The service portfolio now includes: Seoul – Hong Kong and Seoul – Singapore. In Seoul, the routes terminate at the KINX Gasan data centre, specifically chosen to provide direct access to the Amazon Web Services (AWS) North-east region.

Aleksey Larichev, chief executive of Avelacom, highlighted the importance of Seoul as a key trading hub and central point for connectivity, asserting that “with the rise of cloud adoption, [we’re] seeing a surge in Korean market participants, including both exchanges and trading firms, and mainly in digital assets.”

The expansion supports Avelacom’s recently launched and proprietary Seoul – Tokyo route. All the sites in the offering are fully interconnected, allowing for direct connectivity between any two.

Avelacom also confirmed that all new routes are ready for service and have guaranteed latencies up to microseconds as well as a 99.9% network uptime. 

Read more: As cloud adoption across the market continues to rise, is the shift of liquidity itself next to follow?

“This is driving an increase in demand for cloud-to-cloud, low latency connections. Our new routes ensure we are able to support the needs of the global crypto trading community, looking for geographically diverse trading opportunities, with Seoul being one of their top priorities,” said Larichev.

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According to the report, the expected boost in headcount follows a period of strong performance by prop firms and marks significant uptick from last year’s survey which found just 63% of firms preparing to expand their trading teams.  

Wage appreciation in trading remained high with around 50% of those surveyed noting up to a 10% increase for trading roles in the last year but had slowed in comparison with previous years. The UK saw the greatest jump followed by the US. 

“The last few years have been strong ones in terms of business performance for many proprietary trading firms,” said Ross Lancaster, head of research at Acuiti. “As wage appreciation slows, firms have the confidence to expand their teams and continue to grow their businesses.” 

The report also found that just under a fifth of proprietary trading firms surveyed that outsource their trading screens to an independent software vendor (ISV) are currently planning to build inhouse systems. 

When asked how firms were planning to change their headcount throughout 2024, hiring developers was the second priority after hiring new trading talent, with around 75% of those surveyed expected to add new staff in this area. 

According to the report, 31% of firms surveyed already build their trading screens in-house while 28% use upwards of four providers. 

Those firm’s building front ends in house were mainly ultra-low latency firms and firms using predominantly algo but not ultra-low latency. None of the point and click firms surveyed said they built front ends in house. 

Around 45% of firms surveyed, when asked how satisfied they were with the cost of third-party technology providers, said they were either quite or very unsatisfied.  

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The report focuses on the rising cost of trading, finding that 33% of surveyed respondents are currently reducing their presence in some markets or products as a result, with 29% highlighting that they are trading less overall due to these high costs.

As firms realign their focus, the Q4 2023 report saw FX come out on top as the area that firms were most likely to be expanding, a significant reversal when compared to 2022, where FX was an area wherein the fewest firms were seeking to expand. 

Will Mitting, founder of Acuiti, said: “Proprietary trading firms are looking ahead to 2024 with optimism and planning expansion and increased investment. However, exchange costs are an increasing burden for many firms, which are trading fewer products and markets than they would if fees were lower.”

The report also found that of the areas firms are already trading, plans are to grow footprints in equity options and cryptocurrency. Additionally, looking at the trading new asset classes, several firms confirmed they plan to expand into fixed income – specifically into cash government bond markets.

Alongside this expansion, the report also highlighted that almost a fifth (mostly from Europe) of firms are planning to decrease their exposure in the cash equities asset class. According to Acuiti this “signals a worrying trend in a market already suffering from poor liquidity”. 

Elsewhere, almost two thirds of firms (63%) are set to make higher than average investments, with algorithmic trading tools, connectivity to new markets, and market data the top priorities, according to Acuiti.

In addition, prop firms’ technology investments for 2024 were also expected to be ‘significantly’ above average by 23% of those surveyed, while 40% of the respondents confirmed a ‘slightly above average’ increase in investment.

Aleksey Larichev, managing director at Avelacom, said: “The report reveals that proprietary trading firms are willing to invest in improving their connectivity to markets, including exploring new ones. This shows their plans to expand and optimise their current trading setups. It’s a positive sign that the market is in good shape and working to stay competitive.”

