THE FINTECH CAPITAL THIRD EDITION

THE FINTECH CAPITAL THIRD EDITION LONDON S FINTECH LEADERS TALK REGULATION & LEGISLATION, FAST GROWTH, DIGITAL CURRENCY, CTRM, BUY SIDE IMPLEMENTATIONS AND THE FUTURE OF FINTECH EVEN MORE of the Most Innovative Names In FinTech Speak Out! Watson Wheatley The Realization Group Redline Trading Navoh Partners Violin Memory Waratek BRT Ffrees SmartCo BT Financial Technology Services Xenomorph Gmex Fincad Microexchanges Volante Liquity AlphaKinetic SunGard Code:Red Commodities Now Cake Solutions Cappitech Tradeweb Midvision Elix-IRR Elliptic Sagepay Gold-i MDX Technology Planlogic R3Cognition Contango Hatstand Arkk Solutions INCLUDING FEATURES FROM TOBY BABB, NADIA EDWARDS-DASHTI, ELLIOT PARFITT, JAMES HOUNSLOW, TOM KEMP AND ANDREW THOMAS GLOBAL LEADERS IN FINANCIAL SERVICES AND COMMODITIES TECHNOLOGY RECRUITMENT

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LONDON: THE FINTECH CAPITAL RIGHT PLACE/RIGHT PEOPLE/RIGHT TIME! ELCOME TO THE FINTECH CAPITAL, Harrington Starr s quarterly celebration and showcase of the most W exciting, disruptive and innovative companies in London s Financial Services and Commodities Technology sector. The third edition of the FinTech Capital comes at a time when London has never been more prominent on the international map. Throughout 2014 we have seen the Capital grow and grow to establish itself as the World s most prominent FinTech centre of excellence. Talent seems very much at the centre of that. Nowhere else in the world does such a high concentration of World Class financial technology engineers and innovators exist. Our talent is the envy of the world and the right people have come together at the right time in the right place. To expand: Toby Babb Managing Director, Harrington Starr RIGHT PLACE London has done the UK proud by making startups and technology companies such an attractive proposition. We are delighted to include Level39 in this edition and they, alongside numerous other accelerators, incubators and programmes, have allowed pipe dreams to become reality. Confidence in London FinTech has surged. VCs and investors have clamoured to back strong management teams and are attracted by the large, growing and disruptive market opportunities, super premiums available from FinTech brands and strong recurring revenues. A combination of enticing investor tax incentives and strong government support has allowed the sector to flourish and the banks have been keen to get involved too. A fascinating sub text has emerged where banks have embraced rather than feared the disruptors. Aware that they are unable to take the same risks as the start-ups and confident that the tide is too strong 0 0 3

Continued to fight, London s banks have created eco-systems of innovation that have allowed companies to flourish and in turn created the platform for them to share in their success. Programmes such as the Barclays Accelerator have been pivotal in changing the financial technology landscape. Toby Babb Managing Director, Harrington Starr A combination of well thought out FinTech communities, enthused investors, government backing, outstanding facilities and banking encouragement ensure London is punching well above its weight. Without question, London is the right place for FinTech companies to flourish. RIGHT PEOPLE As highlighted before we are also blessed by having the right people in London. The strength of the Capital s technologists has long been to identify disruptive opportunities and develop the world s best products and solutions to them. Many of the sector s most successful vendors and solutions providers have grown from exceptional UK talent. Talented, visionary leaders have been complimented by the world s most exceptional software engineers and together market issues have been identified, new solutions created, opportunities seized and profits quickly generated. Rival capitals suffer from huge competition. The other prime contender for the crown of FinTech Capital is New York who battle a consistent talent drain to the digital revolution in Silicon Valley. Whilst digital is growing fast in the UK, FinTech has remained firmly at the pinnacle and the best in class remain keen to work in the sector. Our FinTech companies have fought hard to ensure that the excitement, environment, purpose and culture is delivered in more and more compelling employer brand propositions. Our financial companies are getting the message and fighting hard in the war for talent. Our Universities are the envy of the world in their consistent churn of World Class technology talent and we are able to attract the best in Europe to grow and develop on these shores. As the snowball continues to roll and momentum gains, we will continue to see more and more of the best technologists in the World gravitate to the City to share in the success and be a part of the revolution. As long as we continue to encourage and entice the best technology talent into the sector, then London will continue to house the right people to enjoy its phenomenal growth. RIGHT TIME The timing is perfect as well. There is a tornado of change in financial services and technology is positioned in the kernel. Regulations, security, cloud, data, 0 0 4

Continued payments, mobile, HFT, Dark Pools, FX, Challenger Banks, Peer to Peer lending and the list goes on. There is so much opportunity in FinTech for companies to see issues and opportunities and provide solutions to make things better. The traditional conservatism in the financial markets is thawing, market confidence is soaring with an ever improving economic situation, and the customer base is demanding and expecting innovation from our banks. Toby Babb Managing Director, Harrington Starr Whilst the crisis has hurt, the beneficiaries have been the Financial Technologists and the upside the huge scale of opportunity that has exploded within the space. So often the poor cousin of the boardroom, the CTO/CIO position has become essential. Technology is no longer seen as the cost but instead the potential saviour. Those who have embraced it have prospered. Companies are ready to embrace disruption, something that has never been the case in financial services before now. Investors are keen to back the right ideas. Boards are open to ideas and the talent pipeline is prime. The time is right! So who is going to take advantage? Come on in, the water is warm right time, right people, right place! I would like to conclude by thanking all of the contributors to this publication and indeed all previous issues of the FinTech Capital. Harrington Starr are ardent fans of the community and we are absolutely delighted to give something back by showcasing the exceptionally talented companies who have graced our pages thus far. Entombed within the pages that follow, the right people mentioned previously show exactly why London has become so successful in the FinTech space. Covering regulation, start-ups, new technology, Dev-Ops, Buy Side Implementations and more, there are some truly fascinating pieces that educate, inform and entertain. We hope that you enjoy the read and if there is anything that we can do to introduce you to the authors or indeed help connect you and your business with the community in any way, please do not hesitate to get in touch. Toby 0 0 5

CONTENTS 010 THE FUTURE OF FINTECH 0 1 1 0 1 3 0 1 6 0 1 9 0 2 1 0 2 3 0 2 5 0 2 7 0 2 9 0 3 1 0 3 3 0 3 5 0 3 7 0 3 9 Watson Wheatley Duncan Wheatley The Realization Group Colin Slight Redline Trading Mark Skalabrin Navoh Partners Bill Gilbert and Robert Betts Harrington Starr Nadia Edwards-Dashti Violin Memory Steve Willson Waratek Howard Tolman BRT Michael Armitage BT Financial Technology Services Robin Farnan Xenomorph Brian Sentance Ffrees Alex Letts Harrington Starr Elliot Parfitt Microexchanges Ralph Hazell Volante Fiona Hamilton 043 LONDON VS OTHER FINANCIAL CAPITALS 0 4 4 0 4 7 Liquity Barry Shrier Harrington Starr James Hounslow CONTINUED... 0 0 6

CONTENTS 049 BUYSIDE IMPLEMENTATIONS 0 5 0 0 5 2 0 5 4 0 5 6 Alphakinetic Jon Hodges SmartCo Pascal Mougin SunGard Kevin Potter Code:Red Thomas Yasin 059 CTRM 0 6 0 0 6 3 Commodities Now Guy Isherwood Harrington Starr Andrew Thomas 065 DEVOPS 0 6 6 0 6 8 0 7 0 Cake Solutions Ltd Anirvan Chakraborty Cappitech Ronen Kertis Midvision Andrew Turner CONTINUED... 0 0 7

CONTENTS 073 DIGITAL CURRENCY 0 7 4 0 7 6 0 7 7 Elix-IRR & Elliptic Graham Busby & James Smith Harrington Starr Tom Kemp Sagepay Simon Black 079 FAST GROWTH & HANDLING HIGH GROWTH PERIODS 0 8 1 0 8 3 Gold-i Tom Higgins MDX Technology Paul Watmough 085 REGULATION & LEGISLATION 0 8 6 0 8 8 0 9 0 0 9 3 0 9 5 0 9 8 1 0 0 1 0 2 Fincad Matthew Streeter GMEX Hirander Misra Tradeweb Simon Maisey Planlogic Darren Stevens R3cognition Richard Seaman Contango Richard Wilkinson Hatstand Silvano Stagni Arkk Solutions Andy Gent 0 0 8

London, October 2 nd at Pullman London St Pancras The CTRM Conference is a unique 1-day event taking place in London on Thursday, October 2 nd and focused on the $1.6 billion CTRM software category. The conference brings together end user, service practitioners and vendors to spend a day focused on some of the key issues and trends impacting this software category. Hosted and facilitated by Commodity Technology Advisory (ComTech), the leading analysts in the CTRM software space, together with Commodities Now, the CTRM Conference brings a compelling agenda of presentations, knowledge sharing and roundtable discussions involving key users of CTRM and associated software and services in the industry... all supplemented by excellent networking opportunities. Organised by The chances of succeeding in this market are is increasingly dependent on the trading technologies deployed and utilised to address the big challenges, including CTRM, data aggregation and analysis, trading surveillance, business intelligence, and reporting. The CTRM Conference will help equip you for this dynamic and challenging future. www.ctrmconference.com The conference will kick off on October 1 st at 6:30pm with a sponsored networking reception. The main conference takes place on Thursday, October 2 nd 2014.

THE FUTURE OF FINTECH

RECONCILIATION SYSTEMS; A NEW GENERATION? HERE IS A LOT OF ACTIVITY IN THE reconciliation systems market. A new generation of vendors are building T exciting and innovative systems. Hedge funds, commodity firms and asset managers are buying. This is more than just recovery from a recession; but what is driving this and what are the key characteristics of the new systems? WHY RECONCILE? Reconciliation is a necessary evil. As soon as data exists in more than one system you need to compare it to find the differences and take corrective action. Until we have a single central record for all trading data this need for reconciliation will not go away. If it matters that data is in line, as with securities trading, and the rate of change of data in the two systems is high, then the need to reconcile quickly and efficiently becomes acute. New regulatory demands underpin this of course but the rules are not prescriptive and operate more as a fear factor than a real incentive to change. It is the pragmatic demands from clients and prospects for robust operational controls that make the difference. As the trading gets faster and more complex it is the reconciliation system that delivers operational excellence whilst keeping costs tightly under control. Duncan Wheatley Managing Director, Watson Wheatley MATCHING DATA BETWEEN SYSTEMS MAY SOUND EASY BUT IN PRACTICE IT IS ANYTHING BUT. HERE ARE SOME OF THING THAT MAKE IT MORE DIFFICULT: SECURITY OR ACCOUNT REFERENCE DATA WITH NO COMMON IDENTIFIERS PRICES AND YIELDS QUOTED USING DIFFERENT STANDARDS DIFFERENT ACCOUNTING METHODOLOGIES (TRADE/ SETTLEMENT DATE, AVERAGE COST, LIFO, FIFO ETC.) DATA PROVIDED IN FILES WITH NO COMMON FORMATTING OR ENCODING STANDARDS SPEED OF TRADING AND VOLUME OF DATA Add to this that these systems are not going to sit still whilst you reconcile them. There can be inherent 0 1 1

Continued lags in data flowing between the systems; they will never be equal. How does one reconcile two systems that are in this sort of dynamic equilibrium? When you add this together you begin to see the need for dedicated specialist systems to keep track. Duncan Wheatley Managing Director, Watson Wheatley TACTICAL SOLUTIONS Most companies start out with the most prevalent reconciliation solution available; Excel. It has everything you need; imports from many different formats, you can cross reference and normalise data with vlookups, and there are numerous functions for comparing numeric and text data. To all intents and purposes it is free and accessible on every desktop. Before long this tactical approach runs out of steam. Certainly it is not scalable, has no audit trail and is a single user system. Move outside these boundaries and you need something else. SPECIALISED RECONCILIATION TOOLS There have been specialised reconciliation systems around for many years but the gap in price and accessibility between Excel and these is enormous. These have typically been only in the reach of sell-side firms with large IT budgets. The buy-side, certainly with more modest budgets, smaller volumes but arguably more complexity has not been well served. So what are the characteristics of this new generation of reconciliation systems and why are they gaining market share? COST For systems to be successful in this market there needs to be a very clear return on investment. Whilst hard to quantify in terms of reducing operational risk it is a simple to make the case in terms of improving operational efficiency. Automate the reconciliation and allow your staff to focus on more important things. Pricing models have changed from up front capital investment to ongoing usage charges; far more palatable to this market and much easier to justify. TECHNOLOGY Of course the cost of technology is falling but it is how the technology is accessed that is having the bigger impact. You can still buy a system and have it installed if you want the control and immediacy that this offers. Alternatively you can outsource the function completely and have the results delivered back. There are solutions that are in between. What the technology is matters less, it more to do with which services you choose to own and those you wish to rent. CONNECTIVITY The newer reconciliation systems are built with ease of connectivity built in. Most data for reconciliation for the buy-side come in the form of files sent by ftp or email. Systems are now available that can completely manage the process from remote site through to the reconciliation system with complete security and a full audit trail. All data parsing and aggregation is handled with rules built by end users who understand the data, not programmers who don t. What appears to be an unmanageable mess of files can be streamlined into a robust data collection and aggregation process with little effort. Solving this issue solves more than half of the problem. FUNCTIONALITY The newer systems are functionally very rich and highly usable. With a wide diversity of reconciliation needs to be satisfied successful systems need to be generic, configurable and rapid to deploy. The ease of use pioneered by Xerox, Apple and others prevails here. Software should be intuitive; training should be unnecessary. The old school of reconciliation system employed a generation of consultants to help you configure the system and ensure you needed them every time you wanted to change something! The key to the functionality is that it has been designed to meet the needs of the buyside firm. No longer does it stop at matching trades and positions; systems are at home handling static data, cash, P&L, prices, market values and NAVs. Some are now adopting accounting logic to maximise their ability to understand data from other accounting systems. Configurable workflow tools are being embedded to control the flow of data though the system and in particular to make automatic adjustments to the source systems. Add in the availability of real time dashboards and you have a complete control system dynamically managing discrepancies between multiple systems and telling you only what you really need to know! NO WONDER THIS IS SELLING FAST! 0 1 2

TANKS, PEASHOOTERS AND THE ZERO MOMENT OF TRUTH... ACE TO FACE IT S STILL THE SAME I ve been working in New Business sales for over 23 years and it has F always been a tough job. The rewards can be high but it s a brutal and unforgiving place when things aren t going well and the targets aren t being met. In those 23 years one aspect of the job has never changed it s the face time that you spend with prospects that is the most important part of the process. People do business with people. Back when I started, cold calls, trade shows and networking would get you that valuable time in front of prospects. In fact, cold calling was relatively easy. Buyers would meet salespeople simply to get information about what was going on in the market. HOW DIGITAL HAS CHANGED EVERYTHING In the late 90s the Internet completely changed the sales engagement model. Buyers would go looking online for information and no longer felt the need for face to face meetings. Recently, with the use of social media and other interactive digital channels, getting that valuable face time has become even more challenging. According to Forrester, it is estimated that 75% of any sales decision will have been made before a salesperson has any face time with a prospect. These days any salesperson in FinTech should be asking a current or prospective employer: WHAT ARE YOU DOING ABOUT 1. GETTING THE COMPANY STORY OUT THERE DIGITALLY, TO MAXIMISE OUR CHANCES OF BEING SELECTED TO BID? 2. WORKING TO GET ME FACE TIME WITH PROSPECTS A LOT EARLIER THAN 75% OF THE WAY THROUGH THE SALES DECISION MAKING PROCESS? Colin Slight Joint MD & Co-Founder, The Realization Group Any firm that isn t able to answer these questions is failing in its duty to the salespeople who have to go into battle with competitors armed with the latest marketing weapons. The firm is asking the sales team to fight tanks with peashooters. If I couldn t get an answer to those questions then as 0 1 3

