How to achieve flexibility and differentiation in trading?

Sylvain Thieullent

CEO at Horizon Software
Views 814

How to achieve flexibility and differentiation in trading?

09.05.2016 10:03 am

Horizon Software focuses on front-office solutions for trading in capital markets, and all other types of business related to listed markets. Our solutions are highly engineered and help financial institutions to achieve their performance and target. It’s nothing like any commoditized trading solution; I like to call it sophisticated because of a certain level of complexity. Depending on the type of products clients are trading, we offer a variety of algorithmic capabilities to trade on the market. Horizon automates the trading strategy for clients to successfully create, test and implement their unique strategies: each of our clients interacts and trades on the market in the way they have designed and implemented their logic within Horizon’s software. So clients have a big choice of options on how to implement and use their trading strategy and, as a result, we have similar profile clients who are doing things differently. Most of the time, we don’t know the details of what they are doing - the system is made in a way that we cannot know the business logic implemented by our clients. Clients can just benefit from the program and use it while, having their own intellectual property secured. So, this design gives a lot of flexibility for clients to trade their own way. When you look at very different client profiles, all of them are dealing with electronic trading, but what Horizon gives them is a very big differentiator in choosing and automating their trading strategy on today’s competitive market.  

Sophisticated and user-friendly solution

Our main target is to make complex businesses simple. Just to give an idea what this means in real life: assuming you are a trader with a systematic electronic business, the set of indicators you want to monitor might differ from indicators monitored by your system itself in order to make trading decisions. Horizon can help to set up the strategy and monitoring with an efficient time to market.

Another example: if you are an investment bank facing a tighter margin per product while shrinking operational expenses, the continuity of the business will lead to an increase in the number of products to be issued. So keeping the same headcount, a trader could be in a position of having to monitor up to 50,000 products. In this case Horizon brings in a set of views to highlight only the product that requires the trader’s attention. This facilitates the workflow of operation to maintain some consistency in the business activity. Our clients focus on what is wrong and highlights what requires their attention at any given time.  

Fast deployment and flexible pricing

From the moment we start the implementation to the moment the system goes live, it takes between one to three months. It also depends on the interaction of the client’s IT team with us, since we make sure Horizon’s solution integrates within the existing system of the client and everything works properly.

Banks still approach cloud computing with caution

In most the cases, the system is set up as an enterprise solution. The main reason for that is that all our clients have specific, critical information on their system. Most of the time business integrity is of critical importance. Also, our clients don’t want to share their infrastructure with anybody else and prefer to pay a premium to master and control it. They want to be the ones responsible if something goes wrong. The cloud is not really suitable for us as, by definition, we are not commoditized. If you are in a commoditized business where you just need a trading solution to place orders, it’s not Horizon that you choose. You choose Horizon because you want to do something very specific.  

Financial institutions are also reluctant to use cloud technologies because of security and intellectual property risks. This cautious approach is quite understandable if you look at banks’ targets. For two Tier-1 competing institutions to use the same cloud service for a similar business would be nonsense because they don’t want to share the bandwidth, infrastructure, resources or any data when an opportunity arises. They want to be able to have the maximum power and independence when it makes sense and Horizon supports and enables such a configuration.    

Balancing liquidity between Europe and Asia

In terms of our customers today, 30% are Tier-1and -2 investment banks. The rest are either local banks, hedge funds or proprietary trading firms. We are mostly active in Europe and Asia, with around 70 clients today, 1/3 of them in Europe, and two thirds in Asia. While many other providers were still considering the Asian market as promising, we actually got there and started to realize the promises. Right now Asia is a significant part of our business and we have realized our targets. In 2016 we have better expectations for Europe than for Asia, mostly due to macro-economic perspectives. In Europe we started to see some projects that mark the end of the post-crisis period. This wasn’t the case in the past two-three years. We see that Tier-1 investment banks are rethinking their investment in IT and some other areas; those who actively participate in the market need proper, sustainable solutions to realize their ambitions. Also, we see some very big changes in terms of market conditions, especially in connection with MiFID II. It acts as a kind of trigger to re-evaluate the current solutions, how they are managed and what they can do.

MiFID II - new mindset in compliance strategy?  

MiFID II absorbs a lot of budgets of market players in Europe. You could say that it’s not a convenient way to develop business. But, looking at the implications of MiFID II, there’s another perspective. Financial companies are going to re-evaluate their own systems and will want to choose something which is going to be compatible with MiFID II, but which also can sustain their future expectations. With MiFID II there are a lot of indirect things on top of pure compliance which make people re-think their attitude towards their IT strategy. With MiFID II you have to expect some switch of liquidity from dark pools to MTS or historical venues. Brokerage houses especially will have to rebuild their business models in terms of research and execution. They need to make a very clear strategic choice. If you decide to stay in the execution business, you really need to have a competitive advantage over the others in that particular area. Competitive advantage in the execution surely comes with the trading system solution within a critical time to market to implement your algos, so that you can create value for your clients. All of these changes are triggered by MiFID II and, overall, I think it’s a good time for the industry. In MiFID II not everything is clearly defined yet, but in the future it will be better formulated and its advantages will be more widely accepted in the industry. Moreover, the industry will learn how to grow its business around this regulation. Generally, I have a positive attitude towards this regulation as its goal is to make the market fairer and more transparent, while at the same time bringing more value to the end customer, the buy-side.   

Horizon’s commitment to the trading community

We are actively participating in the life of the trading community. We have been present at TradeTech for more than 10 years. In the last two years we have observed the switch of the presence towards market makers and liquidity providers. For example, ETF players are getting stronger, from being almost absent in the past, to growing a big presence everywhere now. All independent market makers are becoming more visible than they were in the past.

In some ways vendors like Horizon specializing in trading systems are becoming more prominent. If you are looking for a trading system I don’t think you have a big choice these days, especially in highly-engineered solutions like the ones offered by Horizon. We are unique in this sense. The only competitor to us could be the internal IT department of the bank itself trying to engineer their own solution. The value and competitive advantage that Horizon brings is our capacity to deliver. We want to guarantee that we deliver the system on time. We always figure out the implementation timeline in the very beginning of every project we undertake.  

Coming back to TradeTech, I think most of the people attending, for example ETF market makers, want to benefit from the networking, seeing other players, reaching out to businesses and getting the piece of the cake which is left on the table. And certainly they also want to know what kind of differentiation they are going to have once MiFID II is in place. They want to have something more than just some basic execution capacity. We can help them with this. We work with a few of them and I think that both parties are happy with the relationship. Finally, the trend that has developed into a tradition throughout the years of TradeTech is watching and considering the impact of regulation. Particularly, we see that exchanges and MTS are all researching and analyzing what the market is going to be in terms of liquidity. 

 

 

 

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