An article I authored, “Thinking ‘Out of the Box’ – Building on Off-the-Shelf Solutions,” was recently published on Tabb Forum. In the article I review the common challenges that tech leaders at financial organizations encounter as they decide whether to build their trading and risk systems in-house, or turn to a vendor with off-the-shelf products.
To identify the solution that is right for your firm, you’ll likely have to take into account key factors such as the size of your organization, your budgetary limitations and what specifically you need to accomplish with the technology.
Traditionally, tier one sell-side institutions – the ones with access to the largest IT budgets – have opted to build technology internally to maintain full control over their systems. However, keeping this control comes at an expensive price tag, both in terms of time and the prohibitively high cost of resources. Indeed, this reality can make the “build approach” nothing short of impractical for many smaller firms.
As a result, an increasing number of organizations focused on attaining a more predictable IT spend are electing to buy trading and risk technology from a specialized provider. Typically, these third-party solutions fit into one of the following categories:
1. Low flexibility, high out-of-the-box functionality: These solutions are sufficient for firms that trade mainly plain vanilla instruments. While affordable, they are often incredibly difficult to customize.
2. High flexibility, high out-of-the-box functionality: This category of solution provides a large degree of flexibility and customization. However, it’s also extremely pricey, somewhat confounding the original cost-saving goals. There’s also a danger that it will offer too much functionality, meaning that a large portion of that expense is unnecessary.
3. High flexibility, standard out-of-the-box functionality: This is ideal for those that require a good amount of standard functionality, but that also need the ability to quickly and easily customize the technology to meet changes in business strategy, or even regulations.
Option three is rapidly falling into favor with firms that need the flexibility to expand into new asset classes, geographies and even currencies in their effort to secure better returns in a low interest rate environment. It’s worth noting that FINCAD’s next generation valuation and risk solution F3 falls into this third category.
Leading financial organizations are realizing that their traditional legacy systems that have been built specifically for one asset classes are no longer going to cut it. To generate better returns in the current environment, you need one robust, multi-asset solution that is capable of elegantly handling complex instruments like derivatives, structured products and hybrids with extremely flexible, on-the-fly modeling, enabling you to seize emerging opportunities.
F3 offers firms a practical solution to the build versus buy dilemma. It provides the best of both worlds – including the built-in functionality and ease of use of off-the-shelf software, combined with remarkable flexibility for customization.
Check out the full-length article on Tabb Forum for more on this topic.