Continued a salesperson in 2014 I d be looking for another firm to work for. So how can the owners of FinTech firms give their salespeople the weapons to beat the competition and how can firms like The Realization Group help? MOMENT OF TRUTH: AN INSTANCE OF CONTACT OR INTERACTION BETWEEN A CUSTOMER AND A FIRM THAT GIVES THE CUSTOMER AN OPPORTUNITY TO FORM (OR CHANGE) AN IMPRESSION ABOUT THE FIRM WINNING THE ZERO MOMENT OF TRUTH Consider a marketing model originally designed for B2C and published by Google. At the forefront of digital for 15 years they know a thing or two and this model expresses the current reality of digital. According to A.G. Lafley, former leader of Procter & Gamble, a consumer s first moment of truth was in store or when approached by a salesman. A second moment of truth would take place when they got the product home, out of it s packaging & experienced it in situ. Now consumers can find a wealth of content online about a brand s products and those of competing brands: websites; review sites; videos; forums and social networks are full of opinion, reviews and information. A consumer may make up their mind before they even see the product in the flesh or experience it. THIS IS ZMOT... THE ZERO MOMENT OF TRUTH. When a consumer goes on to buy the product and the First and Second Moments of Truth occur, they may publish their experiences online - thereby creating the next consumer s Zero Moment of Truth. Colin Slight Joint MD & Co-Founder, The Realization Group Brands must win the zero moment if they are to achieve the sale. ZMOT AND FINTECH B2B MARKETING B2B marketing has always had a ZMOT: reputation and credibility are everything; networking, word of mouth and tradeshows all affect the chances of you getting a sales meeting. The situation now is that the ZMOT has moved online and firms must identify and use the digital equivalents to succeed. Particularly effective is inbound marketing through thought leadership. Vendors with a high level of subject expertise use social media tools 0 1 4

Continued such as blogs, podcasts, webcasts, webinars and videos to discuss key challenges facing their section of the industry. If the content is produced in a thought-provoking way and distributed via the right channels - and if feedback is elicited and acted upon - this type of inbound marketing can be incredibly powerful. To enable our FinTech clients to run highly effective thought leadership programs, TRG has Created Financial Markets Insights - a series of interviews with thought leaders in financial markets. The series provides exclusive insights into industry developments through in-depth conversations with key experts from banks, exchanges, vendors and other firms within the financial markets ecosystem. Examples of content created can be found at www.financialmarketsinsights.com Because the thought leadership content is created in collaboration with related firms in the sector then as well as firms publishing this content via their own digital and social channels, content is also published via the channels of the collaborating partners, which significantly amplifies the message and gives additional credibility via brand association with the partners. Colin Slight Joint MD & Co-Founder, The Realization Group Additionally, the firm can also submit the content to industry-facing publications and websites (which in FinTech could include the likes of The Trading Mesh, Best Execution, Tabb Forum, The FinTech Capital etc.) and use social media (e.g. relevant LinkedIn Groups, Facebook pages and on Twitter) to publicise the content further. If this is done on a regular basis then the firm can quickly build up a high level of credibility in their FinTech vertical. Once that credibility is established, then that valuable face to face time with prospects can be much more readily achieved in a variety of ways, including invitations to roundtable discussions based on the thought leadership topic, warm calls to parties who have expressed an interest in the subject, speaking engagements at industry forums and other networking events. And - when the Zero Moment of Truth arrives - inbound enquiries inviting you to come and discuss your products and services. GOOD LUCK FIGHTING THOSE TANKS!!! 0 1 5

THINKING OF FPGA FOR TRADING? THINK AGAIN! Mark Skalabrin CEO, Redline Trading IGH FREQUENCY TRADING (HFT) IS AT an interesting point in its technology maturation lifecycle, in which many H assumptions and even definitions that previously were valid now need to be rethought, particularly with regards to ultralow latency requirements: How do you know if you are low enough? How much are you willing to invest to be lower? How do you differentiate when everyone is low? Part of this reassessment concerns the role of specialized hardware, notably FPGA accelerated systems, versus mainstream Intel Xeon-based platforms. Up until the last few years, the requirement for lowest latency may have required custom hardware to achieve. However, technology trends and market forces now make those investments and customizations unnecessary. Indeed, the paradigm has flipped and we must now ask when taking into account the full latency cycle of tick-to-trade, can a FPGA solution compete with a properly written trading solution on mainstream platforms? And, should a FPGA-based solution offer a performance advantage today in some specific use cases, at what cost does this performance come? This paradigm shift is not a new phenomenon. The High Performance Computing (HPC) landscape is strewn with the gravestones of specialty hardware companies that were overcome by mainstream Intelbased systems leveraging the power Moore s Law and volume economics. CAN A FPGA SOLUTION COMPETE WITH A PROPERLY WRITTEN TRADING SOLUTION ON MAINSTREAM PLATFORMS? HOLISTIC VIEW It is tempting to benchmark a single algorithm or component of the HFT process in an 0 1 6

Continued evaluation and ignore time to market tradeoffs, lifecycle costs, and the true sophistication of a trading strategy. Unfortunately, this narrow approach may lead to decisions that do not optimize performance for the overall trading cycle nor are sustainable in the larger picture of technical trends and business objectives. Mark Skalabrin CEO, Redline Trading Comprehensive benchmarking requires measuring the full tick-to-trade latency across a range of anticipated message rates and market conditions. This must be done consistently across all the platforms under consideration. Those interested in rigorous benchmarking processes can reference the Securities Technology Analysis Center (STAC, www.stacresearch.com). Another latency that is rarely considered when comparing systems is the time to implement exchangedriven changes and deploy new trading algorithms. While a FPGA accelerator does not execute traditional software, it is important to note that they still must be programmed they are, after all, Field-Programmable Gate Arrays. Writing microcode for a FPGA is much more labor intensive than traditional software programming. Thus, the FPGA approach may be suitable for a very static environment, but as the trading environment becomes more complicated and dynamic, the programming advantages of mainstream systems provide a significant time-to-market advantage. TECHNOLOGY TRENDS CPU performance has historically been identified as the main beneficiary of Moore s Law, but in recent years this gain has translated to increasing cores per processor allowing more processes to run in parallel within a system. A lesser known benefit of Moore s Law, but especially welcomed by HFT and other latency sensitive applications, is Intel s integration on chip of a wide range of functions that had previously been off chip (eg. memory & I/O controllers). THIS NEW SINGLE Intel and its OEM and OS partners also offer tuning SERVER PARADIGM and programming guides describing latency-specific COLLAPSES THE IT features that are now available. These advancements must be fully embraced by the application developer FOOTPRINT, SAVING (3rd party or in-house) if they are to achieve the desired performance. CAPITAL AND OPERATIONAL The capabilities available now in a single 2U server are truly remarkable: 48 cores, 1.5 TB Memory, COSTS. 120MB of L3 Cache and up to 6 PCIe slots for ultralow latency network adapters. For the first time, a full trading solution Ticker Plant (with as many market data feeds as desired), Trading Strategy and Order Execution can be deployed on a single server, with all communications done through low latency cache or shared memory. This new single server paradigm collapses the IT footprint, saving capital and operational costs. Such a solution, taking advantage of all the advances in hardware, OS, and system and application software, has reduced the tick-to-trade latency to less than 5 microseconds with a very high level of determinism, as documented by STAC (see www.stacresearch.com/redline). DIFFERENTIATION As tick-to-trade latencies continue to shrink for everyone, it becomes exponentially more expensive to pursue custom latency reductions while at the same time the ability to profit from latency arbitrage is reduced. At 0 1 7

Continued many firms, this realization is driving resource allocation away from specialty hardware plays to the development of more sophisticated trading and risk management strategies. This is another consequence of Moore s Law that the ability to differentiate purely based on hardware is rarely sustainable. Intelligently written software provides value with a longer life span. It could very well be that in the future the focus of HFT will be information arbitrage rather than pure latency arbitrage. Moreover, other software functions that don t provide strategic differentiation, such as ticker plant and/or order execution management can be purchased freeing up further resources for trading strategy development. Mark Skalabrin CEO, Redline Trading CONCLUSION While zero latency trading remains a theoretical ideal, the costs in pursuit of such a goal are prohibitive and are not justified when sub-5 microsecond latency tick-to-trade solutions are easily available and affordable. A TRADING-STRATEGY-CENTRIC APPROACH BASED ON MAINSTREAM HARDWARE AND WELL-ARCHITECTED SOFTWARE PROVIDES: 1) COMPARABLE, IF NOT BETTER, PERFORMANCE THAN FPGAS FOR LATENCY AND DETERMINISM ACROSS THE FULL TRADING CYCLE 2) THE LOWEST HARDWARE ACQUISITION AND LIFECYCLE COSTS 3) THE ABILITY TO EASILY LEVERAGE THE POWER OF MOORE S LAW AND VOLUME ECONOMICS FOR FUTURE NEW TECHNOLOGY INSERTION 4) THE MOST DYNAMIC TRADING ENVIRONMENT 5) A COMPLETE TRADING SOLUTION IN A VERY SMALL IT FOOTPRINT A LONGER TECHNICAL VERSION OF THIS PAPER IS AVAILABLE ON REQUEST AT MARKETING@REDLINETRADING.COM 0 1 8

ADAPTIVE SOFTWARE AND LICENSING FOR THE DIGITAL AGE OULDN T IT BE GREAT IF YOU COULD get software that delivers core functionality for your business and W one that you could then customise to meet the needs and direction of your business as it grows and transforms? That software you would also own, it would be placed at the centre of your technology platform and it would not be dependent on an outside party or expensive bespoke development. You would also expect that software to let both users and customers conduct their work life on smart devices, on the move, and connecting in real time. and what if that software was free? As businesses begin to transform their approach in a more customer centric way, they are turning to technology to facilitate their new approach. At this point they are confronted with an array of software packages that are expensive, too generic, serve only 60% of the required functionality and another 60% of functionality they will never use. Alternatively they are faced with potentially time consuming and expensive software development projects. Bill Gilbert and Robert Betts Founder & CTO, Navoh Partners It is becoming increasingly apparent that the current software license agreement is outdated and needs reform as it typically favors the vendor and often does not give value for the money spent. SOFTWARE REQUIREMENTS FOR THE DIGITAL AGE: TRANSPARENT, MODULAR FRAMEWORK ALLOWING FOR PLUG AND PLAY ADDITION OF FUNCTIONALITY REPLACEABLE MODULES THAT FACILITATE TECHNOLOGY ADVANCEMENTS. USER INTERFACES THAT ARE PORTABLE ACROSS MULTIPLE DEVICES LICENSE AGREEMENT THAT LETS YOU PAY ONLY FOR THE SUPPORT AND VALUE THAT YOU REQUIRE SOFTWARE THAT CAN GROW AND ADAPT WITH YOU CONNECT TO ANY OUTSIDE INFORMATION SOURCE AS REQUIRED AND USE THAT DATA, AS YOU REQUIRE Within financial firms, the Middle and Back Office 0 1 9

Continued is an area difficult to provide generic software as every firm has its unique characteristics and consequently unique requirements. Hedge Fund Operations are custodians of firm s customer facing information connecting with investors, administrators, prime brokers and fund managers. The Operations Team is at the front line of the digital revolution in this industry. There is a particular challenge for the industry to find technology solutions that support the industries continuously evolving requirements: quickly, completely and cost effectively. Navoh partners have developed Unify, a software platform designed and built for the digital age. Its functionality is targeted at the Middle Office and is extendable to match the needs of the entire fund. Deployable on-site or in the cloud with excellent integration capabilities, Unify can fit into any outsourcing model that the firm is currently engaged with. UNIFY IS FREE! Navoh Partners are part of the disruption taking place in the Fintech space, where technology supports the business and is remunerated based on its value added not punitive legacy license agreements. Unify is provided with a perpetual license and support agreement which flexes with the customers needs and requirements. Bill Gilbert and Robert Betts Founder & CTO, Navoh Partners 0 2 0

FAST GROWTH ALLOWS FOR FUTURE STAFF INVESTMENT WE ARE THE PEOPLE WE HIRE W HEN THE MARKET IS BUOYANT THE best companies are differentiating themselves by hiring people for who they will become not who they are right now. The financial technology landscape is very different today than it was even just a year ago largely due to the sheer volume of companies investing into their growth as well as firms starting up from scratch. What has emerged is that individuals looking for work in the financial technology space have the luxury of many different options and often are receiving numerous offers. Most companies have continued with their traditional methods and processes of hiring without much success. The more candidates drop out of their interviews or refuse to accept their offers the more frustrated they get with trying to keep up with the rapidly growing financial services technology market place. Nadia Edwards-Dashti Head of Financial Technology, Harrington Starr The firms that are having the most success in growing their team are those that are really taking into account the importance of the individual rather than the growth itself. They are the firms that hire people for the technologists they will become rather than for the technologists they are right now. The pattern that has started to emerge is that when these firms are hiring they are talking to their applicants about what they will learn and what the future of their role will be. They are investigating whether these candidates should be invested into and should be trained in the business as well as technology. More often than not the candidates that lack all the skills on paper but make up for it in passion, commitment and desire to learn are the ones that are given the opportunity. It s these technologists that won t deliberate on whether to accept the opportunity, instead they know they would be mad not to; and when they start they do their utmost to prove themselves. Those financial services technology firms that stand strong on the skills that each applicant must have on day one and say they will wait however long it takes for that elusive right person are the ones that seem to face the largest struggles when they do offer 0 2 1

Continued these matches and find these matches want more. They want opportunity. In this fast growth market the heart of technology doesn t seem to be changing. The desire to improve, to learn and to get excited by what s new in technology is still within the soul of any technologist looking to move even those who are adamant more money is central to their move. However prestigious a firm may be, in this market place those who are most successful in their growth are those who are hiring for the future. They are making long term decisions to reach their long term goals. Nadia Edwards-Dashti Head of Financial Technology, Harrington Starr The technologist should be the one who benefits most and will be as long as they grab the opportunities that these firms and this market has to offer. THE DESIRE TO IMPROVE, TO LEARN AND TO GET EXCITED BY WHAT S NEW IN TECHNOLOGY IS STILL WITHIN THE SOUL OF ANY TECHNOLOGIST LOOKING TO MOVE EVEN THOSE WHO ARE ADAMANT MORE MONEY IS CENTRAL TO THEIR MOVE. 0 2 2

