Over the past fifteen years, investment banks have seen a massive expansion in global connectivity, encompassing hundreds of links to exchanges and buy side clients as well as infrastructure to backup sites. This complex connectivity infrastructure is business critical, delivering reliable resiliency, but is also very expensive, from hardware to leased lines and exchange memberships. There is, without doubt, both significant duplication and under-utilisation of these key resources.
In an era of increased governance and demands for better resource utilisation, there are tangible opportunities to consolidate this infrastructure. But with poor visibility of the way in which lines are being used by trading and data applications, banks struggle to identify key areas for consolidation. Craig Talbot the Global Head of Trading – Systems & Connectivity at Hatstand Consultancy & Capital Markets Specialist insists a global connectivity review can identify options to reduce footprint, improve resilience, minimise complexity, eradicate duplication, and save significant costs.
Cost and Complexity
The days of generous Information and Communication Technology (ICT) budgets are a very distant memory for any investment bank. In the post GFC meltdown era of limited resources and heightened regulation, every organisation is balancing demands for cost reduction and better resource utilisation with escalating compliance requirements for improved visibility, accountability and near perfect resilience.
Yet the legacy of those heady days of rapid expansion remains. Over the years every investment bank has connected to a large number of European, Asian and North American markets; while every asset class and each specialist area may have developed its own connectivity infrastructure with no reference to the rest of the organisation or the connections already in place. But does any organisation really need six separate connections to the Chicago Mercantile Exchange (CME) or four to EUREX? Is it really justifiable to have dedicated connections for each specialised trading function or asset class?
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The issue is not only cost – although the unnecessary overspend runs to $millions every year. Duplication and complexity adds risk. Can an organisation be confident that it has eradicated every single point of failure? How can an investment bank respond to both internal audit and regulatory demands for improved accountability and resiliency without total, end to end visibility? And, to be frank, just how agile is the organisation when the global connectivity picture is so confused? In an era of increasing volatility, the lack of visibility across this incredibly complex, resource demanding connectivity infrastructure is becoming a major concern.
The governance inspired sharing of resources and infrastructure between asset classes, from equities to bonds, fixed income to derivatives has become well established over the past few years. Yet in the majority of investment banks connectivity remains largely untouched. The problem is that while many organisations have a clear picture of the overall physical infrastructure in place few, if any, have a detailed idea of the way in which that infrastructure is being used. Detailed physical to application mapping is lacking. Where are the areas of under-utilisation? Are there bandwidth problems that could cause downtime? How much duplication exists between asset classes and specialised trading functions?
There are significant opportunities to reduce the connectivity footprint to both cut recurring costs and simplify the infrastructure. From rationalising connections to each exchange to replacing expensive dedicated leased lines to vendors by leveraging the existing or upgraded internal network, the majority of investment banks could pay back the cost of a connectivity review in less than a year. In addition, a global review process should by default improve resilience by improving utilisation understanding and flagging problems of bandwidth redundancy.
The key is to map connections to utilisation – a process that requires a cross-function review and fact finding process that incorporates not only the known connectivity state but also detailed understanding of application utilisation across trading groups, client services, market data applications and institutional services. Furthermore, a thorough investigation that also includes an analysis and understanding of business trading requirements (across the full trade lifecycle) would result in the decommissioning of specialist platforms.
Simplify and Consolidate
Given the over complexity of most investment banks’ connectivity infrastructure, it is important to start small – in one region, for example – rather than attempting a global project up front. Once the review process has gainedtrue insight into the application utilisation across trading groups, client services, market data applications and institutional services, recommendations can be made – for example, to reduce connections, cut leased lines and reroute via the corporate WAN, or address an identified single point of failure. With confidence in the model the organisation can then expand into a global project.
For any Chief Technology Officer (CTO), the financial model is compelling: a global connectivity review should deliver not only payback within the first year but also recurrent savings in the $millions.
Over and above the cost savings, the review provides on going benefits. Consolidating suppliers and infrastructure reduces the footprint, and hence the need for extensive support staff. Critically, the business has a vastly improved audit trail as a result of improved visibility and gains the benefit of improved resilience. Furthermore, the holy grail of real-time application utilisation reporting can be factored in. With full transparency, it is far simpler and easier to meet regulatory and auditor demands for information about backup processes, resiliency and redundancy models and response plans. A global connectivity review and remediation not only saves significant money but transforms the speed and cost of regulatory accountability.
CTOs are, of course, wrestling with any number of cost cutting and compliance requirements. But it is worth considering: when was the connectivity infrastructure last reviewed? Ten years ago? Longer? From mergers to new business lines, the complexity for many investment banks is becoming untenable – and simply piling more connections on top of the existing infrastructure is not a long term option.
In addition to the regulatory demand for better resilience and visibility, organisations face ever increasing demands for savings and better resource utilisation – a challenging requirement at a time when global instability is creating new pressures in areas of business change and agility.
Whether the priority is cost saving, compliance or agility, there is huge opportunity for investment banks to review the state of global connectivity environments.