I have been looking at some of the technology issues facing Europe’s equity markets. To cut a long story short, the region’s equity markets are fragmenting, leading to a situation where it resembles FX in many ways. This would, for the moment at least, put paid to the argument that FX liquidity will eventually pool on to just one or two platforms.
I’ve long held the view that any development that made any market more efficient will migrate across to other assets. The most obvious example is electronic trading itself, and the process has now evolved to include aggregation, algo trading and smart order routing.
For some time, the IT geeks have made much about a concept known as service oriented architecture (SOA) and its offspring software as a service (SaaS). Simplistically, this allows financial institutions to effectively outsource or lease all of the hardware they require for their trading operations. As one system vendor explained to me, bankers should be bankers, not IT suppliers.
In theory, SaaS also makes all of the functionality of cumbersome applications available as discrete services. This is forcing IT vendors to refocus their business. It seems that they will have to concentrate on making lots of smaller sales rather than the odd big one, such as the provision of an entire front-to-back dealing system.