WHAT S NEXT FOR THE FINTECH UPRISING? OR A NUMBER OF YEARS NOW, real-time trading infrastructures have been designed and deployed F assuming that storage technology is too slow, and that no individual component can be trusted to provide a reliable service. Failure management is generally built in to the design above the infrastructure layer, combined with double or triple infrastructure resilience at every level, with all the associated costs. While this cost model may be appropriate for real-time trading, that only represents a tiny fraction of the applications and processes in the FinTech landscape. Storage is the slowest part of any infrastructure. Initially reliant on disk technology and more recently augmented with SSD technology to try and boost performance, in reality storage is still orders of magnitude slower than the networks and processors that complete the infrastructure. The performance of storage directly impacts the performance of the business process. When new data is written and absolutely must be committed, storage write performance is key. And when applications randomly interrogate large datasets, most of the data will be accessed from storage. Whilst most database models attempt to keep as much data as possible and certainly the most frequently accessed data - in server DRAM, there are many instances where that simply is not possible. This is where flash technology comes in. The service time or latency is tiny compared to disk technology. Enterprise class flash solutions can deliver hundreds of thousands of transactions with a latency lower than 500 microseconds an almost real time response and crucially this technology is now at a price point where all T1 and T2 applications could be moved to an all flash infrastructure today. Steve Willson VP Technology Services EMEA, Violin Memory Alongside the obvious benefit of faster application performance, the total infrastructure cost can also be dramatically improved. In the traditional model, slow storage service times have led to storage being over-provisioned to deliver lower contention at the storage layer, and servers being over-provisioned because much of their useful processing cycles are idle, waiting for storage. In an all-flash infrastructure, storage is provisioned on a capacity needed basis rather than a performance-needed basis, cutting 0 2 3

Continued real deployed storage capacity by up to 50%. ENTERPRISE CLASS FLASH SOLUTIONS CAN DELIVER HUNDREDS OF THOUSANDS OF TRANSACTIONS WITH A LATENCY LOWER THAN 500 MICROSECONDS AN ALMOST REAL TIME RESPONSE AND CRUCIALLY THIS TECHNOLOGY IS NOW AT A PRICE POINT WHERE ALL T1 AND T2 APPLICATIONS COULD BE MOVED TO AN ALL FLASH INFRASTRUCTURE TODAY. Removing the bottleneck at the storage layer also allows the hyperconsolidation of databases on far fewer instances and servers. This often drives server utilization (and associated licensing) up from typically 20% to 80%, providing the opportunity to cut total deployed cores, again leading to potential cost savings. Finally, the remaining unvirtualised databases that have relied on a proprietary dedicated compute farm can now be migrated safely to a virtual environment. Tests show that databases (random read, sub 20% write load) that are moved from physical to virtual environments suffer a 15% to 20% drop in performance when no other optimisations are made. The performance benefits Steve Willson VP Technology Services EMEA, Violin Memory that flash delivers to the same application set far offsets this penalty, enabling the move to a fully virtualized datacenter to become a reality, even for the mission-critical high performance applications that have been ring-fenced. Flash memory will become the standard platform for active data in FinTech over the next couple of years, and we will start to critique flash storage just as we did disk-based storage arrays over the last 15 years. Not all technology is equal, even where the underlying components are similar. Performance is important, but cannot be achieved at the cost of availability, manageability or application integration. Data will need to be replicated, data and snapshots will have to be consistent. The environment will need to integrate with hypervisor functions, and be manageable from existing toolsets. And it needs to do this while delivering sustained low-latency performance. FinTech Companies are starting to exploit all-flash arrays in areas as diverse as back testing, value at risk, compliance and news/sentiment analysis. Some believe this is the tipping point to a world where data will live on flash memory unless it can be proved to be adequately served by disk. A polarized world of flash and trash will exist, where inactive data that must be kept but often not accessed will live on the cheapest densest object stores, with all other data living in an all-flash environment. As with most technologies, what looked niche yesterday becomes standard tomorrow. And FinTech companies are usually at the forefront of innovation. 0 2 4

THE NEXT BIG THING? BACK TO THE FUTURE Howard Tolman Director, Waratek NE OF MY FAVOURITE FILMS IS undoubtedly Back to the Future which has two sequels. The theme running O through this trilogy, in case you didn t know, is that many of today s problems could have been solved by the power of foresight. So, with this in mind, I am going to look at the development of the world s most successful computer language Java. Why is this the next big thing? Java is a product of the early nineties and was designed to exist in a world when one application was deployed on one server, where there was no Cloud Technology, no virtualisation and perhaps more importantly, nothing like the continuing relentless malicious cyber attacks on vulnerable applications which we see today. In addition Java has unwittingly become a victim of its own success by spawning a variety of development tools and techniques that could not possibly have been envisaged at the outset. Not surprisingly the unstructured and almost anarchic development of Java application development has led to there being an unprecedented mishmash of Java libraries, open source application tools, toolkits and undocumented software each of which plays its potentially disruptive part in weakening the integrity of the production application. The end product might and frequently does have as much as 85% of its content drawn from software which may well be full of vulnerabilities and weaknesses which can be exploited by well funded, clever and determined attackers. When I saw the subject list that I was obliged to work with for this publication I was inevitably drawn not so much towards what might be coming in the future but what we hadn t managed to get completely right in the past. Every so often it is time to take stock and recognise that if we had known what we know now at the outset of the Java revolution then we would not have allowed it to develop in the way that it has. However we are where we are and given the predominance of the Java language and its undoubted benefits in lots of areas it makes perfect sense to see if we can sort some of these problems out without too much pain. Java has undoubtedly been one of the greatest success stories 0 2 5

Continued over the past 2 decades. Applications written in Java comprise more than 50% of all Enterprise applications world wide and yet fabulous money saving and efficiency initiatives like cloud computing have been largely by-passed by the Java community. Not that there is anything else on the horizon currently to challenge Java but the problems of adapting it to the modern IT environment seem to have phased everybody into a state of needless lethargy and cynicism. On top of this the weakness in Security around existing Java applications and estates has made its way almost to the top of the list of issues facing those with the thorny problems of keeping data secure from malicious attack. Howard Tolman Director, Waratek So the next big thing from my point of view will not so much be Big Data or other similar groundbreaking capabilities, although these are important, but adapting what we currently have to ensure that it works as it should do in harmony with the imperatives of the current decade. This is that legacy Java estates and new Java applications can be deployed securely in an environment where many applications and business processes on one or several servers can be operated efficiently at run time without unnecessary operational problems caused by outdated technology constraints. So there are problems to be solved and some significant progress has been made in both virtualisation techniques, static and dynamic code analysis and real-time application self protection. Take up, however, has been slow and this is in many cases caused by those in the IT industry itself. The separation of development, deployment and security functions has been instrumental in ensuring that knowledge does not always travel well over these different disciplines. Nothing demonstrates this better that the estimate that there are some 9 million Java developers worldwide whereas the number employed in the development of Java Virtual machines is put at less than 1,000. Clearly given the massive potential savings from greater efficiency, whether through Cloud environments or more traditional deployment methodologies, this an extraordinary statistic. It also sadly demonstrates the reluctance to embrace cost reducing innovation for whatever reason whether it be a lack of understanding of where technology is going or just inertia of the worst kind. On Java application security in general however there are some pressing imperatives. The first is that the public in general are becoming far more concerned about the risks of cyber attacks which might affect them and their data. Company Boards are now waking up to the fact that not keeping their clients data secure is a sure fire way of losing business as well as money. Government in general is also having to respond to this new awareness among voters. There is a lot of Java in government which is bad news for our political classes as this sector has not exactly excelled itself in the management of IT projects, or being able to respond to new initiatives and of keeping data secure. Nevertheless they have the power to appoint regulators who can force change if necessary and there are signs that some jurisdictions are doing this already. There is nothing like the threat of being closed down to focus the mind. To sum up both executives and enterprise application specialists are going to have raise their game significantly over the next few years and it won t just be big new shiny initiatives that make the headlines. Fixing what went wrong in the past is arguably just as important. 0 2 6

WHAT S NEXT FOR THE FINTECH REVOLUTION? HE OXFORD ENGLISH DICTIONARY DESCRIBES revolution as a forcible overthrow of an order in favour of a new system. It s perhaps not the best T definition to apply to Fintech, due to the relatively slow progression that has been made over the years in technology within the sector. Many would argue that the first and only true revolution occurred during 1980s when computers overhauled global finance and became the backbone of the industry. During this decade huge leaps were made in computing, primarily in networking and communication, as protocols such as SWIFT brought us unified interbank messaging, which was quickly adopted worldwide. The software developed to handle these communication protocols was relatively simple by today s standards; however, despite being designed to be standardised, due to the many user defined fields, each company created their own flavour and style of message. As a result, the software engineer at the receiving end had to continually create entity specific code. Michael Armitage Chief Architect, BRT Thirty years on, many of these protocols remain, as well as the legacy systems that run them behind closed doors. While these systems have created scale and are now processing billions of transactions every day, the phrase if it ain t broke don t fix it remains too prevalent in the financial world; but is it with good reason? Look at the RBS software upgrade of 2012 that killed the overnight transfers between accounts, essentially crippling the bank and its customers for days. These are the kind of horror stories that every boardroom in the land discusses when the Chief Architect comes up with a brilliant plan that can cut costs in half. This is not to say that these issues are only experienced by enterprise, they ring true all the way down to the one man band and his grossly elaborate spreadsheet. Suggestions of change and their cost savings never seem to outweigh the implementation cost and especially the perceived risks involved. Therefore we have had no choice but to see changes trickle in overtime and usually at a rate slower than the evolving technologies themselves. So to the billion dollar question: What would a revolution be like and how would it happen? Well, firstly we must consider what the largest overall problem is in the industry. The unanimous answer is data - the sheer quantity and diversity of information for relatively simplistic transactions and positions. Wiring money between 0 2 7

Continued banks, buying a share in a company and even exotic derivatives transactions are not rocket science by any standards. Every physical (and conceptual) security or contract can be split out in to a finite list of variables. Every company and system globally does this but, due to the many influences of the people behind these systems, the shape of the data is often different. Ultimately, everything breaks down into the positions each entity holds in a security/contract and the daily deltas on these positions, comprised of transactions, corporate actions and valuation fluctuations. If the FinTech industry were able to create a single protocol in order to communicate these transactions, positions and valuations, as well as a unified secure network in which to share the information, many of the current technological challenges would be solved in very short time frames. There is a beautiful mathematical theory written by the eponymous John Nash in January 1950. The Nash Equilibrium both won its author the 1994 Nobel Prize in Economic Sciences and inspired the aptly named 2001 film A Beautiful Mind. In simple terms, in a group scenario to achieve the best results, you must consider not only what the best strategy is for yourself but what the best strategy is for all participants involved. Any of you that have seen the film will remember the bar scene well, I m sure. Applying this principle to the Fintech world means collaboration and lots of it. It means a striking juxtaposition of capitalism, competition and evolution. It means looking at the industry as a whole and pooling resources to serve the overall goal of a better future for not only your institution but for everyone. Unfortunately, that is easier said than done when technology is a subset of a financial company and therefore always the secondary focus. It s the job of the board to ensure the company is secure and producing revenues via reliable financial returns for its shareholders. Historically, there hasn t been a seat on that board for anyone from a technology background fighting that corner but this is beginning to change. I began my IT career on an enterprise scale, where the chance to make an impact is constantly compromised by the day to day operational workload. My experience in smaller institutions was that my influence, which began larger, slowly diminished as the business grew due to higher profits and a more corporate outlook. The problem is catalysed by a fundamental misalignment of interests, the same problem every technologist faces where traditional financial outlook is the primary concern of the business. If technology comes second, all the great ideas in the world are never going to overrule the board s inherent fear of technological disasters like the RBS upgrade, posing a far more tangible, bottom-line and short term threat to the business. To overcome these conflicting priorities is difficult, especially when the IT function is part of financial business. Whether products or services are sourced from the outside world or not, there will always be Michael Armitage Chief Architect, BRT an internal technology team within a financial company managing them, despite decisions being ultimately made by other non-specialist stakeholders. I believe the only solution to all of these challenges is a true separation of concerns, an approach I have backed personally with a recent career change. It begins with SaaS (Software as a Service) but in most cases adding an outsourced human element as well, becoming what some are calling PaaS (Platform as a Service). Essentially, the idea is to take responsibility for all IT functions within a finance company and in return provide a service with a predictable fee and an SLA that ensures the clients all get the service they expect. All that and none of middle management required to keep the thing running - an extremely structured path to obtain enhancements to the products and services with the resource & expertise to deliver projects quickly. What happens behind the scenes in terms of technology and code is therefore largely irrelevant to the finance company and can be reengineered and, importantly, scaled, to serve many clients rather than just one. What this creates is both a best practise hybrid technology solution and the appropriate separation of concerns. Each business can then focus on what they do best; finance does finance and tech does tech. As the PaaS model becomes more established huge economies of scale can be generated through collaboration and the pooling of software from many clients in a particular financial sector, as well as a unifying of the ways in which these institutions communicate with each other. Rather than an immediate revolution, due to significant psychological barriers, these types of partnerships are likely to grow more organically; but as costs are driven down and software is tangibly improved, momentum will increase. When the owner of the IT assets primary function is IT rather than Finance, the decisions on architecture and technologies can be made and implemented extremely quickly. Look at what the giants of software have done in the last ten years. Facebook, Google, Microsoft and Apple have changed our outlook on the world but Fintech is stuck in a relative dark age of computing. Individual businesses are unlikely to get ahead of the technology curve but PaaS providers will be best placed to at least show them the way. 0 2 8

PUTTING HIGH TOUCH IN LOW TOUCH HERE IS NO DOUBT THAT THE RAPIDLY changing nature of trading is high on the agenda of the industry right T now. Pressure on resources is driving some investment banks to restrict high-touch trading services to their most profitable clients and buy side and sell side dealing desks are adjusting their trading behaviours. The hunt for liquidity remains a primary concern, as is the search for alpha (investment returns), which is made more difficult by complex regulation and a difficult economic environment. In response to this, there needs to be new levels collaboration between the high-touch (human) and low-touch (electronic/automated) trading services that firms offer their clients, delivering an intricate balance between multiple channels, infrastructure and data to determine when, where and how to trade. As financial markets change, buy side clients demand ever more from the sell side firms that serve them. A new approach to trading is emerging one that requires a range of execution styles, from hightouch, to hybrid with its blend of broker-assisted electronic trading, to pure low-touch electronic and algorithmic trading. Robin Farnan Managing Director, BT Financial Technology Services However, clearly these flexible approaches bring their own set of challenges, with many different aspects of the trade cycle to be orchestrated by those participating. Experts need to be pulled together quickly and at short notice to provide knowledge and advice to clients. Orders need to be captured and trades executed using a range of strategies. To achieve this, a unified trading environment is needed that allows people to interact, collaborate and trade in real-time wherever they are. And all of this must be underpinned by an agile technology infrastructure that allows the trading firm to stay the right side of increasingly strict compliance and risk regulations. As the industry automates, both buy and sell side participants need to make more of their use of technology to optimise liquidity, relationships and resources. According to a paper by Rebecca Healey from TABB Group, High Touch in Low Touch: Next Generation Trading, the deluge of information needs not only the ability to efficiently visualise, analyse and respond. Delivering portable access to content in real-time across organisations will enable 0 2 9