The Q4 ‘proprietary trading management insight report’ surveyed senior executives across more than 100 firms across the globe, in partnership with Avelacom.

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Avelacom, the low latency connectivity, IT infrastructure and data solutions provider for global financial markets, has increased its presence in Israel by partnering with the Tel Aviv Stock Exchange (TASE) and setting up a new point-of-presence (PoP) in TASE’s primary data center.

Avelacom’s new PoP enables its clients to connect to the TASE systems and trade with the lowest latencies. The PoP is in line with Avelacom’s strategy to grow across exchanges in the Middle East, Asia Pacific and Latin America, paving the way for global institutions to trade across both developed and emerging markets and diversify their trading strategies. 

Last year, Avelacom announced new optimised routes on its network to allow for connectivity between New York and Tel Aviv with less than 117ms, round-trip delay. 

Aleksey Larichev, CEO of Avelacom, said: “We are pleased to be deepening our relationship with TASE, one of the most dynamic exchanges. With this partnership we have extended our capacity to provide low latency solutions. We have the optimal balance between geographic footprint and depth of services. We can serve clients that have certain requirements on trading systems and network latency and who are looking to access the Israeli capital markets. 

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It’s the latest in a series of moves from Avelacom to deepen its presence across Asia. The firm recently set up its PoP at the Stock Exchange of Thailand (SET) in Bangkok, as well as, extending its partnership with the Singapore Exchange (SGC) to broaden its colocation and connectivity services portfolio. Earlier this month, it also became a Japan Exchange Group (JPX) arrownet-Global Partner Network provider, giving financial institutions direct access to exchanges operated by JPX, including the Tokyo Stock Exchange (TSE), the Osaka Exchange (OSE), and the Tokyo Commodity Exchange (TOCOM).

“Our infrastructure setup within JPX is a significant milestone for our development as it supports our growth in Japan,” explained Aleksey Larichev, CEO of Avelacom. “Among our clients are global banks, hedge funds and proprietary trading firms, and all of them increasingly want to be able to trade multi-asset markets such as JPX’s financial instruments.”

Its presence at Bursa Malaysia opens up access to one of the most vibrant markets in the region. Last year saw record derivative volumes traded on the Malaysian exchange, with 18.4 million contracts traded in 2021, building on the previous record high of 18.2 million contracts registered traded in 2020.

“We have aggressive expansion plans in Asia and are going to set new benchmarks for low latency access across broader markets,” said Larichev. “Bursa Malaysia is on the radar among institutional traders because of its recent efforts to sustain trading volume growth and create new trading opportunities. These moves are drawing in greater international participation and encouraging global investors to trade on Malaysia’s derivatives market.”

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The report from Acuiti, commissioned by Avelacom, found that 85% of senior proprietary trading respondents are keen to trade emerging markets this year, while 74% are expected to consume market data or begin trading on emerging or frontier markets.  

Diversification was listed as a key reason for interest in emerging markets by 65% of proprietary trading firms, while 62% attributed their interest to better arbitrage opportunities.

The report stated that the need for diversification and arbitrage models was driven by proprietary firms’ tendency to experience significant highs and lows from month to month and a subsequent need to stabilise revenues after a turbulent year.

“Polarisation of month-to-month revenues has been exaggerated by the spread of Covid-19 and the associated volatility, but reflects similar patterns in 2019 and presents a challenge to proprietary trading executives running businesses with large fixed costs,” said the report.

China was highlighted as the market of the most interest with 56% of respondents planning to connect to or take market data from an exchange, swiftly followed by India with 52% of respondents expressing interest in it.

“Proprietary trading firms have long sought diverse revenue sources and the growth of derivatives markets in emerging markets is an opportunity for them to diversify their trading and access arbitrage opportunities, particularly at times when established markets are quieter,” said Aleksey Larichev, chief executive of Avelacom.

Alongside reasons for entering emerging markets the report also examined barriers to entry for firms, with 62% of respondents listing lack of provision of access from clearing providers, 59% listing cost of IT infrastructure deployment at an exchange, and 57% listing uncertain regulations.

