reliability you can build a front office on.

Bespoke Capabilities

Bespoke work both excites and terrifies software vendors. It excites them because building funky new kits keeps them relevant. It also terrifies them because they’re not sure who is going to pay for it, or more importantly, if it’s going to work.

Bespoke in a non-SaaS world is tricky, with most vendors having to support an increasing number of cores and having to back-test all new functionalities for clients, resulting in limited bandwidth and increased room for error. Personally, I’ve lost count of the number of times an innocuous piece of development has “broken” a locally deployed EMS, resulting in frantic calls for rollback.

However, in a SaaS environment, core upgrades are regular enough that only a couple of versions need to be supported. Even if you have to wait a little bit longer, with SaaS support, your development work is simple, prioritized, and put in a queue. In that way, “bespoke” developments seem anything but; they are part of business as usual.

The Bottom Line

There’s a lot of talk these days about the inevitable death of trading desks with the rise of machine learning. While these desks are certainly fewer in number, I’ve been hearing this argument for nearly a decade, and am not convinced it’s time to write EMS traders off. AI may seem a looming spectre, but this technology is still in its infancy, and frankly, much of what we refer to as “artificial intelligence” is carried out on a computer, not on a neural network. Moreover, there is a small but significant movement in the US to rein in human-less trading because it is seen as a threat to market stability.

The EMS-using trader still has plenty of life left in them. Today’s traders are survivors, and the true “secret recipe” of any front office. They are tech-savvy, multi-talented professionals who can manage relationships with brokers, pore over asset classes, and remain resilient in the face of automation.
To survive and thrive, these traders are increasingly relying on software that is effective, nimble, and stable. While on-premises software has promised these things in the past, it is now clear that SaaS has come out on top and is improving every day.

As for what’s next? Perhaps it’s time for “Episode II: The Workflow Strikes Back…”

Related News

CTO Surgery: How the right technology can boost emerging managers into the big leagues

In modern finance, technology has the power to make a hedge fund. However, trading technology has historically been a closely guarded secret, kept under lock and key by large and successful hedge funds. For budding emerging managers, without the resources or expertise to emulate such sophisticated technology, a key ingredient in large hedge funds’ success has been just out of reach.

February 7, 2023

Insights from Interns

Our most recent interns, Nicholas and Timur, both joined us from Imperial College London where they are going into the third year of their Mechanical and Aerospace Engineering degrees, respectively. They spent 11 weeks working with TS Imagine’s Professional Services team in London this summer under the supervision of myself and Simarjit Johal (Regional Team Lead).

February 2, 2023

A New Market Reality: Lessons from a Defining Year in a Turbulent Decade 

Future historians will come to see 2022 as a year of extremes and one of the most consequential years for markets in a turbulent decade. Trading desks working across asset classes and around the world have been put to the test, navigating what would once have been described as once-in-a-generation market events. 

December 9, 2022