5 Ways Tech Can Cut Buy-Side Costs
June 15, 2009
As buy-side institutions' assets under management declined over the past year in the wake of the market crisis--and with that, overall revenue--firms have had to rethink how to best spend management fees and devote more dollars to their core competencies.
But that's no easy task. The buy-side has always been much better than the sell side at "cutting all the fat," said Robert Iati, partner and head of global consulting at Tabb Group. "More importantly, [they've been better at] focusing purely on what they do best and what their value differentiation is as opposed to everything else," he said.
Still, there are ways that the buy-side can exploit technology to cut operational costs.
Indeed, while controlling costs is key, cautioned Harrell Smith, head of product strategy at execution management systems provider Portware, the buy-side wants to be smart about spending. "They're not going to cripple their systems or compromise their business operations and they're certainly not going to jeopardize their business model just for the sake of cutting costs," said Smith.
Here are five ways buy-side firms are looking to use their budgets more wisely.
1. Considering total cost of ownership. Buy-side firms have become much more discerning buyers, said Stanley Young, chief executive of NYSE Technologies and co-global chief information officer of NYSE Euronext. NYSE Technologies is currently working with a number of clients at the moment on "what we would call our 'deliver more with less,' or 'total cost of ownership,' initiatives, all designed with squeezing more value out of the dollar or reducing the actual spend."
For example, said Young, there is a huge drive at the moment to reduce the cost of acquiring market data. Young said NYSE Technologies is using its Data Access and Reporting Tools (DART) Usage Analysis to conduct an audit consumption of market data for a major bank. "We expect the savings to that bank to be in the millions or tens of millions across all of their businesses," said Young, who was not at liberty to name the bank.
2. Turning to multi-application integration. These days, a lot of clients are looking for multi-application integration--rolling several tools into one platform, Portware's Smith said. Some large buy-side firms may have built two internal order management systems and also utilize a legacy third-party OMS, for example, said Smith. "The prospect of ripping those systems out is terrifying and not something they are enthusiastic about." These firms have to overcome not only bringing in new trading functionality, but also determine how to work around the infrastructure and limitations of having lots of overlapping and legacy in-house products.
3. Deploying multi-asset/international platforms. As a result of some of the chaos in the equity market, some firms are now looking toward trading listed derivatives to offset that risk, said Ralston Roberts, SVP of product strategy at SunGard Trading, the trading segment of SunGard Financial Systems. "We've seen more desire to trade in some of the international markets as well," he said. "Expanding your reach into these markets is very costly for some of these firms so they're looking for technology providers to help them maximize that very special [trading] desktop space. We're able to provide firms with an OMS/EMS solution that is multi-asset and international so you can trade listed futures, options, equities globally with one platform. And being able to consolidate into one platform helps them reduce their total spending."
