With the proliferation of different financial applications on desktops, for many years traders have added monitors to expand their real-estate. Traders and portfolio managers often click and switch between multiple applications and rekey data, leading to potential errors and operational risk.
Now many investment banks and asset management firms are looking at FDC3, a standard facilitating interoperability of applications on the desktop, for connecting disparate applications and improving the user experience. Others see desktop interoperability as key to modernizing data infrastructure and legacy tech stacks.
In June, The Desk reported that “the rollout of FDC3 as a standard supporting desktop interoperability, has generated considerable interest in the trading community.” In response to market demand for connectivity and data sharing across applications on the institutional trading desk, interoperability has become a popular topic discussed at industry conferences.
At the FILS USA 2022 event in June, Dwayne Middleton, Global Head of Fixed-Income Trading at T. Rowe Price, said he was “most looking forward to learning more about desktop interoperability. I think it is the single greatest pathway to enhancing trading performance and transforming a legacy tech stack,” said Middleton in The Desk article. But now that interop has become a buzzword, what does it mean for trading desks? How does the standard work and what will it need to succeed?
“Standards really get adopted when there is a consortium adopting it, rather than a single driver,” said Vinod Jain, Senior Analyst – Capital Markets at Aite-Novarica Group. The mass adoption of the FIX protocol as a messaging standard for electronic trading, was driven by open collaboration between buy-and sell-side firms. Jain noted that there are cases where banks that created a standard, handed it over to the industry to evolve it further. For example, JP Morgan created FpML [Financial Product Markup Language], for electronic dealing and processing of OTC derivatives in the late 1990s, and then gave it to the industry to maintain and develop, said Jain. [FpML is now administered by ISDA.]
In 2017, OpenFin, a pioneer in desktop interoperability, launched FDC3 in collaboration with major industry participants, In 2018, OpenFin contributed a set of codified specifications for writing APIs and messaging formats, to the Financial Industry Open-Source Foundation (FINOS), an independent, neutral non-profit organization.
Over the past five years, FDC3, which is hosted by FINOS on the GitHub repository, has emerged as an open-source standard for connecting diverse applications on the desktop and creating more efficient workflows for traders. Currently, FDC3 includes more than 40 leading banks, buy-side firms, consultancies, and financial services platforms. In 2020, FINOS joined the Linux Foundation.
According to its annual review released in February, FINOS now has 68 members leveraging its open-source collaboration forum, including the most recent additions of Wellington Management, Point72, American Express, and Google Cloud, along with 8 more fintech and financial services organizations this past year.
“On the business side we’ve leaned heavily on FDC3,” said Kim Prado, CIO, US Capital Markets, I&CB and office of the COO at BMO, who is Vice Chair of the FINOS governing board. Prado who began her career in fixed-income trading and launched the Brokertec FICC electronic trading platform, spoke at the Open Source in Finance Forum held in New York about the productivity and efficiencies to be gained from leveraging the interop standard.
“Our Institutional clients are expecting our sales team to respond to inquiries- across multiple assets. They may want to price on a bond, they may want a price on an interest rate swap, or they may want a price on a stock. You don’t want your business going to 15 applications to field one inquiry. You have 2 choices: build a giant application,” which is risky and can take time,” suggested Prado, “or leverage what you have and do it in a contextualized way,” added the CIO.
Defining FDC3 Workflows
“While desktop interoperability is not new, it is a new concept in finance,” said Andy Mahoney, Managing Director at FlexTrade EMEA, who is spearheading the EMS provider’s efforts to support FDC3 workflows.
“We are involved in defining what the interoperability standards should be,” said Mahoney. By contributing to the FDC3 standard working groups, FlexTrade is helping to define the specific workflows for traders, said Mahoney.
For example, a trader who uses an EMS, OMS or OEMS may want to interact with an order, send a chat message to the PM, all while pulling up a chart from different applications and accessing a pre-trade cost model. Using the FDC3 standard, FlexTrade is mapping out the steps.
“The challenges we face are defining the workflows consistently across firms. For example, if client A uses an EMS, an OMS, PMS in chat, what kind of workflows are they using vs. client B,” said Mahoney.
“Functionality is increasing with each version of the standard, added Mahoney. The latest version, FDC3 2.0, “is a natural iteration of the existing standard and provides a significant increase in functionality,” he said.
The rollout of FDC3’s Version 2.0, released in July, contains new standard intents and contexts, which define and standardize message exchanges for various workflows, including interop between communication apps (emails, calls, chats), and OMS/EMS/IMS (investment management system). In addition, the new version includes an app directory so that users can discover apps that can participate in an FDC3 workflow.
How FDC3 Works
In a September 2020 blog post, Finsemble CEO Dan Schleifer, explained that data contexts and intents are the core concepts of FDC3. “The best way to think of context data is to think of nouns – such as instruments, contacts, or countries (whereas intents are verbs, such as open a chart, chat with a contact, etc.)
The intents use standardized verbs to instruct other apps to take action. Context data is shared between apps to eliminate re-keying and streamline workflow.
The underlying architecture of FDC3 applications that allow desktop applications to communicate is referred to as a desktop agent. FDC3-enabled applications cannot talk to each other without a desktop agent, explains Schleifer in the blog. Vendors such as Finsemble, Glue 42 and OpenFin build this architecture, or firms could build it on their own.
At the FINOS event , Rob Moffat, Senior Technical Architect at FINOS, who previously worked at Deutsche Bank and several investment banks in London, explained, “If you are a trader, you may have a whole bunch of apps. You want those apps to work together. We have various vendors acting as agents, which are kind of the postman between all the desktop apps that we’ve talked about.”