Earlier this month, Boston-based investment bank State Street rolled out foreign exchange trading and sales operations through its Brazilian bank subsidiary as part of its plan to expand into Latin America and other emerging markets.

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As a result, the UK could relax dark-pool restrictions and decline to follow the EU’s lead on other MiFID II reforms surrounding periodic auctions and systematic internalisers. That could affect broader regulatory equivalence discussions but could eventually make the UK the preferred trading destination for non-European firms. Meanwhile, there is set to be more discussion on how the industry handles exchange outages, especially as remote working becomes more commonplace across the industry. 
– Anish Puaar, market structure analyst, Rosenblatt Securities

 For London’s financial markets the macro environment will be dominated by pulling out of the economic COVID-19 nosedive and the early phases of the post-Brexit era. UK financial markets have been an afterthought in Brexit negotiations and the impact on the City will start to become clearer as financial firms execute their Brexit strategies. This will not happen on a ‘big bang’ basis but over time as firms activate or upgrade their offices in EU countries.

The most conspicuous effect will be in the number of businesses transferred from the City, as well as the capital and liquidity required to finance them rather than in the number of staff employed. Equivalence negotiations may take years as different parts of overly complex regulation will have to be assessed separately. Changes in the US and elsewhere will mean that there will be efforts to align regulation more effectively between financial centres and stimulate a ‘globalisation’ approach to prudential and conduct frameworks.
– David Clark, chairman, European Venues and Intermediaries Association (EVIA)

 Regulators have done a good job in supporting the buy-side during 2020 through the introduction of a number of measures, from the easing of restrictions to postponing regulation, giving the industry vital time to alleviate the operational burden accompanying the switch to largescale remote working. 2021 will see firms playing catch-up as regulation can’t be postponed indefinitely. The UK’s FCA has stated that it expects firms to continue to adhere to regulatory standards moving forward, irrespective of the ongoing operational disruption caused by COVID-19.

2020 has also witnessed a significant change in the dynamic of the relationship between the regulator and those regulated, which should remain for the foreseeable future. Both parties are now on a more equal footing as they collaborate closely on the best response for the buy-side. Heading into 2021, we also expect to see an even greater emphasis placed upon the regulation of data as firms find themselves in possession of ever more data with the accelerated trend of digital adoption.
– Alexandra Foster, director, insurance, wealth management and financial services, BT

The continued rate of change for regulatory reporting shows no sign of slowing down and therefore the cost of compliance continues to increase. Not only for implementing new regimes, but for maintaining existing reporting obligations and adapting to change.

With the pandemic and market volatility adding to operational cost and risk, market participants will accelerate plans to revaluate the reporting landscape, realising that in-house solutions provide no competitive advantage.

Instead, compliance teams will outsource legacy reporting solutions to cloud-based vendors, whose technology is able to address large volumes of complex data across multiple regulations and asset classes, allowing firms to control costs and have a more strategic approach to regulatory reporting.
– Philip Flood, CCO Inforlago, a Gresham Technologies company

2021 will continue to see asset managers evaluate their business infrastructure to ensure that trading intentions are not undermined by poor execution outcomes as a result of inadequate technology. This last year has been a steep learning curve for investment managers as they had to review their BCP plans, actively evaluate outsourcing some of their dealing desk functionality or insource additional dealing desk support from third party providers.

In the quest to reduce costs, but to also focus on producing returns for the end investors, the industry will continue to look to independent, broker-neutral dealing desk tools, taking a data driven approach to everything from analytics, to trading and routing technology. That is the only way investment managers can effectively implement trading strategies, using additional channels to deal with unprecedented situations, automating vanilla trades and leaving traders free to focus on more complex value-add client service.
– Dan Shepherd, CEO, BTON Financial

2020 was a year that forced market participants across the spectrum to adapt and react. While this demonstrated yet again the strength of the global markets, I suspect we’ll ultimately look back and see it as a catalyst event given the time, effort and resource firms invested in their futures.

