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Author: Arun Kumar S | 10/26/16

Modernizing Trading Systems – A Step by Step Guide (Part 1)

There are many reasons why organizations migrate from their existing trading systems. Listed below is a broad classification:

  • Organizations are constantly seeking to stay competitive and relevant and hence would want to move to the latest trading platform in the marketplace.
  • End of support may be just around the corner for the organizations’ existing trading system
  • Organizations may want to expand their business to new geographies/ products/ pricing of complex derivative products (structured products)
  • There may be significant gaps in terms of security/ audit/ precision/ exposure to risks with the current implementation.

From being terminal-based machines to sophisticated software packages with full spectrum of functionality and coverage, trading systems have evolved rapidly over the past two decades. There are several trading systems in the market today, delivered by a wide array of vendors – some delivering specific/ niche/ mono asset classes to complete set of asset classes(including cross-asset classes/structured products).

Let me explain the five important steps that organizations have to follow for trading system migration.

Step 1 – Audit of existing application landscape

Once organizations decide to migrate from their existing trading systems, they have to go through the process of understanding the current landscape of products/ systems available in the market.

They have to score each of the available products on a variety of parameters like:

  • Product coverage in terms of support for pricing of single/ multiple asset classes.
  • Functionality coverage in terms of support for front office/ back office/ middle office.
  • Advantages and disadvantages of going with single vendor or multiple/ bespoke vendor systems implementation in terms of costs, both capex and opex.
  • Scalability and support for future growth in terms of business volumes and up-time.
Feature/Functionality Vendor 1 Vendor 2 Vendor 3
Front Office
Pricing – Vanilla
Asset Class-1
Asset Class-2
Structured Products
Middle Office
Product Control
Risk Management
Back Office
Confirmation Processing
Settlement Processing

Step 2 – Selection of trading solution package

Once an organization decides to migrate its trading systems to a new platform, there are two possibilities which can emerge:

  • Migrating to higher version of the existing system with the same vendor
  • Migrating to a different system with a new vendor

Organizations typically face a whole gamut of challenges with trading system migration, mainly due to the complexity of these systems which is further complicated with any in-house customization.

These challenges more often translate into major delays during implementation and in turn result in schedule and cost variance.

Another factor which may alter the duration of the project is assumptions/dependencies which might have not been looked into in detail during the course of the project.

A typical example could be the assumption that the same hardware from the existing project would be used for the new implementation as well.

It is vital to validate these assumptions/dependencies periodically so as to avoid unforeseen impacts on project delivery.

As with any new system implementation, even with trading system migrations, we need to take into account the impact to upstream and downstream interfaces/ sub-systems.

A typical trading system

Modernizing Trading Systems – A Step by Step Guide (Part 1)

We will look at the next steps of trade systems migration in my subsequent blog.


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