Continued firms to quickly and accurately react to both their clients and the wider market. The report states that technology must be highly intuitive and interactive to connect people with the information they want at the time it is needed. And this must be across silos, departments and different trading methods. Robin Farnan Managing Director, BT Financial Technology Services The huge rise in automated trading is driving down spreads and has made it much harder to find investment returns; so in response to this, more complex trading strategies have evolved blending greater human interaction with automation, in order to find liquidity and collateral. That s why we have developed BT Netrix HiTouch, which acts as a control centre for human interaction, integrates with apps such as order management and customer relationship management systems, and is tightly integrated with BT Radianz Cloud Services, which gives access to over 400 service providers covering almost every aspect of the wholesale financial community. We see the need for high-touch intervention to complement low-touch automation on both the sell side and the buy side. The smart application of technology is redefining the control of products and the ability to execute. Making the most of these new opportunities will require holistic and interactive networks to seamlessly link content and community throughout the entire trading cycle. Existing high-touch trading strategies are often expensive and inefficient. But by utilising technology, bespoke relationships can be built through highly integrated systems operating real-time, collaborating across organisations and communicating through multiple channels and devices. A new trading environment, one characterised by more stringent regulations and the need to reserve more capital, is increasing the pressure to make the right decisions faster than ever before and maximise elusive investment returns. Consistent performance will only be achieved through the efficient interaction between people and technology, delivering better collaboration and high-touch services in a low-touch environment. * High Touch in Low Touch: Next Generation Trading by Rebecca Healey of Tabb Group. Download the full report to learn more about why financial markets firms of the future will require unprecedented collaboration of high- and low-touch services; facilitating an intricate balance between multiple channels, infrastructure and data to determine when, where and how to trade. 0 3 0

WHEN CLOUDY BECAME CLEAR TO ME Y OWN PARTICULAR MOMENT WHEN I think I finally got the cloud was around 24 months ago. Prior to that, M things for me about the technology were, well, cloudy. Sure there was a lot being written about cloud technology, but our clients weren t then talking about it much so it was not in my top three of personal attention grabbers. Back then I confess to only a superficial understanding based on the journalistic headlines that seemed to oscillate at regular frequency between i) eulogizing the benefits of on-demand, scalable cloud computing and ii) scare-mongering that the cloud is not secure or reliable enough yet. Back to my cloud epiphany story. On a visit to the offices of a very helpful and knowledgeable contact at Microsoft (yes, such people do exist, even at large companies...), I was asked what was needed to do a full install of the server side of my company s software. I watched slightly amazed as my contact then provisioned the infrastructure, network and software directly from his laptop PC, and less than 30 minutes later my requested technical environment was all available and ready to use. Firstly, an apology to those of you who are young enough to think that what I have described above is normal or no big deal. Over the past 20+ years of working in financial markets IT I have seen how long it can take many larger institutions to order and then commission a set of servers ready for a new software installation. To be able to provision new infrastructure in 15-30 minutes of wanting to do so is quite frankly amazing, and a complete gamechanger from an operational perspective, something that I think is often overlooked in many articles that I have read about cloud technology and its various benefits. Brian Sentance CEO, Xenomorph Secondly, I have to give a nod to those folks that have a lot of experience from mainframe computing in the 70s and 80s. Yes I think using the cloud is analogous to mainframe computing in its centralized provision of resources. The analogy certainly has its history doesn t repeat itself, but it sure as hell rhymes validity. However to dismiss cloud as nothing more than the mainframe reborn is in my view missing the point in terms of the control, adaptability, choice and scale that the new technology offers over the mainframes of old. 0 3 1

Continued For those of you looking around at new job opportunities in financial markets IT, my advice would be to ensure that whichever company you are interviewing with has a good cloud story. Concerns over security, reliability and control (and regulators!) still remain, all with varying degrees of real and imagined legitimacy. In the longer term though, these concerns over cloud computing will inevitably disappear just as internet access is almost taken as a given by most of us today. So take a good look at cloud technology within your career in financial markets IT, it s the future! Brian Sentance CEO, Xenomorph ON A VISIT TO THE OFFICES OF A VERY HELPFUL AND KNOWLEDGEABLE CONTACT AT MICROSOFT (YES, SUCH PEOPLE DO EXIST, EVEN AT LARGE COMPANIES), I WAS ASKED WHAT WAS NEEDED TO DO A FULL INSTALL OF THE SERVER SIDE OF MY COMPANY S SOFTWARE. 0 3 2

DELIVERING MORE COMPETITION IN BANKING GOVERNMENT DEPARTMENTS MUST FOLLOW THROUGH Alex Letts Founder & Chief Executive, Ffrees HE RECENT ANNOUNCEMENT BY THE Competition and Markets Authority (CMA) of a full scale investigation T into the UK retail banking sector was a welcome relief for challenger brands hoping to break into the market. The report highlighted that just four UK retail banks have a 77 percent share of the current account market; holding around 1.6 trillion of our money on deposit. We all know that the banking industry needs more competition. However, the current environment creates substantial barriers to entry for new challenger firms; it simply isn t a fair fight. Small providers are struggling to get their foot in the door, accounting for just five per cent of the market despite providing higher levels of customer satisfaction compared to the big 4. For years now, the banking industry has been out of touch with consumers needs. While I truly support the inquiry and hope this will be the trigger for real change within banking, a part of me wouldn t be surprised if it were just the start of more paperwork and further consultations leading nowhere. New entrants can deliver consumers more choice so the CMA investigation should spell good news. Unfortunately, the inquiry is expected to last 18 months, well in to 2016. It shouldn t take this long for government to act. New entrants seeking to contend with the banks have the infrastructure, processes and technology know-how to take on the established players and help improve the whole banking industry; but they can t do it alone. They need a regulatory framework to make it happen. The UK regulators have done a lot to make things more transparent and make things easier for innovative new entrants and they should be applauded for their efforts. But there is more work to be done and that work should now accelerate. The CMA suggests that potential outcomes of the inquiry could include a ban on complex fees, a cap on overdraft charges and banks being required to allow 0 3 3

Continued smaller rivals to use their branch networks and payment systems. These are all modifications I support but I don t see why customers or small providers have to wait almost two years to start seeing these benefits delivered. I will always campaign for more to be done to increase competition as that is the only way to make any real headway towards a better market. Allowing companies to challenge the norm and offer innovative ideas that place customers at the heart of what they do is imperative to secure our financial future. Alex Letts Founder & Chief Executive, Ffrees Determined and innovative new entrants are leaping over the barriers and becoming game changers today, taking on the banking behemoths by offering new products and services which better serve the needs of consumers. A recent report from Accenture looked at the entrepreneurial explosion in the financial technology sector, or FinTech sector as it is often referred to, and discovered there are almost 135,000 financial services technology workers in the UK. Savvy entrepreneurs are demonstrating that good ideas executed well can succeed regardless of the regulatory and legacy barriers they face. For example, Transferwise, a currency transfer startup, has been growing great guns, recently receiving 25million in backing from Richard Branson of all people, to challenge the banks. Funding Circle, a peer to peer lender for small businesses, has expanded rapidly since its inception and has now facilitated over 320 million in loans. There are other great growth stories; GoCardless, WorldRemit, and lets not forget a name that is now a staple for all, PayPal. These phenomenal growth stories THE MISTAKES show that it is possible for new entrants in financial OF BANKING PAST services to succeed where there is a will, there is a way. The CMA is clearly trying to make a difference but it must be actionable and affective. What businesses need to succeed within the financial services industry is more than ideas and words. The mistakes of banking past have left consumers weary of financial services consumers need to feel valued again, to be the focus for the financial services provider, to be provided with services in the way that best suits them, not in the way that best suits the bank. Banks are not the only option for people and what we need is action from those with the power to open a few more doors for these alternatives, to ease the path a little more, to enable them and drive more competition in the sector. Let s hope the CMA along with the regulatory bodies will stick to their word and drive forward with actions to create a truly level playing field for all participants in the banking and financial services arena. I also hope we don t wait 18 months to see real action begin; change is being driven by entrepreneurs today and needs to be supported for the good of all. HAVE LEFT CONSUMERS WEARY OF FINANCIAL SERVICES CONSUMERS NEED TO FEEL VALUED AGAIN 0 3 4

THE FUTURE OF FINANCIAL TECHNOLOGY RECENTLY PUBLISHED AN ARTICLE ( The Future of Investment ) in which I examined the potential future I providers of investment / asset management services and what the next generation of investors are likely to be looking for. To follow on from this, I thought it might be useful to analyse this area from a technology perspective what will be required at the customer point of sale and how is this tech area likely to develop over time? There doesn t seem to be an area of consumerism at the moment without technology at the forefront from retail, music & TV, social interaction, travel, exercise etc and there isn t much reason to assume that the investment industry will be any different. As we have seen recently (e.g. Facebook s mammoth purchase of WhatsApp for $19Bn) seemingly simple technology can be given an extraordinary value provided it allows the purchaser access to vast quantities of client data ostensibly so that further products can be target marketed and users can be given an involving, amalgamated and multi-faceted service. As mentioned in The Future of Investment there is a real opportunity for large corporate clients to break into the investment industry given that the likes of Apple, Amazon and Google already hold enormous amounts of client data the key to their failure or success however is likely to be the technology used to deliver the investment services of the future. Elliot Parfitt Senior Trading Systems Specialist, Harrington Starr It goes without saying that technology will be webbased and likely mobile so the question is really: What do people want? and I would suggest that Apps may have the edge over more traditional login websites in this area. Users also like what they already know so already familiar interfaces may have the edge over new designs. Perhaps an itunes for investment or an Amazon-Portfolio App? Provided that confidence could be built around security, an App from an Investment Manager (either currently existing or one of the future) that offers full visibility of an investor s portfolio is likely to be attractive. Similar to the hugely successful Apps for spread betting and sports betting, investment management delivery will need to include extensive choice, the ability to fully analyse potential investments and flexibility of user profiles 0 3 5

Continued Elliot Parfitt Senior Trading Systems Specialist, Harrington Starr & configuration settings. In addition to this, there is a real feeling that simple is better, I don t believe that the next generation of investors are going to want anything like the level of detailed information that has been traditionally expected of an investment manager. More important will be the level of reliability and speed. In the world of instant action, any mobile-provided service will need to be backed up by networks & infrastructure that allow users to access & interact the service easily and rapidly especially dealing with scenarios where lack of access will affect users profit. Interoperability between financial services is also being spoken about so it would seem that links between banking, social accounts and investment services will serve the dual purpose of providing users easy access as well as giving providers the opportunity to sign their customers up to multiple product offerings. In short, the future of the investment services industry is likely to see a technological convergence with other areas of the consumer market which in turn will have an impact on the area of the industry which is actually producing & supplying the technology. Cross-format Applications and those that can incorporate a variety of offerings will be the winners provided that they can supply fast, secure and informative investment options for the next generation of investors. IT GOES WITHOUT SAYING THAT TECHNOLOGY WILL BE WEB-BASED AND LIKELY MOBILE SO THE QUESTION IS REALLY: WHAT DO PEOPLE WANT? 0 3 6

INSURANCE A MODEL RIPE FOR DISRUPTION N THE LAST 6 MONTHS THE INSURANCE industry has woken up to the fact that the next wave of digital innovation I could have a big impact on their industry. At one level there is a lot of room for improvement in the technical efficiency of an industry that has historically been largely paper based. FOR INSTANCE: BETTER DIGITAL DISTRIBUTION WITH FEWER AGENTS IN THE CHAIN. BETTER USE OF DATA TO PRICE RISK. MORE PERSONALISED COVERAGE WITH FLEXIBLE PERIODS. A number of the larger Insurers are now setting up innovation labs with the view to assisting entrepreneurial activity so that they can have a front row seat view of the innovation in the sector. As one Insurance professional said to me We don t want to wake up in a year s time to find out that our industry has been disrupted by an innovation that we know nothing about.. Ralph Hazell CEO, Microexchanges At the extreme level of innovation, the internet could change the way that Insurance risk is distributed. At its core insurance is a crowd based product where the losses of the few are paid for by the premium of the many, so what if we could form online insurance networks with an element of risk retention, a kind of I micro-digital-mutual. There are a couple of businesses that are doing something like this, one being Boughtbymany, a UK based company that helps people form networks for niche insurance requirements such as Labrador owners insurance or young drivers insurance. Then there is Friendsurance in Germany that is based around networks that can buy home insurance or liability insurance as a group with a network deductible. I started my career as a broker at Lloyds of London, and have always been fascinated by the Lloyds syndicate approach and how that might be brought into the digital era. As the founder of Microexchanges that builds P2P marketplaces I was up for the challenge to develop a P2P insurance model. I developed the concept for InsureMyFriend where 0 3 7

Continued people can form Insurance networks that would share a level of risk within the network but with an Insurance company still standing behind the network in case of larger claims. We plan to start with mobile phone and tablet insurance. The reason for this is that in this sector there is a high percentage of fraudulent claims as well as overpriced policies due to high marketing costs. We hope to reduce the amount of fraudulent claims due to the behaviour change inherent in a group of people who know each other and lower the marketing costs due to the network effect friend referrals. Initially my proposition fell on deaf ears, but in the last few months the appetite for innovation has suddenly become apparent. Ralph Hazell CEO, Microexchanges In March InsureMyFriend was the winner of the Aviva innovation hackathon and then 2 weeks later I came runner up in the London Grand Challenge which means I ve been sponsored to go on the executive programme at Singularity University at NASA in California where I plan to further develop the proposition. Whilst we are still at the product refining stage, I feel that this is one of those ideas whose time has come and with a bit of following wind and the right partners I hope InsureMyFriend can go live to the public later this year. Insurance has often been a product that people are reluctant purchasers of. The digital innovation ahead of us will make Insurance more efficient and transparent, and will help people truly understand and appreciate what insurance coverage they have and will be willing to refer friends and share data to make their insurance cheaper. INSURANCE HAS OFTEN BEEN A PRODUCT THAT PEOPLE ARE RELUCTANT PURCHASERS OF. 0 3 8

THE BUSINESS CASE FOR A DATA INTEGRATION STRATEGY ATA INTEGRATION IS OFTEN recognised as a purely technical subject but the reality is that D a carefully considered and implemented integration framework can bring about huge operational and cost benefits to any business. Whilst the author s near three decades of experience have been exclusively within the Financial Services domain, the basic tenets of this article are applicable to any industry. All but the smallest of companies will typically have multiple implemented software applications that enable their business activities and in the case of global organizations, this may amount to many hundred. In a bank these disparate systems will be handling the trading, confirmation, settlement and reconciliation of various financial instruments such as equities, fixed income, FX, commodities, trade finance and payments. In addition, there will be shared functions such as accounting, CRM and compliance. For non-financial organizations the applications may differ such as design, production, consumer sales, shipping and supply chain finance. Whatever the requirement for a company to operate efficiently, the applications have to share information as part of overall business process. To complicate matters no company works in isolation, so whether communication facilitates financial trading information or orders to the supply chain a portion of that application data must be exchanged with external parties. Many companies therefore, understandably, organize according to those functional areas with their accompanying systems acting as islands or silos of operation. Generally, they will do a sufficient job. However, the challenges facing board or C-level executives are of an entirely different nature. The business needs to be considered holistically which is often difficult or near impossible because the sharing of information at either the detail or the consolidated level is simply too difficult. Implementing changes can prove difficult because the implications to IT infrastructure will throw up serious hurdles. Fiona Hamilton Vice President EMEA Operations, Volante Technologies For example, a Group CFO requires consolidated accounting information which may come from separate geographical operating units all operating their own general ledgers. A Group compliance 0 3 9

