By Simon Poole, head of enterprise market development at SSE Enterprise Telecoms
Over the past 30 years, technological advancements have transformed the investment banking sector and as the industry has recovered from the shock of the financial crisis, the rate of technology-driven change has accelerated once again. As a result, organisations operating in the industry today need more powerful and flexible IT and telecommunications infrastructures than ever before, in order to handle the challenging data network capacity and capability requirements imposed by client expectations and regulatory obligations.
In order to ensure success, business decision makers must first understand the four megatrends that have transformed this industry over recent years.
Trend 1: Customers are demanding more
In such a highly competitive marketplace, satisfying customer demands is the only way to secure market share. What makes this particularly challenging is the fact that client expectations have been shaped by 20 years’ worth of development in web and mobile technologies, while technological advances have encouraged the creation of new business models and propositions from new entrants in these markets, which has increased competition further. The need to offer a broader range of services, using various delivery channels and allowing customers to interact with the company using an ever-expanding range of mobile technologies, has also added to the demands placed on IT architectures and networks.
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According to The 451 Group’s Tony Bishop – speaking at a conference in mid-2014 – the financial sector has seen a 200 percent year-on-year growth in data held within data centres and infrastructure; while the fastest high frequency trading solutions, based on ultra low latency technologies, can send several thousand orders per second, with order and execution times measured in microseconds (a millionth of a second).
Such aggressive demands can only be met by ultra robust and secure high speed data networks. No company that wants to build and maintain a market presence can afford downtime or failings in its security, therefore, reliability and expertise in the identification and mitigation of security vulnerabilities is a must.
Trend 2: The trading floor is getting faster
Trading floor environments have also been transformed by technology over the past ten years. Indeed, since the mid-1990s, online trading has grown at an incredible rate. For instance, the value of online foreign exchange trading grew from around $10 billion per day in 2000 to $200 billion a decade later. Today, individual trading companies may execute hundreds of thousands of online trades every day, with millions of online trades being transacted daily by the largest companies and exchanges. In this environment, minimisation of latency is essential as infinitesimal fractions of a second can be the difference between successful identification and exploitation of an opportunity and failure.
As a result, many companies operating in this space have been forced to alter business models and make drastic alterations to technology strategies. New solutions have been developed that can turn the endless streams of data into actionable business intelligence, to give executives greater visibility of the company’s operations in real time; and the ability to analyse that data to inform both strategic decisions and product development.
Consolidation of an enterprise’s market share and the creation and effective exploitation of innovative new products is unachievable without adequate capacity in the communications capabilities between front, middle and back offices and the data centres that support them.
Trend 3: IT is getting smarter
Even before the financial crash, many CTOs were interested in the promise of vast efficiency gains offered by virtualisation. Since 2008, these technologies have been adopted even more readily by financial companies, as budgets have tightened. The next step towards greater operational efficiency and flexibility in IT is the adoption of more advanced orchestration technologies. Orchestration provides the ability to allocate processing requirements between virtual servers housed across multiple data centres, therefore, optimising compute power to an even greater extent.
Both virtualisation and orchestration can help make IT infrastructures more resilient, while improving efficiency, performance and flexibility. That flexibility extends to network designs, which can be shaped to suit business needs and the nature of existing IT assets. However, both technologies depend on rapidly and ultra-reliable optical or Ethernet services between data centres.
The use of orchestration technology also creates problems when it comes to protecting and optimising a company’s networks, as it demands greater levels of network capacity, performance and flexibility that can be delivered by many networks today. Orchestration technology is incompatible with some legacy systems and can introduce some operational complexity and security vulnerabilities that may cause compliance challenges.
The successful deployment of virtualisation and orchestration is largely dependent on the capabilities of the network underpinning an organisation’s IT environment. Integration must be flawless, with network scale and performance able to keep pace with changing business needs and extract maximum benefit from these technologies.
Trend 4: Compliance is getting harder
Firms operating in this part of the financial sector are often subject to a host of evolving compliance demands, which make planning network structure, capabilities and capacity even more complex. The regulatory processes which companies must go through also add to the burden placed on networks and IT infrastructures, as the efficient management of these processes relies on streams of reliable and timely information reaching executives, to give them a clear overview of the company’s compliance profile, at the same time as the company fulfils external reporting requirements.
All companies operating within the investment banking ecosystem will be affected to some extent – and in many cases in transformative ways – by the changes being driven by these four megatrends. Without networks capable of meeting these requirements, companies risk poor network performance and outages that could severely damage brand reputation and market share and risk costly failures to meet compliance obligations.
In order to cope effectively with the challenges created by the four megatrends, organisations must ensure their network infrastructures are resilient and flexible enough to deliver connectivity with the required speed, accuracy, reliability and security to meet these requirements. After all, the capabilities of a company’s networks will determine their success or failure in this sector.
For more information, download SSE Enterprise Telecoms’ eBook ‘Four megatrends shaping the future of investment banking IT networks’