a-team group research: a flexible approach to market infrastructure

An industry briefing prepared by A-Team Group for

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A Flexible ApproAch To MArkeT inFrAsTrucTure

April 2012

A Flexible ApproAch to MArket inFrAstructure

An industry briefing prepAred by A-teAM Group for bt 2

introduction 3

A Fabric for Market integration 4

Voice & unified communications 6

connectivity to Markets and Market Data 7

post-Trade processes & services 9

introducing the bT Financial Market Fabric 10

Table of contents



introductionThe growing speed and complexity of today’s financial markets are placing all but the most technologically well-resourced participants at a strategic disadvantage. Buy- and sell-side firms, the execution venues they use, and the wide range of post-trade, market data and other service providers whose offerings they consume, are all struggling to keep up with the pace of change throughout the lifecycle of the financial transaction.

Everywhere in this lifecycle, technology is giving those willing to invest in it a competitive edge. In the pre-trade area, the growth of high frequency trading has emphasised the need for low-latency connectivity for both market and order data. Firms of all sizes are making use of collocation and proximity hosting services, in order to ensure their execution engines are as close as physically possible to the execution venues they trade on. Those wishing to compete on speed will fail unless they make the required investment in technology; for them, being second is not an option.

Where trading is not only electronic, firms are recognising the need to integrate their voice-based trading with internal data, order management and post-trade systems. This unified approach to trading infrastructure is being recognised by participants as a major factor in improving client relations, internal efficiency and even the ability to comply with stringent regulatory reporting requirements.

Sweeping regulatory change is also altering the clearing and settlement landscape. Keeping up to speed on post-trade requirements is creating new and important challenges for firms seeking to take advantage of trading opportunities in both developed and new markets and to benefit from newly competitive clearing services.

These challenges and many others are inspiring many market participants to re-evaluate their approach to connecting to the marketplace. Increasingly, they are determining that they need greater technical flexibility that can allow them to respond to market opportunities rapidly, wherever those opportunities arise.

One emerging commercial model involves partnering with a global technology organisation that has the flexibility, scale and expertise to fulfil the networking technology needs of market participants.

Such an arrangement requires the technology partner to be well equipped to handle the broad range of communications, connectivity and messaging needs of the financial institution, including pre-trade connectivity to execution venues, market data delivery and receipt, voice systems, transaction messaging to internal and external systems, and post-trade links to matching, clearing and settlement facilities and regulators.

The technology supplier must have established links globally to market infrastructures throughout the trade lifecycle. It must have a history and philosophy of building relationships with providers of specialist application capabilities, and it needs to understand how to help its partner-clients build custom solutions for market access and participation.

The foundation for these technological capabilities, however, is the need for a flexible and modular commercial model that allows participants to quickly move into new areas of business with a full understanding of the likely cost of doing so. In this regard, the relationship is a true partnership that requires a significant degree of trust.

The client-partner needs to know that it can rely on the technology-partner to deliver on spec, on budget and on time. That way, it can extend its business commitments to its own customers, safe in the knowledge that it too can and will deliver on the same basis.



This paper offers a discussion of the needs of market participants throughout the transaction lifecycle, and examines how a technology partnership arrangement may help firms overcome the complexity of today’s market structures in order to provide nimble services to their own customers.

Finally, the paper suggests that the adoption of a unified communications strategy could be the first step toward a market fabric for access to all services required by business operations throughout the trade lifecycle, from market data to high-speed market connectivity, to voice and post-trade clearing and settlement, security and authentication services.

One pioneer in the area of unified trading communications is BT. BT’s cloud-centric approach to unified communications is designed to help its financial services customers to meet their increasingly complex requirements in the pre-trade, trade and post-trade environments.

A Fabric for Market integrationIn today’s fast-moving and complex markets, financial institutions – and for that matter, the suppliers that provide them with data, application and infrastructure services – have identi-fied three broad capabilities that they need to participate competitively.

The first relates to flexibility and agility. Most current technology infrastructures are restric-tive, whether they are being used for voice, data, market connectivity or post-trade services. Flexibility to deploy the right mix of technologies, to work with the right business partners, and to respond to opportunities in a timely way is an important capability for financial mar-kets participants.

Lack of flexibility can impact agility. To launch a trading operation at a far outpost in order to take advantage of what may turn out to be a short-term opportunity can be expensive. The normal costs – both in time and money – and the complexity of establishing traders in a new geography in order to experiment with capabilities or market opportunities unique to that geography may be prohibitive, leading to lost opportunity.

The second is a focus on customer service. To help themselves, firms need to understand how they can help their clients provide better service to their customers. How, for example, can a sell-side firm help its buy-side customers to get their information to clients before their competitors, regardless of channel? How can they combine elements like voice, data and video in order to provide unique value-added content to buy-side customers, so as to ensure higher-quality customer service? How can they unify trading channels and employ collaboration tools to improve communication with the buy side and differentiate their capa-bilities from the rest of the pack?