For example, the buy-side further built out the infrastructures needed to access additional liquidity and lower transaction costs. Meanwhile, issuers continued to grow their product distribution channels despite heightened volatility and continued liquidity fragmentation. We expect 2021 will see these trends continue, especially as alternative sources of electronic liquidity across credit, derivatives and equities come online and cause market participants to take a fresh look at their approach to managing risk.
– Bryan Christian, head of institutional services, Old Mission

To say 2020 was tumultuous is obviously a huge understatement. The market volatility, combined with the temporary exchange floor closures, drove clients to adopt new workflows and change behaviour quickly.

We think one long-term effect of these changes – as well as the implementation of regulatory initiatives like CAT and the OCC’s new ‘actionable identifier’ tags – is the further prioritisation that both the buy- and sell-side will place on the streamlining of trading workflows, and not just around execution. From origination through execution, risk, post-trade analysis, clearing and compliance reporting – the pace of innovation around all of it has been accelerated. And as those efficiencies take hold in 2021 and beyond, additional transparency and further focus on systemic risk reduction will become even more of a priority.
– Tim Miller, co-COO, Dash

Proprietary trading firms using low latency strategies will continue to engage with emerging and frontier market(s), driven by the desire to diversify as well as arbitrage opportunities. The COVID-19 crisis means even more of these traders are interested in trading on new exchanges. Preferred markets will be China, India and Brazil. For providers like Avelacom, we can differentiate ourselves by further expanding our network capacity and geographical presence in these markets as well as diversify our portfolio of solutions including providing more options for market data products.
– Aleksey Larichev, CEO, Avelacom

Today, buy-side firms have to grapple with the most complex trading environment in the sector’s history, mainly due to heightened volatility, increasing regulatory obligations and the need to follow, understand and trade a diverse range of asset classes on behalf of clients. In addition to this, the industry now has access to a huge amount of news sources and intelligence which need to be condensed and interpreted in order to make informed decisions on behalf of clients. All of this comes at a time when the industry is under mounting fee pressure while trying to ensure their own operations remain resilient during a downturn.

As a result, 2021 will bring further evolution to the role and expertise required of a buy-side trader. More than ever, they must have capabilities across asset classes; an ability to build and maintain strong client relationships; strong regulatory understanding; tech savviness and an ability to effectively use the latest trading systems. On top of that, they cannot afford to operate in isolation – trading desks need to work closely with the middle and back office functions to make sure revenues generated on the front desk are not wiped out by operational inefficiencies.
– Michael Horan, head of trading, BNY Mellon Pershing

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Research implies that buy-side trading desk budgets are moving in favour of technology at the expense of trader compensation. Greenwich Associates published a report in February which found that budgets for buy-side trading desks have remained relatively flat in recent years, but traders could see a drop in compensation and bonuses as those budgets pivot towards investments in technology.

On average, asset managers spent 70% of budgets on compensation and 30% on technology, but last year the allocation had shifted noticeably to 60% on compensation and 40% on technology.

At the beginning of this year, Worldwide Business Research (WBR) spoke with 100 heads of trading and foreign exchange (FX) buy-siders across Europe to discuss the use of technology on trading desks, ahead of this year’s TradeTech FX Europe conference.

It produced some interesting results, but the most prominent message from the buy-side by far was that automation is quickly taking precedence. A staggering 77% of respondents said that reducing the human touch on FX trading desks is presently their biggest priority. Better pricing and execution, reduced trading costs and improved controls were highlighted by respondents as significant benefits to reducing the human touch and increasing automation on trading desks.

“I agree that reducing human touch on the FX desk should be the top priority here,” Alex Smyth, head of trading at Florin Court Capital, says about the results. “The automation of FX flow will allow for reduced trading costs via investment in scalable technology which can automate human workflow.

“For example, it can allow for faster trading by executing multiple orders simultaneously. It can also result in improved controls via reduction in human error, and allow for greater optimisation by freeing up time spent on ‘button clicking’ to focus on execution review.”

The survey found that just 2% of respondents have automated more than three-quarters of FX trading flow, while a majority of 59% have automated between 26-50%.

For the larger buy-side FX institutions around 80-90% of trading flow is automated in G10 currencies, whereas for mid-sized asset managers, FX has traditionally been seen as a by-product of another asset class with little need for investment in technology. But, as the benefits of automation come to the forefront of the industry, this trend is clearly changing.