Continued officer may need to report trading activity in particular instruments such as Over-the-Counter (OTC) Derivatives which are traded in many countries to domestic or other regulatory bodies. A CMO needs to consider trends in trading or purchasing activity at varying levels of detail. CIOs and CTOs then have the challenge of fulfilling these requests with an ocean of differing systems representing information in different ways. Information by definition is concerned with conveying meaning but underpinning it is always data. When systems need to share information or store it in a database it is often referred to as data. However when a system needs to communicate that data/information with external parties it will usually be structured into a particular format agreed by sender and receiver. This could be by mutual agreement (proprietary) or could be Fiona Hamilton Vice President EMEA Operations, Volante Technologies according to an international standard such as one defined by ISO, ANSI or UN/CEFACT. This externally communicated data is normally referred to as a message. The reality is that a message is still just data, but structured in such a way that an external party can understand it. Therefore when we talk about data integration it also encompasses messaging and indeed a better term could be information integration; however the term data integration is widely recognised to be the term that is used which is somewhat unfortunate as it inevitably makes it seem to be a technical domain issue only, rather than information which is generally perceived to have business and therefore ultimately dollars and cents value. So what are the underlying barriers for providing C-level and other senior executives with the information agility they require to not only operate their business efficiently but also upon which to make decisions to evolve and grow the business? The heart of the problem is that no two systems will represent data or more specifically the individual data elements in the same way. For example one may represent a currency as the ISO 4217 three character alphabetic code GBP, another as the three digit ISO 4217 numeric code 826 and yet another, perhaps a legacy mainframe system written many years ago as STG meaning Sterling. Considering that even relatively simple transactions such as payments have tens if not hundreds of data elements all called different names, with their own values and sometimes different possible lengths then the challenge of supporting even a simple request such as show me all Customer X s transactions across all transaction types in U.S. Dollars either in the U.S. or U.K. becomes much harder than seems at first. To compound matters further, in the processing of a single transaction such as a payment it will often have to interact with more than one system even if the currency is agreed and the three character ISO 4217 code is always used, it is unlikely that both systems will have the same names, content and length constraints for every single constituent field not to mention that the order of the fields is almost certainly going to be different. In its lifecycle, the payment information will have to be represented or presented in many different formats; the payment initiation from a customer in a web portal format, the payment posting to the payments processing system, the postings to the General Ledger, the interface to the Anti-Money Laundering and Know Your Customer applications, the communication of the payment instruction to another bank in SWIFT format and finally the same information in cash management format needs to be passed to a reconciliation system. Even this simple example requires the same information to be represented in seven different formats and this is by no means a complicated scenario. As stated above, many companies organize themselves into silos sometimes with their own 0 4 0

Continued IT development (engineering) team or in some cases with a shared in-house or out-sourced one. Often each one of these interfaces between systems is then coded in the programming language of choice such as Java, C++ or C#. Within each silo this generally achieves the basic minimum requirement that point to point integration is implemented. For small companies with limited numbers of systems this can sometimes suffice. However, for larger organizations and indeed even for smaller ones it comes with downsides that increase the more systems that are involved. Firstly, no two programmers will ever write code in the same way and this is especially true with modern object oriented languages such as Java. If you have seven interfaces to write across multiple departments the chances are that all seven will look different even though they all inherently represent the transformation of the same payment from one format to another is highly likely. Additionally, even though the programmer originally started from a specification written by a business analyst, inevitably the resultant code will deviate over time as changes made during bug fixing and enhancements are often not reversed back into documentation. Personnel also change or move onto other projects meaning on-going support and change become increasingly difficult and expensive as resources struggle to understand why code was written in a particular way. Also by having point solutions, very often the same functions are written many times over; NO TWO PROGRAMMERS WILL EVER WRITE CODE IN THE SAME WAY AND THIS IS ESPECIALLY TRUE WITH MODERN OBJECT ORIENTED LANGUAGES SUCH AS JAVA. Fiona Hamilton Vice President EMEA Operations, Volante Technologies for example a number of interfaces may have to understand SWIFT format messages and therefore the organization inherits three sets of code which have been written to read, create and validate that particular format. These structures also change on a yearly basis so even if the original programmers remain, the same changes need to be applied and tested three times. In all these existing scenarios at no point is there a consistent centralized representation of what a payment is; so the point to point approach does nothing to facilitate an overall view of the transaction lifecycle that can underpin the C-level type business information requirements. SO WHAT IS THE ANSWER? A COMPANYWIDE SHARED DATA INTEGRATION STRATEGY THAT IMPLEMENTS THE FOLLOWING: A NORMALIZED CANONICAL MODEL WHICH IS THE RESULT OF A BUSINESS ANALYSIS OF ALL THE DATA SETS TO CREATE A COMMON UNDERSTANDING OF EACH FIELD WITH INFORMATION THEN EITHER MAPPED INTO THIS MODEL OR OUT OF IT. THIS APPROACH PROVIDES A NUMBER OF BENEFITS: The basis for a data store combining all systems information in a common format enabling consolidated and consistent business information once persisted into a data warehouse and then accessed by either simple queries or via big data technology such as Apache Hadoop. It enables the disassociation of information sources and their destination allowing all systems data structures to map to a single format. For example, if there is a change to 0 4 1

Continued an external message format that in a point to point implementation would require all systems to communicate in that format in a canonical model approach it only has to be implemented once and only that change need be tested, not all three systems regression tested. A SERVICE ORIENTED ARCHITECTURE (SOA) TYPICALLY CENTRED AROUND AN APPLICATION SERVER OR SERVICE BUS TECHNOLOGY. THIS PROVIDES A NUMBER OF BENEFITS: Common functions such as validation of particular data structures or lookups of reference data or compliance checks can be shared by all systems that require them and only implemented and supported once. Fiona Hamilton Vice President EMEA Operations, Volante Technologies This facilitates the physical means of communicating the data either as files or messages over a myriad of communications protocols which also enables centralized management of the transport infrastructure. SOA generally comes with all the required security authentication and encryption facilities built in. A MODEL DRIVEN CODE GENERATION TOOL, PREFERABLY WITH BUILT-IN DATA MODELS FOR EXTERNAL STANDARDS. THIS PROVIDES AN NUMBER OF BENEFITS: Rapid development environment. Consistent generation of code, unlike manual coding. Generation of support documentation that exactly mirrors the function of the code. Out-of-the-box support for external data models that are maintained and delivered pre-tested. Automatic application of upgrades without having to re-write code. Removes issues involving changes in programming staff as the development environment shows the graphical data structures, the validation, transformation and enrichment logic without having to look at a single line of code. Whilst the devil is always in the detail, only by looking to implement these three constituent components of a careful and rigorous data integration strategy can a company set in place a responsive and cost efficient architecture that not only facilitates straightthrough-processing but also provides the basis for accessing information often lost to the management team. It is by no means a trivial task but the downstream benefits are enormous to both the business and IT operations. 0 4 2

LONDON VS OTHER FINANCIAL CAPITALS

IS LONDON THE FINANCIAL CAPITAL OF THE WORLD? WHAT NEEDS TO BE DONE TO WIN THE FINTECH RACE? AY YOU LIVE IN EXCITING TIMES! Well, we do. As an American living in England, and an entrepreneur M with successful exits, I m excited to be leading LIQUITY, an innovative business in London s FinTech industry. Whilst Silicon Valley is the centre of innovation for the technology industry; London the leader in FinTech. What is fueling this revolution? and how can London maintain its worldwide leadership? The answer is the big four. They are: 1) the FinTech advocates 2) the FinTech investors 3) the FinTech enablers 4) the FinTech entrepreneurs. An impressive group of passionate leaders and innovators. WHAT IS FINTECH? A fintech company is a technology business which has a solution that helps solve a problem in the Financial Services industry. Digital innovations are the future of financial services. Clients and consumers are demanding mobility - according to an Accenture report - transparency, instant access... We want lower interest rates when we borrow; lower foreign exchange commissions; if you own shares in a private company you want to be able to sell them more easily, this list of needs is vast as are the opportunities. Barry Shrier CEO, Liquity YES: LONDON IS THE FINTECH CAPITAL OF THE WORLD. BUT WHY? London tops the Global Financial Centres Index (GFCI), maintaining a lead above New York. Moreover, London has deep sector knowledge about financial services, writes Jon Bradford, MD of Techstars. And according to Accenture: London is experiencing a tech sector entrepreneurial renaissance, with the highest density of startups in the world. With nearly 135,000 financial-services technology workers and four of the world s ten biggest banks with headquarters in London, the capital city provides the environment for outstanding innovation. How do the big four groups of people contribute? THE FINTECH ADVOCATES FinTech advocates are the leaders like the Mayor of London Boris Johnson, who at the recent London 0 4 4

Continued Technology Week highlighted the South Mountain Economics research that London employs more workers in FinTech than New York or Silicon Valley. And in his Lord Mayor s Banquet speech, UK Prime Minister David Cameron highlighted the government s new Challenger Business Initiative to enable disruptive business models - in sectors such as FinTech - that have the potential to revolutionise new markets. In addition to these FinTech Advocates, the FinTech Investors are the visionary financial backers. Barry Shrier CEO, Liquity THE FINTECH INVESTORS Global FinTech investment has grown four times faster than venture capital. To emphasize this, when a guy who sells travel and vacations gets into FinTech that s a great sign: Sir Richard Branson joined existing shareholders including Peter Thiel (PayPal co-founder), and Index Ventures to fund London-based money transfer start-up TransferWise. FinTech ideas are attracting attention from the wider venture capital community, as reported by Accenture. More than $590 million has gone to UK and Irish fintech companies since 2011. Prominent FinTech investors include former Bain consultant and chairman of the British Venture Capital Association (BVCA) Anne Glover, co-founder of Amadeus, a venture capital firm that has invested in the company data gathering business aihit. And leading corporate finance firm Cobalt s managing partner Paddy MccGwire, who has represented the insurance messaging software vendor TriSystems. Hat s off to these, and the 1,000 s of other pioneering FinTech investors who are supporting us FinTech entrepreneurs. THE FINTECH ENABLERS London has a long list of outstanding FinTech enablers like Eric van der Kleij, founder of Canary Wharf Properties-sponsored Level 39, Europe s largest FinTech accelerator space. We really should be leading the world in financial technology - this is London s birthright according to Eric, former CEO of Tech City. Bindi Karia, another FinTech enabler is Silicon Valley Bank s VP, Entrepreneur Banking. Previously Venture Capital lead at Microsoft Ventures, Bindi s a mentor at Startupbootcamp and Level39, and has been named by The Guardian as one of the Ten women in Tech. Other enablers include the FinTech Innovation Lab, empowering companies developing new technologies for the financial services sector. Supporters include Barclays, Citi, Goldman Sachs, JPMorgan, Morgan Stanley, RBS. The famous European-wide accelerator Startupbootcamp selected London for their FinTech accelerator; providing funding, mentorship, and a global investor network. The MD Nektarios Liolios aims to mirror Startupbootcamp s success where over 70% of startups have raised funding. Partners include Lloyds, Rabobank and MasterCard. And the FCA - the Financial Conduct Authority is looking to foster innovation in UK financial services. FCA chief Martin Wheatley has said, it s an imperative for regulators to be standing on the right side of progress. Wheatley continues We want an FCA that creates room for the brightest and most innovative companies to enter the sector. How cool is this! And some people are advocates, enablers, and entrepreneurs like Nicholas Heller. The former Google Global head of business development, now Co-Founder of Fractal Labs: a finance and analytics focused technology company connecting investors and entrepreneurs. Nicholas is also an NeD of Silicon Valley Comes to the UK (SVC2UK) bringing together entrepreneurs and investors to enhance the UK s capacity to innovate. THE FINTECH ENTREPRENEURS Lastly - the FinTech entrepreneurs; the explorers, leading the industry into unknown territories that are immensely rich in value for the British economy. Great examples include serial entrepreneur Darren Westlake, CEO, Crowdcube: the world s leading investment crowdfunding site. It has raised 35.2 MILLION for 137 businesses, 0 4 5

Continued and has 83,256 registered investors. And Andrew Yates, CEO, Artesian Solutions. With over 10,000 subscribers, including Barclays, HSBC, and Santander, Artesian is disrupting the way sales professionals engage with their customers. See also Samir Desai, CEO and co-founder, Funding Circle. More than 290 million has been lent through Funding Circle to over 4,500. And Nick Hungerford, Co-founder and CEO of Nutmeg; the UK s first online discretionary investment management company. THE FUTURE OF FINTECH: WHAT S NEXT FOR THE FINTECH REVOLUTION? London s tech sector could generate 12 billion and 46,000 jobs over the next decade! How can London maintain a global lead in financial sector innovation? Barry Shrier CEO, Liquity First, as Prime Minister Cameron mentioned, A culture (is needed) that values that typically British, entrepreneurial, buccaneering spirit, and that rewards people with the ambition to sell things and create jobs. Second, we need the aggressive development of a cluster - through training, and accelerators - to scale up exponentially the London FinTech phenomenon. This will empower first time entrepreneurs. Lastly, we need confidence. In this global race - to be the world s leading FinTech city - London can win. I m a passionate leader of a London FinTech venture: we re exporting innovation and creating jobs. I urge you to share our confidence and vocalise your support of the London fintech revolution. Sean Geer from The Economist newspaper has called Barry Shrier a Visionary Pioneer. Barry is the Founder and CEO of LIQUITY, the innovative London-based service matching buyers and sellers of private company shares. Previously, Barry was the founder and CEO, then Chairman of The Liberty Electric Cars group of companies; an international engineering group addressing Global Warming and Climate Change. Barry launched the world s first zero-emission high performance SUV; and grew Liberty into a multi-million business with global blue-chip customers including UPS, Lockheed Martin, Tescos, FedEx, McLaren and the British Government. In June 2012 he sold it to Green Automotive (OTC:GACR) stock market valuation in excess of $100M, resulting investors earning over 90% compound annual growth. Previously, Barry was hired by Deutsche Bank to launch Paybox, the world s first international mobile payment system. Barry was the spokesman for Paybox and a leading speaker on Mobile commerce. 0 4 6

WHY ARE FINTECH START UPS CHOOSING LONDON TO START? CCORDING TO A NUMBER OF REPORTS fintech start-ups hit a record high numbers in 2013 for the first time in D over a decade. The first 3 months of 2014 continued the upward trend with Europe leading the way with the most investment into fintech start-ups across the globe. We have seen 100 s of millions of pounds invested into fintech start-ups over the last two years. Although Europe seems to be the hub for these entrepreneur to start their business, however London seems to be the stand out location overall to set up. What is making London the Fintech Capital of the world, what is drawing people and investment to the capital of England? There s not just one straight forward answer to this from what I have heard. From talking to many different people in the market place who have set up business or have been working in the fintech space for number years, there are a number of key reasons that has created London as the Fintech Capital of the World. One of the first reasons people mentioned to me is to do with the recession. Many of the first and second tier Investment Banks have their European headquarters in London. By having their headquarters in London this meant that London was full of very talented developers and business guys. Many of these talented individual were many redundant during the recession through no fault of their own. It s these talent people who found themselves on the job market who decided to build their own products. A lack of jobs and a need to work helped make the decision much easier for many individuals, who may not have usually taken the risk of starting their own business. This helps understand why there were a number of people in the market to start their own business over the last couple of years. What we now want to understand is why people chose to stay in London to start their business, and why a number of people chose to move to London to start their venture. London is a very desirable location for many reasons; lowest taxation across the major European Cities is clearly a big reason why you would look to make London your company s home. Secondly I mentioned earlier that London is the headquarters for many top European investment banks, these banks are both ideal clients for the start-ups as James Hounslow Head of Trading Systems, Harrington Starr 0 4 7