Finally, firms need to underpin these efforts with an unrelenting focus on risk management and compliance. Ranging from voice recording to demonstrating best execution to comply-ing with new clearing requirements, firms have identified the need to manage a constantly changing set of regulatory requirements that may vary significantly between the different trading regimes in which they operate.

Increasingly, the answer to these challenges may be found embedded in the ubiquitous communications network. All these elements can be handled within a financial markets cloud environment, which emerges as a Market Fabric for trading-related services.

This globally connected marketplace links buy- and sell-side firms, exchanges and other ex-ecution venues, market data providers, and matching, clearing and settlement facilities. It is made up of a combination of firms’ own networks and their external connections to clients, counterparties and service providers.



This Market Fabric offers smaller players the opportunity to outsource a significant propor-tion of their trading floor technology and client-facing enterprise operations. It offers them with the agility to enter new markets with speed-to-market advantage and a fully flexible deployment model.

The fabric gives access to a range of services that enable trading. First and foremost is net-work connectivity to pre-trade, trade execution, and post-trade financial services providers. The Market Fabric allows trading firms to access these services quickly and simply without the need for additional staff or equipment.

As well as network services – including voice, data communications and collaboration – us-ers have access to market centres at points within the fabric, to enable hosting of collocated or proximity services for low-latency access to electronic markets. As such, it provides the foundation firms require to go to market more cost-effectively and efficiently.

In the increasingly fragmented execution landscape resulting from transforming regulations like the US’s Regulation ATS or the EU’s Markets in Financial Instruments Directive (MiFID), a cloud-based approach provides a single point of access to all on-net execution venues.

Post-trade activities are another area of concern, particularly in light of the ongoing land-scape recasting courtesy of a range of incoming regulatory initiatives, from Dodd-Frank to Target2Securities (T2S). The adoption of central counterparty (CCP) clearing systems for over-the-counter securities like swaps, and the onset of CCP interoperability will greatly add to the complexity of the post-trade environment. Connections to all appropriate entities will become a prerequisite to operating in these markets, and firms will need to be on top of their technological and commercial relationships with the new players.

The Market Fabric can also host a range of other network-based services that can boost the quality of participants’ customer services. These value-added services include things like ID management and authentication of users, often known collectively as federated authentica-tion management. This approach benefits participants within the trade lifecycle, from corpo-rate clients to custodians and third-party administrators, all of which need to identify client relationships and handle service entitlements.

The Market Fabric is a platform that comprises the technologies, services, customers and counterparties, processes and capabilities involved in all aspects across the pre-trade, trade execution and post-trade lifecycle. It involves trading floor services, including unified com-munications linking voice, video and data. It embraces low-latency execution connectivity and market data delivery. And it facilitates post-trade messaging with clearing and settle-ment organisations.

All of this points to a number of potential benefits. Perhaps most obvious is the opportu-nity to achieve operational efficiency and the reduction in costs associated with that. More subtle, though, are the benefits relating to flexibility and agility to respond to a rapidly chang-ing global marketplace. This translates into the ability to meet clients’ needs, which in turn allows them to better serve their own customers.

Time to market – and, importantly, time to revenue – is a key consideration. Firms want a reliable partner to help them get started in new markets and with new customers quickly, ef-ficiently and reliably, within days of identifying a new opportunity. More importantly, it allows that customer to deliver on its promise to its own clients, thereby boosting its credibility and ensuring better customer service.

This Market Fabric should hold the answer to the question: Where do you want to go? The Fabric will already be able to take the client to the market he wants to enter. The client understands that he doesn’t need to hunt for the solution he needs; he’s already connected



to the solution. And by making capabilities and commercial models transparent, the Fabric operator can ensure that connected clients can make quick and competitive decisions about their businesses.

Voice & unified communications The Market Fabric can be the catalyst for change with respect to voice trading, which remains an important channel for trading communication in spite of major electronic developments over the past decade. Increasingly, firms are seeking to add two capabilities to their existing voice trading connectivity arrangements: the ability to collaborate, with colleagues, clients and counterparties; and the need to comply with relevant regulations.

The concept of unified trading communications can extend the voice-trading environment out to the realms of data and electronic trading. Voice trading itself is a well-established model, having dominated some markets for decades. It tends to operate in a separate technology environment of proprietary switches, dedicated point-to-point phone circuits and turrets/dealerboards that remain unconnected to other systems on the trading desk. This approach has been a reliable solution to the challenge of on-demand voice connections to trading counterparties for perhaps 30 years. But it has limitations.

Because of its highly dedicated infrastructure and equipment, it is relatively inflexible, making it difficult and expensive to set up quickly in new areas of activity. This is an obstacle to firms’ need for agility in entering new markets quickly and efficiently.