“Failing to automate will result in uncompetitive and outdated practices and increased operational risks,” Smyth adds. “As automation proliferates, more time will be spent on review of trading and execution rather than the underlying activity. For example, being able to understand data and draw conclusions from transaction cost analysis (TCA) reports will be very important.”

Shifting structure

Shifts in market structure and regulatory oversight have also had a major impact on the buy-side’s adoption and use of technology. MiFID II, for example, has introduced a raft of new technology-focused obligations and costs for the buy-side to contend with.

“E-trading certainly improves efficiency and reduces the cost per trade, but the key driver of this trend is that buy-side institutions are increasingly being put under the microscope in terms of demonstrating best execution,” says Jon Vollemaere, CEO of electronic marketplace for FX trading, R5FX, who points out that traders are no longer working on a best effort basis and must now use data to justify their decisions.

“This transparency demonstrates just how wide the price variance really is across different customer types. Even though MiFID II does not specifically apply to spot FX, many buy-side institutions are now also using the same processes across all asset classes, meaning that more FX is being done electronically. This enables institutions to demonstrate compliance, with access to tick data and timestamping.”

However, implementing new technology on buy-side trading desks is no mean feat. In fact, despite it being a priority for the majority, 51% of FX buy-siders told WBR that the biggest challenge this year is increasing on-the-desk technology. Multiple, layered legacy systems, costly investment and set-ups, alongside the need to connect to more FX trading venues, can prove to be significant barriers for asset managers aiming to reduce the human touch.

Vollemaere adds that it is important to remember that automation can mean different things to different buy-side institutions, depending on their size, trading styles, market access or resources to invest in such technology.

“To a large buy-side institution [automation] means accessing and consuming ultra-low latency market data, integrating that with their core price engine and distributing to multiple electronic trading venues. For others e-trading may mean simply connecting to a trading platform, to gain three or five prices and trading on one of those.

“Clearly the level of investment is significantly more in the first example. Also, e-trading typically interfaces with multiple other legacy systems. Because of the complexity and interconnectedness of this technology stack it is often the case that making changes requires a sizeable change programme – we know that these programmes often run into years.”

Change is inevitable

FX industry experts and market participants agree that automation in FX is inevitable. WBR’s survey asked the buyside about what they consider to be the most important characteristic of any new FX initiative coming to market, with a majority of 18% highlighting that state-of-the-art technology or functionality is the most significant aspect.

One buy-side respondent commented that in some cases technology and functionality is of far more importance than cost. Market participants generally have the bases covered in terms of FX trading, but will be increasingly looking to new forms of innovation with greater enthusiasm, such as artificial intelligence, machine learning and algorithmic execution.

“Increased electronic trading, and the resulting automation, is inevitable,” says Alina Karpichenko, global marketing manager at infrastructure specialist Avelacom. “All firms need to really look at their IT infrastructure when implementing these processes. While many of the most sophisticated high-frequency trading (HFT) firms and tier one banks are already doing this, newer entrants to this market need to ensure they have the most fit-for-purpose technology and infrastructure to keep up with industry trends.”

Karpichenko adds that buy-side firms are also looking for software and technologies to compete with the HFT firms and tier one banks with increased access to multiple exchanges and low-latency. But implementing an automation strategy is hardly a short-term project, particularly when there are other aspects to also consider.

“For firms not yet actively trading electronically in any meaningful way, an important consideration will be the need to increase their internal skill sets,” she says. “They need highly specific competencies to effectively review, grow and upgrade their technology as part of a process to implement the necessary high-speed IT infrastructure connected to multiple venues.”

The shift in priorities on the buy-side in FX is certainly highlighted in WBR ‘s survey. Long-standing concerns about compliance with new regulatory regimes have loosened and been overtaken by the need to automate certain trading and investment processes.

As with other asset classes the automation of FX will continue apace. Being able to overcome the barriers in reducing the human touch on trading desks, such as potentially huge costs amid failing legacy systems, will prove to be a key differentiator across the buy-side when it comes to FX.

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