Continued CAN THE GEOGRAPHICAL LOCATION OF LONDON HELP SPRING BOARD THE START-UPS? A RESOUNDING YES! they will need the technology and solutions these guys are selling. Not only will they need the solutions, they have the funds available to buy the solutions. The second reason for being close to the large investment banks is because they re the ideal investors to get someone started or to add cash input to help scale up quickly. 100 s of millions of cash has been invested over the last couple of years and 100 s more has been earmarked to be invested into fintech over the coming years. Being close to these investors will help the start-ups get the investment they needs. Can the geographical location of London help spring board the startups? A resounding yes, London share business hours with many of the financial capitals across the globe. Sharing business hours with both America and Asia is hugely useful. It means direct same day contact rather than needing to wait until the next day or silly hours in the night. It also gives you a great opportunity to sell your product globally much easier and far more cost effectively. Lastly London has fantastic transport links to the world especially the rest of Europe. London airports fly many times a day to an ever growing list of European locations, top that with the Euro Star and you really can get to pretty much anywhere you need to. Having this capability means you can be in front of clients quickly and sell in person rather than on the phone. Selling is much more effective face to face than over a phone or webex. Because of the reach London has and the high attraction rate London has to the rest of the world, London speaks a huge amount of different languages, this again adds huge value to anyone looking to do business outside of London. It was really interesting looking into and talking to a number of different people about this topic. The sheer number start has been incredible and many have been hugely successful already. Looking forward it will be very interesting to see how many more start-ups appear over the coming years and see how they all get on over the next five years. Looking over the evidence it would appear to be very clear, anyone considering starting-up a Fintech business, now is the time to do it and London is by far the best place to start it. James Hounslow Head of Trading Systems, Harrington Starr 0 4 8

BUYSIDE IMPLEMENTATIONS

ISSUES AND OPPORTUNITIES AS THE MARKET HOTS UP Jon Hodges Co-Founder, Alphakinetic YSTEM IMPLEMENTATION IS NOT often an immediate consideration for buy side decision makers when S undertaking a system selection process. Typically the focus is on product coverage, functionality and of course price, with implementation usually becoming more important once the vendors have been narrowed down. However, the implementation phase in terms of time, cost and eventual system capabilities plays a crucial part in the future success of a system. When considering implementations, buy side firms first need to establish their requirements and associated priorities but they should also consider at what point during the implementation they would be prepared to start using the system even if not all functionality has been fully implemented. This allows vendors to break down the implementation phase into 3 stages: FIRSTLY, THE CORE ESSENTIALS, WHAT DOES THE FUND ABSOLUTELY NEED TO OPERATE. NEXT COMES THE SECONDARY ESSENTIALS, WHAT DOES THE FUND EXPECT FROM THE SYSTEM AFTER THE FULL STANDARD IMPLEMENTATION WHICH SHOULD CORRESPOND WITH FEATURES SHOWN IN SALES MEETINGS AND DEMOS FINALLY COMES THE CUSTOMIZATION AND SYSTEM EXTENSIONS, THIS IS THE MOST OPEN-ENDED PART OF THE IMPLEMENTATION BUT PROBABLY THE MOST IMPORTANT AS THIS IS WHERE THE SYSTEM CAN BE POTENTIALLY CUSTOMIZED TO GIVE THE FUND A COMPETITIVE ADVANTAGE. An initial setup might include users, fund/strategy hierarchies, data providers, fund administrators, prime brokers etc. After that, each fund will have different priorities across the three stages. Some will be happy to start using the system with just trade capture and P&L with risk and reporting coming at a later stage of the implementation. Others will require sophisticated risk functionality to be fully implemented before being 0 5 0

Continued comfortable using the system. It depends on the asset classes, strategies and the existing internal capabilities that already exist within the organization. Problems usually arise when there is a difference between what is expected from the fund and what is actually delivered by the vendor. Often what the fund considers to be part of the standard implantation in phase 1 and 2 is actually more of a customization and will come in phase 3. Jon Hodges Co-Founder, Alphakinetic Stage 3 implementation is often limited by the underlying architecture of the system and the complexity of the extension API. Usually this will require expert consultants that can increase implementation costs by several multiples. At Alphakinetic we believe these limitations can be overcome by choosing a system that covers the core functionality but also has a framework that allows flexibility and extensibility in the simplest way possible. Flexibility allows the system to be customized in line with the specific business requirements, extensibility allows funds to build a competitive advantage into their core system and simplicity means it can be done without the need for expensive vendor specific consultants. The challenge and opportunity for vendors is to build the core systems that enable this type of implementation. 0 5 1

IBOR HE IBOR (INVESTMENT BOOK OF Record) is a fairly old subject which regained a lot of interest T from the buy-side industry as the world becomes more complex and demanding, and even more, is now at the top of their agenda. Indeed, the IBOR is about bringing to the Front-Office an accurate view of their funds, but it also brings additional benefits such as a 360 view of all the assets under management, wherever they are managed, better risk management and overall agility. In the past years, most of the Asset Managers have bridged the gap between the Back and the Front- Office with bespoke applications or databases to enhance the Back-Office positions to bring them at the level of expectation of the Front-Office. But this approach doesn t deliver data in real-time and brings a lot of limitations and maintenance issues. Pascal Mougin CEO, SmartCo Now the need of a strong IBOR has raised at an unprecedented level, and many software vendors try to answer the requirements in various ways. This article tries to summarize the requirements for an IBOR. As an answer for buy-side organizations increasing need to provide their portfolio managers with a comprehensive, consistent, real-time, independent view of their positions, the IBOR should provide a single source of positions, which is complete, consistent, robust and monitored. Updated in real time, it should provide different views for multiple purposes (front-office oriented views, risk / reporting, back-office reconciliation views, etc.). The IBOR then should collect and process all position impacting events occurring across the organization s systems, including portfolio and order management systems, as well as accounting systems and transfer agencies. The resulting positions should be accessible and/or distributed in real-time across consuming systems, allowing front office and other teams (risk, compliance, performance measurement), to all work on the same source of always up-to-date positions. THOUGH OFTEN SEEN AS A PURE DATA MANAGEMENT SUBJECT, IBOR MUST ALSO PROVIDE KEY BUSINESS 0 5 2

Continued CAPABILITIES, SUCH AS: Trade Support, in order to normalize, verify and enrich transactions or events coming from various systems; for instance it should be able to compute gross amount, accrued interest, taxes, fees, in multiple currencies; Positions Computation / Keeping, which should be able to answer any request for current, past, or forecasted positions, with different levels of granularity, tax lot calculation, and more; Portfolio Extract / Valuation, which may be added to provide different views, aggregations, look-thru, exposure calculations, benchmark comparison, etc.; The ability to apply Corporate Actions to forecasted positions is a must have; Pascal Mougin CEO, SmartCo And of course, the IBOR should provide extensive connectivity and reconciliations with Portfolio Management Systems, Order Management, Accounting, Confirmation Systems, Compliance, Risk, Performance Attribution, Reporting, etc. AS BENEFITS, IMPLEMENTING AN IBOR BRINGS ASSET MANAGERS A WIDE RANGE OF BENEFITS, INCLUDING: Increased visibility of intraday positions and cash, collecting and unifying data and events from various sources into a single, comprehensive, consistent, robust, independent view of their positions; Up-to-date positions in real-time, with historical as well as forecasted positions; Multiple views (traded vs. settled, intended vs. executed, lookthrough, etc.) to address specific needs of each department across the enterprise, and help drive investment and trading decisions; Single go-to place for positions, whether automatically distributing to consuming systems or through a rich user interface; Monitoring of the firm-wide transactions across international investment desks, providing a transparent view of the STP lifecycle, and therefore helping managing Operational Risk, Market Risk and Credit Risks in real-time; Finally, as a centralized investment data platform, independent from all surrounding applications, IBOR tremendously improves the flexibility of the whole investment information system, greatly facilitating the addition of new applications and the replacement of existing ones, while limiting impacts. 0 5 3

BUY-SIDE DISRUPTION HE CLOUD CONTINUES TO BE THE KEY catalyst for change in nearly every aspect of our personal and working T lives. From shopping and social interaction to manufacturing and service delivery, few industries are exempt. In the field of enterprise business applications, a paradigm shift from on-premise software deployment to cloud-based delivery is well underway. There are mature software-as-a-service (SaaS) platforms in fields such as web conferencing and customer relationship management (CRM) that have already gained majority market share and across the full spectrum of business requirements, from ERP to office productivity suites and email, cloud technology is disrupting established markets and creating new ones. For buy-side organizations, the data they store, process and report upon is the foundation on which their success and reputation stands. The right tools create advantage in competitive markets but must be properly managed and controlled to meet strict regulatory demands. So while outsourced technology services are often appealing in terms of cost and efficiency, any transition from the closed walls of an on-premise deployment to the open landscape of the Internet remains an area of great sensitivity for many organizations. True multi-tenancy, where one application platform is shared by many customers, and data is segregated through logical security, compounds this. Kevin Potter Vice President, SunGard Vendors who were able to demonstrate secure, hosted solutions with robust control frameworks were early disruptors and the catalysts in the creation of a new, cloud-based financial services marketplace. Their advantage, in a risk adverse industry, was the ability to innovate by adapting proven software intellectual property so that it could be delivered securely via the Internet. By also using server virtualization to create scalable costs and operational efficiencies, they offered consumers solutions that blended the flexibility and efficiencies of cloud with the security, control and familiarity of an on-premise deployment. This approach had a major impact on the buy-side community because, from a technology perspective, it levelled the playing field. Through the cloud, an organization, rather than work from spreadsheets or make a significant up-front capital investment in new 0 5 4

Continued hardware and software, could gain almost immediate access to a secure, scalable, resilient solution that would not require local IT support. Often, this cloud-based delivery model drastically reduced delivery times by dispensing with traditional, bespoke scoping and solution design and introduced a prebuilt configuration and workflow that delivered a tried and tested framework for operational efficiency right out of the box. For example, many hedge funds, tied to cumbersome, on-premise solutions that had been adapted for hedge fund management, also saw the cloud as an opportunity to gain competitive advantage. Domain specific functionality and best practice IT operations, delivered as a service, offered improved business agility, greater efficiencies and lower risk. Kevin Potter Vice President, SunGard However, cloud-based, IT-focused services, which continue to transform traditional software solution delivery to hedge funds and many other buyside organizations, do not represent a solution end-state. New vendors, leveraging cloud-based economies of scale in their development process and deployment platforms, are bringing web-scale, low cost products to market quicker than ever before. Thus creating opportunity by filling gaps at the lower end of the market and aiming to work their way up the value and complexity chain over time. For this reason, yesterday s disruptors and innovators, who are now established and providing evolutionary innovation across existing products and services in medium to high complexity market segments, should not forget their roots. While disruptive innovation begins at the low end of the market, it has the potential to re-shape entire industries in relatively short timescales. So today s forward thinking market leaders focus not only on sustaining and developing existing business lines, but also on low-end disruption through new-market innovation. Managed services, focused increasingly on business process and operations to supplement today s technology-based offerings, are a key driver. They enable established vendors to compete in markets where their usual scale and capability advantages may put them at a disadvantage because of the higher price point of their products and the length and cost of the implementation. Managed services engagements allow vendors to look at the wider business challenge of achieving operational excellence and software is just one piece of the larger puzzle. Buy-side organizations can acquire a software solution but they also have to operate it efficiently in the wider context of their business meaning they also need peripheral IT services and staff to manage, for example, their accounting and risk reporting requirements. Therefore providers of domain-specific managed services can be leveraged in support of a broader business case that is inclusive of not only software but also IT support, integration and the operation of key business processes. These can be delivered under established compliance frameworks typically using economies of scale that will offer a lower total cost of ownership across the entire sphere of operations, rather than just the software component. For new hedge funds, with managers often coming from senior positions at large investment banks, managed services offers a welcome return to a position of operational privilege which ultimately allows them to focus entirely on their core competency - managing funds - not supporting technology and other administrative overheads. Security and data sovereignty remain two key areas of concern for organizations considering cloud-based services. Forthis reason, most service providers in the financial services industry have been highly focused on achieving appropriate accreditation such as ISO/ IEC:27001, SSAE-16/ISAE3402 and PCI-DSS. The third challenge frequently highlighted is the integration of cloud-based services with on-premise solutions and increasingly other cloud-based platforms. With cloud interoperability standards in their infancy, there are obvious advantages for vendors who can offer their own integrated, solution ecosystem which reduces interface complexity and typically increases the span of control for the vendor which should result in a higher level of service commitment. Outside of a completely integrated ecosystem, there is a potential role for managed services where the provider takes additional responsibility for interface exception management, including liaising with third parties, as may be appropriate. Although more of a by-product of a lack of maturity in cloud standards, this is a further example of the value that managed services can bring, which enables buy-side organizations to focus on their core business activities. 0 5 5

ISSUES AND OPPORTUNITIES AS THE MARKET HOTS UP LOBAL ECONOMIES HAVE SEEN A significant turnaround over the last eighteen months GDP has grown G in the US, Europe, and Asia, and as a result so has the number of financial services start-ups. The surge in economic output has prompted firms to search for new ways to leverage software technology to streamline their processes and amplify revenues. Consequently, technology firms across the spectrum, from cloud and infrastructure providers to providers of investmentenabling software such as Code Red, have seen an uptick in business and an increasing opportunity to expand their businesses and implement products across new client segments. Technology vendors should not view a buy side implementation as just another task to check off the list, but rather a chance to surpass client expectations and build a reputable brand name. Successful implementations lead to happy clients and happy clients are the key to earning referrals that magnify a vendor s industry presence and grow diverse client bases. Even in a world where instant information is a click away, positive word of mouth and product referrals remain crucial to buyers shopping for a technology vendor. While a buy side implementation generates many opportunities for a vendor, one that is insufficiently planned may bring about problems for both parties. The success of any implementation ultimately relies on several core principles: a strategic need for change within a business, a business challenge in need of a solution, sufficient input and buy-in from key stakeholders, a clear implementation timeline, and the necessary staff at both client and vendor to ultimately make it happen. Thomas Yasin Director, EMEA, Code:Red The decision of where to start is the first challenge most implementation managers face. There are multiple pressures within a business that dictate the need for the product being implemented, and prioritising those pressures plays a key role in the planning of the project. The second challenge is to decide who takes ownership of the project. Who is responsible for the different implementation phases on both the technical and business sides? Who will sign off on the project to deem it a success? The most common approach in implementing a 0 5 6