For the same reason, the typical established voice trading infrastructure is difficult and expensive to replicate in back-up sites. As a result, firms don’t bother with, or have seriously reduced service levels at their disaster recovery facilities.

By connecting voice with adjacent capabilities, like video, data and collaboration tools, firms can implement a unified trading communications approach. This can be achieved by adopting the voice over Internet Protocol (VoIP), which establishes virtual sessions for voice communications by transforming voice into IP packets that can be redirected according to need.

The resulting unified trading communications approach – combining voice, video and data in a single infrastructure – offers clear benefits in terms of flexibility and agility. It allows firms, for example, to establish DR facilities and enter new markets quickly to exploit emerging

Figure 1. Enabling Unified Communications through the BT Radianz Cloud



opportunities. It adds a significant customer service element by integrating customer information channels, with the result being an enriched client experience. And it can be the conduit for achieving compliance, particularly under MiFID, and within specific markets like the US, Singapore, as well as the UK, where the Financial Services Authority (FSA) has been particularly resolute with respect to voice recording.

Because the Market Fabric extends both within the financial services firm and out to client organisations, unified trading communications has broad application for services like LAN/WAN management, teleconferencing and network security. These capabilities can be used internally by the client organisation as well as externally by counterparties’ and customers’ managed cloud connections.

By incorporating these ‘virtualised’ components, the Market Fabric allows market participants to deploy them out to clients in the form of ‘as-a-Service’ (aaS) offerings. As with internal capabilities, these services encompass both voice and data elements, helping to forge and cement client relationships, while availability in the cloud means ease and flexibility of deployment.

connectivity to Markets and Market DataThe concept of the Market Fabric is translating into commercial offerings available to market participants. BT has created a multi-layer unified network service offering for financial markets participants that draws upon the Market Fabric vision and supports an integrated approach to communication between financial markets firms and the entities they deal with.

This evolution from discrete communications elements to an integrated Market Fabric has established a platform that allows BT to address the convergence of requirements across pre-trade, trade and post-trade operations. The resulting platform leverages a range of leading-edge network technologies, an expanded geographical footprint and reach, and exposes client and solution choice. The use of IP and MPLS communications protocols enables BT to provide very high performance offerings across multiple dimensions – for example, technologically in terms of latency, and commercially in terms of a range of service level and quality/class of service specific to user and application requirements. Ultimately,

Figure 2. The BT Radianz Cloud global connectivity and hosting platform



this brings market participants a unique fabric for accessing a broad range of services and the introduction of unified trading communications into the trading environment.

As a result of this initiative, BT is able to offer the kind of services consistent with the concept of a market fabric. Clients benefit from the breadth of BT’s reach, global consistency, depth of capability and flexibility of the commercial model. By extending BT Radianz service offerings across the BT Network, BT is able to offer BT Radianz services in areas where they were previously unavailable, such as parts of Asia-Pacific, Latin America and the Middle East and Africa.

Examples include the addition of fully resilient points of presence (POPs) across mainland China, Sao Paulo and Istanbul. This breadth of access is also illustrated by availability of trading connections to exchanges as far afield as the Seychelles, Miami and Kazakhstan.

Critically, this market fabric is able to support client services across a number of functions related to the point of a trade. First up are highly engineered connections, based on the high-performance BT Radianz network platforms. This translates into very low and deterministic connectivity for use with direct market data feeds generated from exchanges and execution venues, or with proximity hosting access to the nearly 100 ‘on-net’ execution venues.

This high number of connected execution venues is significant in other ways. Post-MiFID and other liquidity-fragmenting regulations, market participants have been required to ensure they are providing best execution for their clients across a range of execution options. Ensuring best execution requires careful definition of the firm’s approach in client literature and in its IT strategy. It requires high-performance connections to markets it participates in. But in the absence of a regulator-designated alternative, it also requires market participants to monitor executions in fungible securities across all venues they are traded on.

In Europe, where there is no mandated Consolidated Tape, firms participating on a pan-European basis have to build their own consolidated view of trade information in order to prove best execution. The BT Radianz market fabric facilitates this by providing a single point of delivery for market information from all European trading venues, thereby reducing major network infrastructure investment on the part of connecting clients.

Here, as in other instances, BT can draw upon appropriate capabilities provided by partners. For example, to ensure customers are getting the latency and service levels they require in fast-moving markets, BT has recently introduced enhanced latency-measurement capabilities into the network, based on specialised partner technology. BT is also leveraging partner relationships to expand the footprint of its proximity and managed hosting offerings into specialist market hosting centres around the world.

There are more requirements – for instance coming out of the marketplace’s renewed emphasis on risk and on emerging regulations. For these, the BT Radianz Cloud can draw upon a host of partner applications, and BT is continually assessing opportunities for arrangements with appropriate service providers.