Stages of Interoperability
On a webinar in December, Mahoney outlined how interoperability has evolved through several different stages.
The first stage of interoperability, which has been going on for many years, relies on bilateral interactions where developers code directly to a proprietary API. But this method breaks down over time, said Mahoney. “Third-party integration using proprietary APIs ends up being tightly coupled and very brittle,” he continued. “As APIs change over time, there is time and investment required to update those APIs,” said Mahoney. Bilateral integrations can lead to fear about changing their app provider, he said.
One of the fundamental benefits of FDC3 is that it puts a sanitization layer or independent layer between an app such as an EMS or OMS and other third-party applications, explained Mahoney. “The benefit to an EMS is that we only have to write once, versus having to write to individual chat programs,” said Mahoney on the webinar.
This means when FlexTrade codes to interact with a chat application, such as Symphony, or Microsoft Teams , it’s coding to a layer which can be read by any chat application that is compliant with the standard.
Stage two of interoperability is about decoupling the interaction around ‘abstract intents’, so that a firm can subscribe to different applications that are complaint with FDC3.
Instead of a trader having to open a specific pre-trade analytics provider, the user can open a pre-trade “intent” and whichever pre-trade application is connected to that bus, it subscribes to it and then gives the data back on a subsequent abstracted intent, said Mahoney.
“You can choose the best pre-trade provider, the best EMS, and you can understand the interfaces you have and not be closed to a single closed wall ecosystem. It reduces the need for manually rekeying and fundamentally breeds openness,” said Mahoney.
In stage three of interoperability, there is a focus on cross-application workflows where the user is minimizing cumbersome multi-application switching and the need to move data between systems, said Mahoney. “We want to reduce the friction of transmitting data from one place to another, and to replicate natural user workflows across applications,” he explained.
In a live demo on the webinar, Mahoney showed how FlexTRADER EMS uses the information it knows (for example, symbol, side, quantity of an order) to create a structured message which goes out in an FDC3 structure and maps it to the PM’s name. If the PM has a question about the order, the chat program can raise an intent back to the EMS, which pops up an alert using that intent. “None of this is contingent on the chat program on the other end. This is all done through FDC3,” said Mahoney.
In addition, Mahoney showed how via the FDC3 2.0 standard, FlexTrade can use windowing within Finsemble to launch the EMS within the Finsemble container and link it to other widgets within the ChartIQ window to price instruments updating in real time. With the ‘follow selection’ feature, a series of other applications can be opened automatically, to update in real time. If that is too cumbersome, that feature can be turned off until the trader opens an order ticket.
Software firms can also leverage FDC3 2.0 by adding already built components to their applications. “Fintech startups looking to build out GUI- based applications should consider utilizing interoperability firms like OpenFin or Finsemble to reduce costs and time to market rather than recreating the wheel. This should help increase productivity while allowing them to remain focused on their true value proposition,” said Khody Azmoon, electronic trading consultant.
However, Aite-Novarica’s Jain contends that some vendors will try to get ahead of the standard and customize their products even though they are in alignment with the standard. “Once you develop your standard, what is your secret sauce around it,” he said.
Solving Liquidity Issues in Fixed Income
In fixed-income trading, the business problem is accessing fragmented liquidity in a complex asset class. How does a trader go out and access multiple venues and applications with 10 different GUIs to piece that liquidity together in a seamless workflow? Last December, Dwayne Middleton, Global Head of Fixed-Income trading at T. Rowe Price said that support for open architecture was a factor in selecting the FlexTrade FI EMS Solution.
“FlexTrade’s technology aligns with our plans for desktop interoperability and supports the market connectivity to tap into sources of liquidity in today’s fragmented fixed income markets,” said Middleton, as reported in The Trade.
Asset management firms are looking at interoperability to pull together systems and applications in fixed-income, including in-house and third-party applications, but standardizing data is also part of the equation.
At the FIX EMEA Event in March, Mike Poole, Head of Trading at Jupiter Asset Management in London, who spoke to The Trade, said one of the biggest trends in fixed-income would be to “look at using the order management system to bring in bilateral streaming feeds from fixed-income counterparties.”
When asked how interoperability will play a role in fixed income trading, Poole said, “It means bringing together disparate parts of the market and your execution framework, your order management system, your trading partners, and your data partners, into one place so you can start to analyze” all the execution data.
“Once you’ve got a data lake of standardized data sets, you can start to analyze your pre-trade your execution, your post trade, and that produces a positive feedback loop that can start to improve effiiciency and improve execution outcomes,” said Poole in The Trade video interview.
Jain said that sometimes financial firms and vendors want to move faster than the standard. “I think the pace of change has been so rapid, that no one wants to get locked into a standard. “The reason I say that, you have FIX, you have Swift, and FpML, but then, after that there have been no standards which have come up,” said the analyst.
In terms of FDC3 gaining increased adoption, Jain said, if there is a new fixed-income trading protocol coming out, such as all-to-all trading, the standards need to support it. “We see a need for the standards, but it’s a matter of how much faster standards can be moved to the next level,” said the analyst.
Ultimately, the aim of FDC3 is to develop an operating system which functions like iOS or Android on mobile phones, which allows disparate applications to talk to each other, said Mahoney. “That’s the goal of interop, where OpenFin, Finsemble and others are providing that operating system level context,” said Mahoney.
“We see a world in the future where an EMS or a trading system should be as easy to install and talk with other applications just as an app is on your phone,” said Mahoney.