Continued TO ENSURE A SUCCESSFUL IMPLEMENTATION, CLEAR LEADERSHIP FROM BOTH THE VENDOR AND CLIENT IS REQUIRED FROM THE START. software product is to begin with the area of operations with the most urgent need, and then prioritise the roll out from there. Both firms benefit from this approach the vendor solves its biggest challenges first, and the end users are likely to see the Return On Investment earlier in the process and can push for implementation across other areas of the business. To ensure a successful implementation, clear leadership from both the vendor and client is required from the start. Strong leaders will guarantee that applicable business requirements are clearly identified, there exists a common goal to work towards, and all stakeholders have bought in to that goal making for a fluid implementation process. When leadership is absent, a clash of priorities is likely and implementations can overrun or not solve the intended problem costing time and money. Also detrimental to a buy side implementation is a vendor s lack of planning for what happens once the implementation is complete. Vendors must be able to adequately support the new user base, keep consistent contact with the client, and ensure that the software always remains a step ahead of user demands and expectations. At Code Red, developing and streamlining our organisation to meet these challenges is undeniably essential to expanding our business. We build our technology to be very flexible and configurable, so that it stays in demand as industry trends change. Having a resilient commitment to client service and postimplementation support is at the heart of Code Red, and so we make sure to always have key personnel dedicated to providing clients added-value as their needs evolve. Thomas Yasin Director, EMEA, Code:Red 0 5 7

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CTRM

THE CTRM LANDSCAPE NCREASED COMPLEXITY AND THE new demands being made on our industry especially from regulators I has created a growing demand for E/CTRM systems: the category of software applications, architectures and tools that support the business processes associated with managing and trading commodity exposures and logistics. Trading, investing, and managing assets and liabilities in today s complex commodity sectors requires sophisticated, robust, adaptable and scaleable technology and never more so than now in the Big Data / Big Compliance era. By Guy Isherwood, Dr. Gary Vasey, & Patrick Reames. The E/CTRM software category (now in many quarters being labelled Commodity Management), is growing rapidly... though perhaps unevenly over the last several years with software vendors revenues riding the waves and enduring the troughs of the broader commodities markets, according to Gary Vasey, Managing Partner with Commodity Technology Advisory (ComTech). The market has come a long way since its beginnings and is now on the edge of a major shift in line with changes taking place in the global markets and the changing needs of participants. The CM software category is shifting from one that was about managing historical trading transactions (capturing volume and price, managing the delivery and then producing an invoice), to something dramatically different. At the same time, the CTRM community (at least those savvy enough) are evolving along the value chain to progressively encompass related industries and markets. Issues like big data, regulatory intervention, structural changes in the industry in terms of players, liquidity, instruments, cleared vs. non-cleared, exchange vs. OTC and the search for profit, are all combining to drive the software category into becoming more about just in time analytics; providing users the tools that they need, not just to manage and report transactions, but also to help determine trading opportunities, address operational risks, ensure compliance with regulations and provide trading intelligence. That s a tall order but one that many of the vendors are already chasing, increasing their development time in: Guy Isherwood Editor-In-Chief, Commodities Now 0 6 0

Continued Improving regulatory reporting capabilities Broadening capabilities in supply chain management and optimization Incorporating and/or improving trading intelligence and predictive analytics Improving data aggregation and analysis (though few if any of those vendors will attempt to take on a true big data solution). The chances of succeeding in this market in the future are increasingly dependent on the trading technologies deployed and utilized to address the big challenges. These include fundamental CTRM, data aggregation and analysis, trading surveillance, business intelligence and reporting. Much like the traders that earn their living in this unsettled market, the technologists that produce CTRM software are being equally challenged like never before. Guy Isherwood Editor-In-Chief, Commodities Now THE CTRM PRODUCT LANDSCAPE Fundamentally, CTRM technology is designed to provide the many firms without the proprietary resources, skills, or the need to develop their own technology (or in concert with it) to transact and manage commodity business. Accordingly, CTRM has become an integral part of the commodity trading and risk management landscape as providers have developed ever more complex systems to manage commodity assets, liabilities, data, reporting, and logistics. The CTRM product landscape has always been somewhat fragmented, with a large number of product vendors servicing component processes of the commodity trading value chain, or in some cases, specific processes associated with a single commodity. Selecting a CTRM system has always been a very difficult, costly and risky process and never more so than today. The recently released 2014 CTRM Vendor Perception Study from Commodity Technology Advisory provides insights into how the users, buying decision makers, and consultants that make up the CTRM marketplace perceive the landscape of companies that produce and sell E/CTRM products. This is important because vendors spend significant sums creating brands and trying to familiarize potential buyers with their products and capabilities; and via that process, work to establish a positive reputation in the market. Buyers will use their familiarity and perceptions of those vendors when making decisions as to which vendors and products to include in a purchasing process. Past research by ComTech indicates that buyers will initially use two sources of information when considering which system to purchase: 1) Their personal knowledge and experiences of having previously worked with a vendor or software package 2) The knowledge, experiences and opinions of their peers in their industry. Potential buyers who limit their search to those companies that they or their peers know are seeing only a relatively small circle in the scheme of things, according to Patrick Reames, Managing Partner with ComTech. Depending on where a prospective buyer sits in the commodities market, there may be as many as 15 or 20 potential solutions that could meet their needs and many of those will be missed if one simply 0 6 1

Continued relies on friends or acquaintances to name them. Further, this method of identifying potential vendors simply reinforces the standing of the companies that have been the most successful over time. It doesn t allow room for smaller companies or start-ups to have an equal footing in the purchase decision process, potentially never getting an at bat as the market just doesn t have the same history and familiarity with them as they do with the market leaders, he adds. So it s important that buyers become familiar with all the potential vendors if they want to ensure they find the solution that best fits their needs. It s equally important that vendors help those market participants become familiar with them by investing in marketing and sales establishing themselves in the minds of market participants as a company that should be considered for every opportunity that falls within the functional and geographic scope of their products, insists Reames. Other factors also influence perceptions of leadership and impact user experiences, including identifying what buyers look for when selecting a system, determining how satisfied users are with their current systems, and measuring just how many systems those users have installed to manage their business. The answers to these questions give us a snapshot of the maturity of the software category, how active it is, how well the solutions meet the requirements and much more, explains Reames. The major trend among CTRM vendors is to continue to move into adjacent spaces with functionality in order to deepen their penetration into the existing customer base and get a foothold into new customers. These include assets classes outside of the traditional energy base and beyond; extending functionality into logistics and management on the back end of trading and optimization on the front and back ends of trading; and expanded partnerships with professional service firms. At the same time, commodity companies are increasingly looking for mobility, big data capability, cloud solutions, and social business enhancements. And they want additional functionality, including optimization and predictive analytical tools that can be used in the front and mid-office. There s no question that we live in the age of information. What we do with that information is often what really matters. The chances of succeeding in this market are increasingly dependent on the trading technologies deployed and utilised to address the big challenges. To that end we invite you to join us at the forthcoming CTRM Conference in London on October 2nd (see page??) to hear from and discuss with CTRM experts this dynamic and challenging future. Guy Isherwood - Publisher and Editor-in-Chief, Commodities Now Magazine. Dr. Gary M. Vasey Managing Director and Partner, Commodity Technology Advisory. Patrick Reames Managing Director and Founder, Commodity Technology Advisory Guy Isherwood Editor-In-Chief, Commodities Now 0 6 2

THE CALM BEFORE THE STORM? WOULD BE VERY SURPRISED IF ANYONE reading this had not heard about the ongoing situation in Iraq. For those I that don t know a Jihadist group named the Islamic State have had considerable military success taking over a city in Syria and are currently advancing through Iraq. It is estimated that IS have assets and cash worth in excess of $800m after capturing oil fields in Northern Iraq and are making millions of dollars every day. It is also estimated that Islamic State have numbers from 8,000 to 12,000 and this is likely to increase as time goes on. I first visited Iraq as a young soldier in 2004 and I remember many a long patrol through various Oil Fields in Southern Iraq My last tour of Iraq was in 2006 and since that time I have always kept up to date with the news and since joining Harrington Starr, Oil Prices. Iraq is one of the world s largest oil exporters and you would imagine that this particular conflict as well as the one in Ukraine would have pushed the price per barrel sky high, therefore I wasn t surprised to hear that In July the price of a barrel of oil reached a nine month high with a price of $115. The reason given for this was as you can imagine the violence in Iraq. Andrew Thomas Commodities Specialist, Harrington Starr What has surprised me, is that as of the 13th August the price of a crude oil has fallen to its lowest level in November last year at a price per barrel of $103.70. This low price has increased the demand of Oil and Iraq is scheduled to ship 2.4 Million barrels of oil per day which is an increase of 9.1% on the month before. The reason for this is actually rather simple, most Iraqi oil comes from Baghdad and areas in the south of Iraq, these areas have so far not come under attack from the Islamic State and global oil traders are ignoring the potential risks. It of course also helps that there is a surging supply of oil from both the United States and Saudi Arabia which has helped global supplies to reach 93million barrels per day last month. Now the question I ask myself is; What would happen if the Islamic State managed to take over the whole of Iraq and all of her Oil Fields? 0 6 3

Continued A London based company Afren was the first company to suspend output at one of its Oilfields in Kurdistan and Genel Energy, Chevron and ExxonMobil have evacuated non-essential staff. As the situation get worse we can all guess at the implications and reactions in the global oil markets and how that will eventually affect every single one of us. What I can t understand or guess, is how companies like the ones mentioned above will react as they are forced to close more and more of their oilfields. Andrew Thomas Commodities Specialist, Harrington Starr Furthermore what will happen to all the companies that support or service these energy trading giants, including the energy or commodity trading risk management software vendors? 0 6 4

DEVOPS

DEVOPS: WHY SHOULD WE CARE? Anirvan Chakraborty Senior Software Consultant, Cake Solutions Ltd EVOPS HAS BEEN A HOT TOPIC IN THE IT sector for some time now. Very recent studies show that DevOps D adoption among high-performing IT organizations has been accelerating at a rapid pace and that these organizations were more agile and reliable by adopting effective DevOps principles. High-performing IT organizations outperform their peers in profitability by adopting DevOps as a competitive advantage. DEVOPS AND IT S BRIEF HISTORY DevOps is an emerging software development methodology that advocates a collaborative working relationship between development and IT operations. Wikipedia defines DevOps as the software development method that stresses communication, collaboration and interaction between developers and IT professionals. Sometime in early 2009, Patrick Debois from Belgium coined the term DevOps. He has since blogged extensively about DevOps in the now famous Just Enough Developed Infrastructure or Jedi blogs. Mid 2010, John Willis and Damon Edwards summarized the core values of DevOps as CAMS in the Chef blogs: C is for Culture, where people and processes comes first A is for Automation, applied in software release management, provisioning servers, managing configuration, monitoring applications etc. M is for Measurement, where your improvement depends on how you measure everything, including performance metrics; process metrics; and even people metrics. S is for Sharing. Share code, documentation, techniques around toolset, technique that doesn t work etc. With the shift in the industry to software, infrastructure, and platform as services (SaaS, IaaS, PaaS), the demand for rapid development and delivery has 0 6 6

Continued increased, and that s where DevOps comes in. Anirvan Chakraborty Senior Software Consultant, Cake Solutions Ltd REASON FOR THE HIGH DEMAND FOR DEVOPS The clue of finding the reason for the high demand of DevOps lies in it s ability to deliver business value faster and smarter. DevOps yields the greatest benefit for organizations wishing to increase the volume and velocity of IT value creations. It s all about driving more change and creating greater value--and doing so as quickly as possible. Looking into the highly successful companies like Netflix and Facebook who are well known to have adopted DevOps in the software delivery process, reveal that they are pushing hundreds of changes into production globally on pretty much a continuous basis. Perhaps the most important driver for DevOps is the need for accelerated business service delivery to increased customer satisfaction via an improved customer experience. So the questions now is how to make it all work. ADOPTING DEVOPS DevOps advocates recognize that both development and operations are needed to deliver software, and the challenge lies in eliminating the boundaries between them. Since person-to-person contact is essential for Agile software development, DevOps requires teaming across organizational boundaries to ensure that what is built can be delivered and sustained in the production environment. HERE IS A LIST OF A FEW DEVOPS BEST PRACTICES THAT WORKED REALLY WELL FOR US: Determine what outcome you want to achieve from DevOps and ensure you clearly understand how to measure them. Focus on performance as the ultimate goal of a DevOps approach is to produce a high-quality product. Performance is perhaps the most important factor in determining value of a product. Create tight feedback loops. Optimize for performance based on real end-user experience data as that is the acid-test of quality. Accept and embrace failure. Learn how to recover from a failure quickly as that would enable you to deliver value to your customers faster. Automate relentlessly to enable rapid response. Facilitate a culture of collaboration. Collaboration is at the core of DevOps in any environment, large or small. While these tips may not be a comprehensive and perfect set of answers for every organisation, I have seen how these approaches have made the transition to DevOps easier, faster and more effective for organisations that I have worked with in the past. I hope they help you on your DevOps journey as well. CONCLUSION DevOps is a fascinating culture movement that has grown from business need into a revival of engineering pride. The fundamental practices of DevOps encourages an environment of cooperation and collaboration in any organisation. Organizations that adopt DevOps could position themselves to become Agile enterprises with the extension of Lean principles and the application of Agile principles across the whole organization. DevOps encourages a blurring of divisional boundaries and more focus on customer-driven jobs to be accomplished. The need for organizations to be aligned with a sense of purpose is more acute than ever before. DevOps is no longer just nice to have -- it is a business imperative, a societal imperative. 0 6 7

DEVOPS THE NEXT STEP IN THE STRIVE FOR INCREASED QUALITY, ENHANCED CUSTOMER EXPERIENCE AND FASTER TIME TO MARKET HE FINANCIAL INDUSTRY IS HEAVILY relying on technology for its operations, and its technology spans T from using large scale legacy systems, to top-notch front end applications and mobile products. This technological environment is highly complicated and regulated and therefore calls for very high reliability and predictability. In order to adhere to the industry s high quality demands, the technology departments, including Development, Quality Assurance, Architecture, Design, Security and even 3rd party suppliers have already implemented some of the essential tools and processes such as Extreme Programming, Lean, and Agile DevOps is the next step in this strive for increased quality, enhanced customer experience and faster time to market. Ronen Kertis President & CEO, Cappitech DevOps stands for Development and Operations. It is an approach based on Lean and Agile principles, taking these to the next level, by including not only Development and Quality Assurance in the process, but also Operations, Business and the end-user, and by fostering communication and collaboration between all these stakeholders. This new approach introduces several principles into the lifecycle of the product. Based on our experience in Cappitech we selected a few that we believe give the most impact: CONTINUOUS PLANNING Include all participants of the delivery chain in release planning, and make planning a repeatable process. This principle may be easier said than done, but it is essential for fast delivery in our innovative, changing environment. In our experience, teams that use two week iterations and conduct regular iteration planning meetings that include development and QA as well as the business owners are very successful at short and long term planning. CONTINUOUS TESTING - It is well known that testing is an essential part of any product DevOps introduces testing on Production like Systems right from the beginning of testing. It emphasizes the use of automation and automatic tools for testing and includes functional, integration, performance and security testing. Cappitech has very good experience with automating the functional and performance testing done by QA, which allows 0 6 8