The BT Radianz cloud supports third-party ‘-as-a-Service’ offerings, greatly expanding the capabilities on offer through the Market Fabric. BT is developing custom combinations with clients, in essence creating ‘mash-ups’ that involve data, delivery infrastructure and facilities like complex event processing (CEP). Meanwhile, BT is exploring how to adopt a similar stance with its capabilities around security, Big Data, virtualisation and so on.

At the same time, the partnership mentality and capability extends out to the client. The result is the ability to mix and match capabilities in an extensive and agnostic way. Should a client prefer a given third-party capability, the BT Radianz Cloud will work to accommodate that preference into the solution. `



The result is an open Market Fabric that strives to embrace a broad range of service offerings to meet specific client needs, while at the same time provides customers with the scale and flexibility to get them where they want to go, now.

post-Trade processes & servicesConnecting to markets and counterparties for pre-trade services and execution itself is a familiar theme. Less understood and acknowledged is the importance of post-trade connections, within the enterprise and to the array of existing and emerging clearing and settlement facilities.

Investment banks, investment managers, broker/dealers and high-frequency traders like hedge funds and prop shops all need to deal with clearing and settlement in one way or another. Indeed, the lack of robust post-trade processes can create headaches for trading firms; the administrative burden of setting up clearing and settlement arrangements can deter them from entering new markets.

The market fabric concept can offer benefits in this area by offering connections to a range of clearing facilities that are already on-net. For any trading firm, the question is obvious: why build a set of direct network connections to clearing and settlement operators when it’s possible to connect to many through a single market fabric.

Through its use by a range of clearing organisations, BT Radianz services offer economies of scale in the post-trade area. The BT Radianz Cloud has been a connectivity option for multiple clearing houses in Europe, for example, for several years, making it a preferred way of linking to clearing houses for many market participants in the region. Similarly, it has long provided access to post-trade matching services, which have been available over the BT Radianz Cloud for its European users for half a dozen years. And access to settlement services from post-trade giants Euroclear and the Depository Trust & Clearing Corp. are also available via the BT Radianz Cloud.

All post-trade infrastructures that use the BT Radianz Cloud have been attracted by its critical mass of investment firms that are already on-net and thereby essentially set up to switch on to these infrastructures’ services for matching, clearing and settlement on an as-needed basis.

The incoming changes regarding access to, and interoperability of central counterparty clearing facilities (CCPs) in Europe raise the potential for more consolidated access by their users. With several of Europe’s leading CCPs already on the BT Radianz Cloud, advantages can be gained from reducing the infrastructure costs for those users wanting to exploit the benefits of CCP interoperability. The adoption of open industry standards by CCPs is also helping to reduce operating costs for users, and more CCPs are using FIX messaging across the BT Radianz cloud to facilitate communication with clearing members.

BT has long been active in the post-trade environment, operating its SettleNET secure messaging platform for communications between the settlement system and market participants in the UK and Ireland. Operational for more than 16 years, SettleNET has not dropped a single message in that entire time. Today, SettleNET handles some £250 billion a day in settlement messages.

BT is now looking to attract Central Securities Depositories (CSDs) onto the BT Radianz Cloud, using its BT Radianz Messaging as the messaging interface. By adding the CSDs to the BT Radianz cloud, the core mass of post-trade services providers is expanded and the appeal of the BT Radianz Cloud as a source of post-trade services is further enhanced, in turn attracting more users to the Market Fabric.



introducing the bT Financial Market FabricBT has designed its network to support a Market Fabric that meets the emerging need among financial institutions for unified communications. Built on high-performance and industry-standard IP and MPLS communications protocols, it represents a single point of access to a broad range of pre-trade, trade and post-trade services.

Through its long-established and still-expanding community of partner organisations, BT is able to offer financial market capabilities including low-latency data and trading connectivity, latency performance measurement, access to clearing and settlement systems and whole host of other value-added services.

BT’s Market Fabric supports the BT Radianz Cloud, reaching more than 170 countries, with 15,000 BT Radianz Member locations accessing than 400 application Providers. Through its connections to clearing and settlement utilities, the BT Radianz Cloud handles some £25 billion of transactions settled on a daily basis.

BT’s Market Fabric supports BT Unified Trading with some 68,000 trading turret positions bringing voice, data, video, and collaboration tools to traders at the desktop.

It also carries more than 20 million card transactions each day, and connects some 60,000 client contact-centre agents handling huge volumes of customer service calls.

For many financial institutions, this kind of access to financial market services offers the kind of speed to market and technical flexibility that allows them to move rapidly in response to new market opportunities, and in a cost-effective way.

Figure 3. The BT Market Fabric Model



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bT for Financial services

An industry briefing prepared by A-Team Group for

Researched and written by: