There is a change occurring on Wall Street, a collective re-adjustment of deck chairs among elite club members. Highly bespoke SWAPs contracts, many of which were not even digitally cataloged, are now proudly trading out of the closet and on cleared exchanges. Obviously there are risk management contracts so specialized that the idiosyncratic nature of their risk guarantees cannot be batched with other SWAPs. But such non-standardized risk insurance is an outlier in a major trend change has occurred over the last eight years. That trend change is also visible through a $15 million Series B funding announced Thursday by OpenFin.
Major financial players back opening of the desktop
When JPMorgan and Bain Group team up with UK-based NEX Capital (formerly ICAP, the Chicago-based SWAPs derivatives post-trade clearing firm) as well as high-frequency trading firm DRW, the result is likely to involve a more streamlined, electronic trading experience for SWAPs and derivatives. In part that is what is happening with the Thursday announcement that these firms along with others are investing a Series B round in Fin-Tech start-up OpenFin. OpenFin provides an operating platform that connects all different trading applications, allowing them to better communicate and update new software, for instance.
The investment benchmarks technology in flux on Wall Street and the opening of the desktop of elite trading partners. Historically, a closed society on Wall Street predominated where traders were known to congregate around Bloomberg terminals in exclusive chat rooms available to those and with the elite seal of approval.
The advent of Symphony and its integration into a coalition of elite financial firms was the first step in a movement to open the system. Now, instead of a $20,000 annual Bloomberg terminal investment credentialing those who are part of the club, it is the members of the club who decide, as we previously noted in ValueWalk. Under the new Symphony agreement, individual members of the elite consortium — from the major banks to independent hedge funds such as Citadel along with a handful of non-bank firms such as Jefferies — all can communicate with each other over a private, protected chat system.
This “movement” to open up the trader’s desktop is entering a new phase as technology start-up OpenFin receives $15 million Series B seed investment from some of the world’s leading financial players.
JPMorgan along with high-frequency trading firms such as DRW Venture Capital are investing in OpenFin along with Bain Group Ventures and Euclid Opportunities, the venture funding arm of NEX Group.
OpenFin – Desktop to desktop trading
The investment in OpenFin comes as the “Wall Street” trader’s desktop is replacing the phone as a primary method to make markets.
Trading is now powered by thousands of desktop applications, all of which are based on real-time market data, collaboration and trade execution. A breakdown in any of these technical application links can result in significant opportunity lost. This is where OpenFin the goal to provide seamless technical integration. The company claims the product is currently deployed across 100,000 desktops on 40 of the largest banks and 250 hedge funds around the world, according to the firm.
“‘Move fast and break things’ became the mantra of Silicon Valley years ago and created a mindset that has accelerated an extremely profitable consumer software boom – and now we’re bringing it to Wall Street,” said Mazy Dar, CEO and co-founder of OpenFin and also a board member of the Symphony Software Foundation. “Our mantra at OpenFin is: ‘Move fast. Break nothing.’ Our operating environment brings the same rapid innovation cycle to change-resistant capital markets without sacrificing the security and stability of these mission-critical systems.”
The larger trend is towards the opening of the trader’s traditionally closed desktop.
“One critical component of OpenFin’s success is their deep commitment to open source technology,” said Sanoke Viswanathan, Chief Administrative Officer at J.P. Morgan Corporate & Investment Bank, who oversees the bank’s investment in OpenFin. “Some of the most successful tech companies are combining proprietary technology aimed at fueling business growth with an open source, shared technology framework that gets better with contributions from the broader community.”
Former SWAPs integration expert DAR sees a common platform coming to Wall Street
Dar is familiar with “change-resistant capital markets.” Before working at OpenFin, Dar worked for exchange operator intercontinental Exchange (ICE), which also runs the New York Stock Exchange. His focus on migrating bespoke SWAPs contracts onto a lit exchange might be considered herculean from several standpoints, not the least of which was the intentional obfuscation in many of the contracts.
Trading SWAPs in a more centrally cleared environment requires data conversion. No longer can the intentionally designed idiosyncratic nature of risk management be tolerated. In order to operate in a cleared environment, product format needs consistency, transparency into product contents is clear and a reasonable usage of margin to hard assets must be maintained.
Taking the intentionally complex and transferring it into a reasonably standardized version that can clearly trade on an exchange was Dar’s previous job. His new task is taking often disjointed technical applications that typically require more than 12 months to deploy on a trader’s desktop and getting the job done in months.
“Trillions of dollars pass through thousands of disparate desktop applications every day, creating a significant market opportunity to unify the operating platform, improve deployment speed, and infuse greater efficiency and security,” said Don Wilson, Chief Executive Officer at DRW, a market maker and high-frequency trading firm.
Wilson might be eyeing OpenFin and hoping the technology can help open up markets in previously wide-margin SWAPs business. This is also on the mind of OpenFin. As Dar considers his previous life moving SWAPs clearing from out of the shadows and onto a transparent exchange, he also looks at the future of SWAPs and thinks it could increasingly be subject to algorithmic trading. Standardize the risk performance drivers and that just might happen.