Continued for reducing testing cycles and regression time. We use both home-grown tools as well as 3rd party tools such as SmartBears TestComplete. We do not stop at QA automation, but continuously test our code, using TDD (test driven development), NUnit and other means such as FitNesse. To illustrate the benefits that can be gained from automation, in one of our projects for our client, we shortened the regression testing from 3 weeks per each quarterly release to 4 days, a gain not only in effort spent, but also in a much improved time to market. CONTINUOUS DEPLOYMENT Also referred to as Continuous Delivery - automating the deployment process allows for faster, repeatable and more reliable deployments that can be used both on Development/ QA systems as well as User Acceptance, Staging and Production environments. Although some organizations do not deploy automatically to Production, those that adopt continuous deployment use the same automated processes to deploy software in all environments and see great improvement in efficiency and reduction of risk. Ronen Kertis President & CEO, Cappitech CONTINUOUS INTEGRATION Allows for multiple development groups working on multiple products in different geographical locations to deliver software in an agile manner, while making sure the code is compatible, testable and deployable. In our view developers should merge their working code into the shared mainline several times a day. Automatic unit tests should run on the integration environment to make sure nothing was broken; and broken code should be fixed immediately, before continuing with other work. CONTINUOUS MONITORING In order to achieve all the above goals, organizations need to measure progress and feedback coming from all monitoring solutions. Quality metrics should be captured and analyzed whenever an application is deployed and tested. These metrics should be captured in a way that all stakeholders can view and understand and later be able to use these insights and incorporate the necessary changes to the product on an ongoing basis. CONTINUOUS IMPROVEMENT Adopting a new approach or process is ever evolving and changing, thus, continuous improvement is essential. Organizations should incorporate Inspect and Adapt rituals which are designed to drive the process forward. At Cappitech, we foster open communication and collaboration between all stakeholders in the Agile team. We hold Iteration Planning meetings at the start of each iteration in order to set expectations. We hold retrospective meetings at the end of each iteration. In these meetings everyone can talk and express their opinion, hurdles are discussed and solved, actions items are taken and the path forward is set. In summary, Devops is not only about the Operations team; it is a culture that spans people, processes and technology. It s about people communicating and collaborating to achieve better and more efficient processes across their organization. It takes well established technological and agile practices and suggests ways of making these infiltrate even more of the organization s systems, products and people. It s ever evolving and continuously adapts to the changing needs and demands of its clients. Our experience shows that this new approach is here to stay, and we are striving to incorporate it in all our projects. If you have any questions or would like to consult, we would be very happy to do so. 0 6 9

DEVOPS AND THE DIGITAL DARWIN PRINCIPLE VE ALWAYS BEEN FASCINATED with the trends and initiatives that have been embraced by business I and IT over the last 20+ years. I personally got exposed to one of these phenomenons during the 1990 s whilst being a customer, employee then partner of SAP the now extremely large ERP Cloud, Mobile, Big Database company namely Y2K or as everyone now realised one of the biggest anti-climaxes in IT history. However, what I do very much believe is that the opportunity with DevOps philosophy, approach, religion or movement is that a) this is real b) it makes sense and c) every enterprise seriously should embark on their own journey to seize the benefits it provides. So what does this thing called DevOps mean and why should I care? To quote Charles Darwin in something he did say, in the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed. So there exists many definitions of DevOps but the most eloquent comes from Gene Kim, founder and CTO of Tripwire who is one of the key driving forces behind helping large enterprises understand and leverage the practices and approaches to getting things done in the Digital world at pace and with high quality like Amazon, Google, Facebook. These unicorns as Gene like s to call them - have embraced DevOps on a huge scale and passionately embedded into the way they operate and succeed in their existing and new market entries. Gene s definition is useful the term DevOps typically refers to the emerging professional movement that advocates a collaborative working relationship between Development and IT Operations, resulting in the fast flow of planned work (i.e., high deploy rates), while simultaneously increasing the reliability, stability, resilience and security of the production environment. So you may still be saying so what, and why should I care? Andrew Turner Head of Marketing, Midvision In City AM on Wednesday 11th June 2014, Antony Jenkins, Chief Executive of Barclays commented Banks must continue to invest in new technologies and customer service to avoid being replaced by firms such as Paypal and Amazon, adding that customer s are very comfortable transacting business directly with retailers over the internet and feel no fear moving their banking business to 0 7 0

Continued whoever the best provider is...i believe in the future, people will likely have a choice between the companies I just mentioned and traditional banks So how does DevOps fit into this landscape. Since Y2K there has been many evolutions and revolutions including adoption of ITIL to increase stability and reliability of IT Operations, Agile to increase flow and quality of software development, Continuous Integration and Delivery to enable more frequent deployment of software into the hands of your customer s be that online or mobile i.e. digitally enabled. So DevOps builds on these foundations and has been described to me a couple of times as Agile Operations, where the flow of work and delivery moves from the hands and keyboards of the rockstar developers through QA and into IT Operations and into a highlyavailable, reliable digital customer experience. Andrew Turner Head of Marketing, Midvision Delivery of a world class, reliable and innovative service should enable every enterprise to build customer engagement, drive customer acquisition and use of products and services to underpin lifetime loyalty. Now hopefully, this is helping to make clearer why DevOps is so important to every enterprise. I was fortunate enough to be with Tesco Personal Finance, now Tesco Bank in 2002 to lead a programme on how to engage the Retail stores estate given the strategic importance for customer acquisition and delivery of an engaging in-store experience. This heritage, combined with my role from 2003 to launch Tesco Mobile shaped the operating model for Tesco Mobile and Tesco Telecoms to scale and act as the DELIVERY OF A WORLD CLASS, blueprint for international expansion. Thinking back to those Tesco days, when we were finding our feet RELIABLE AND INNOVATIVE in a new market sectors, the principles of DevOps SERVICE SHOULD ENABLE EVERY were extremely prevalent in how we operated and delivered the service to our customer s it s just ENTERPRISE TO BUILD CUSTOMER we did not call it DevOps we called it OneTeam. Our OneTeam approach was all about collaboration ENGAGEMENT, DRIVE CUSTOMER across many teams and people to deliver for the customer, and was how we linked the innovative idea ACQUISITION AND USE OF to build capability leveraging IT to deliver into the PRODUCTS AND SERVICES TO hands of our customer s in an agile way to ensure we could compete in the ultra competitively intense UNDERPIN LIFETIME LOYALTY. financial services and mobile markets. The Tesco way was derived and leveraged into Retail and the Retailing Services businesses i.e. Tesco.com, Tesco Bank and Tesco Mobile/Telecoms from the work originated by Toyota and their Lean Thinking plus a sprinkling of the GE Way. This transformed manufacturing in the 1980s, transformed Tesco to be a Retail leader in 1990s, leading to an unprecedented surge in worker productivity, better delivery performance, reduced inventory levels and higher customer satisfaction and employee happiness. The hypothesis of DevOps is applying these Lean principles to the 0 7 1

Continued IT value stream rather than the business having the focus from IT, the IT team needs to apply this thinking to it s own backyard. Many leading software vendors have conducted surveys over the last few years to understand the performance impact of applying DevOps into their software delivery lifecycle and the results are amazing - high performers are doing more frequent software production deployments, performed faster, with higher success rates, and fixing issues much faster when something went wrong. Amazon for example delivers an IT change into production every 11.6 seconds. Andrew Turner Head of Marketing, Midvision Given the demand to digitize the enterprise and the Amazon, Google, Facebook effect, the reality is that the CIO/CTO is now the Head of Manufacturing, as the new shop and factory floor is IT. That s why applying DevOps to your IT function is so strategically important it you want to succeed in the long term as your traditional business model and customer base is threatened by new, potentially more agile entrants. Obviously, organisations can ignore this as the latest fad or marketing hype. And it is recognised that change on this scale if you are a large enterprise is not insignificant. But failure to recognise this revolution could be fatal for your organisation and your long-term economic survival. As Charles Darwin did not apparently say but still something we should all consider It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one most adaptable to change. Andrew Turner is VP Operations, SSAAS who help disruptive software ideas scale globally. He is a proud alumni of some very large enterprises having held cross functional roles in sales, marketing, operations in GE, SAP and Tesco serving as COO of Tesco Mobile & Operations Director of Tesco Telecoms, innovative software startup, WANdisco plc as VP EMEA, EVP WW Field Operations and was the founder of Avisen plc. 0 7 2

DIGITAL CURRENCY 0 7 3

DIGITAL CURRENCY: IS THIS THE NEW FRONTIER? WILL IT GO MAINSTREAM? WHO IS MAKING THE MOST OF THE OPPORTUNITY? Graham Busby & James Smith Partners, Elix-IRR & Elliptic ONEY IS STRANGE. IF I NEED TO PAY someone in the same room as me, I can hand them a token directly. But if M I need to pay someone at a distance, I have to trust one or more third parties to relay that token to the eventual recipient. Not only am I reliant on these third parties existing, I am also subject to whatever rules and fees they choose to apply. In 2008, Satoshi Nakamoto published a white-paper presenting Bitcoin, a peer-to-peer electronic cash system. This new system suggested a fundamental change in the way that value can be transferred. The paper said that value could be transferred at distance without reliance on any trusted third parties. The implications of such an innovation, if it were to be widely adopted, are enormous. Further, the use cases for such a system go far beyond currency and payments. At its heart, the technology behind Bitcoin is a distributed asset register, which could be used to exchange tokens representing any asset, again without reliance on trusted third parties. This potential for revolutionising value transfer has led to comparisons between the current state of Bitcoin, and the early days of the Internet, an information transfer system. In addition to Bitcoin, there are already a number of other similar currencies, such as Litecoin, Ripple, and Dogecoin. There are also a number of projects building more advanced functionality, such as derivatives and smart property, on top of Bitcoin, including Mastercoin and Counterparty. While none of these have yet garnered the same level of interest as Bitcoin, they demonstrate the enormous amount of innovation happening in the space. So are digital currencies about to go mainstream? Should we all jump on board, and ditch our existing banking systems? Not yet. There are a number of obstacles on the road to widespread adoption. Regulators are taking a cautious approach, not wanting to move too quickly until they can get a better handle on how the new technology will be used. The EBA recently issued guidance in which it noted the potential of digital currencies, but also advised regulated financial firms 0 7 4

Continued to think carefully before getting involved. Digital currencies are still in a very embryonic stage, which brings with it a number of teething problems. To start with, understanding among users is fairly limited, from consumers to merchants to speculators. Consequently, price volatility of Bitcoin versus the dollar is high, making its use as a currency problematic. Further, the number of merchants who accept Bitcoin as a means of payment is still small. Bitcoin also has image problems, having been subject to a fair amount of press hyperbole around its potential use for illicit trade. Graham Busby & James Smith Partners, Elix-IRR & Elliptic Some of these issues are to be expected in any earlystage technology. Many of them also take a narrow view, focussing only on Bitcoin as a currency or payment protocol, rather than stepping back to appreciate the underlying technological innovation. The key to Bitcoin, as previously mentioned, is the distributed asset register which allows value transfer without reliance on trusted third parties. The range of potential applications for such a technology is vast. There is already discussion of using it to improve custodianship systems for equities, bonds, land registry, and more. So who is taking advantage of these early opportunities? As a currency, Bitcoin is being accepted by a number of merchants (including Expedia, Overstock, and many more) who see it as a cheaper option than Visa, MasterCard, and other traditional payment methods. Uptake amongst retail customers has been slower, as it is still not particularly user-friendly, nor are there many clear benefits yet to entice users. Speculators are starting to trade Bitcoin more actively, thanks to its current volatility. There are also a raft of venture capitalbacked companies starting to provide digital currency services, who clearly see the long-term potential of digital currencies and hope to profit from building the necessary infrastructure (Elliptic, Coinbase, Blockchain. info, Circle, Xapo, BitPay, etc.). Bitcoin and other similar digital currencies are certainly a technological breakthrough, but have a long way to go before they re widely adopted. Exactly what their major use cases will be remains unclear, but there s enough momentum already to suggest that they ll have a role to play in the financial world. At the very least, this is a time for stakeholders to educate themselves on the potential of this new technology. At most, it could completely change the way we think about money. SPECULATORS ARE STARTING TO TRADE BITCOIN MORE ACTIVELY, THANKS TO IT S CURRENT VOLATILITY. Graham Busby, Financial Service Partner & Founding Member at Elix-IRR, the transformation consultancy www.elix-irr.com James Smith, CEO & Co-founder, Elliptic, the digital currency custodian www.elliptic.co 0 7 5

ARE BITCOIN AND OTHER DIGITAL CURRENCIES ABOUT TO GO MAINSTREAM? D IGITAL CURRENCIES HAVE BEEN AROUND NOW FOR A QUITE a while, with Bitcoin being by far the best known. There are others that include Litecoin, Peercoin and Namecoin to name just a few. The key idea of a Digital Currency is that it doesn t depend on a central bank or reserve and it isn t physical, it exists and is stored solely electronically. There has been a large amount of press and speculation around the potential role of digital currencies within the Global economic market and until now that has never really threatened to go mainstream but could that be about to change? For a start it was recently announced by George Osborne that the British government is going to start exploring the role that Bitcoin and other digital currencies could potentially play in the UK economy. This will start with an in-depth study into the potential benefits and also the potential risks that digital currencies offer. This is being combined with other innovations that aim to put Britain at the forefront of the FinTech revolution that is currently happening. Moreover there is now a wave of new companies that have been created around Bitcoin, not simply the Bitcoin exchanges that don t necessarily have the greatest reputation, see the cautionary tale of MtGox. You can now find a Bitcoin ATM or a secure online vault to take care of your Bitcoins and over 60,000 online retailers now accept Bitcoins as an acceptable payment method. This is almost everything you would expect from a standard currency. So that s it, Digital currencies are official mainstream right? Tom Kemp Senior Financial IT Specialist, Harrington Starr Well not necessarily. For starters the price of Bitcoin has been crashing for the last few months and secondly there have been as many high profile failures in Digital Currency as there have been successes, see the aforementioned MtGox. This suggests that a large proportion of the people who hold Bitcoin are looking to buy and sell it in order to make money, much in the way you might trade the pound or the Euro. This suggests that very few people are actually using it as an actual currency. Furthermore, if you truly dig into George Osborne s announcement, you see that what Digital Currencies represented was actually the FinTech community as a whole. In actual fact all Bitcoin was designed to go was to gain some column inches. Announcing an investigation into the benefits of building brand new trading platforms was hardly going to have the same effect but those companies forms the true basis of the FinTech revolution. In summary, Digital Currency is nowhere near mature enough to be deemed mainstream and to be fair neither should it, the dollar wasn t government backed until 1913 and Bitcoin has only been around since 2011! Slow progress is being made but reaching the point where we talk about the pound and digital currency in the same breath is still some way off. 0 7 6

MONEY AT YOUR FINGERTIPS ICTURE THE SCENE. IT S 2020. YOU RE at the checkout in Sainsbury s with a pint of milk. But you ve no cash and P you ve left your cards at home. No problem. You scan your right index finger; the green light flashes. Purchase approved and you leave. Easy. Is this a realistic vision of the future, or are we only ever likely to see such scenes in science fiction movies such as Minority Report? Predicting the future is never easy, but I believe that new technologies will prove the death knell for cash. We re not there yet, but a cashless society is not as fanciful as it seems. Our recent Payments Landscape Report found that 28 percent of us believe that we will stop using notes and coins altogether in the not-too-distant future. New payments technology is rapidly transforming our lives. Today just over half of our purchases in the UK are made by cash. Although a truly cashless society is some time away yet, there is raft of ground-breaking technologies which will make cash a mere supporting act in the near future. Take contactless cards for instance. They are perfect for those small purchases. Why go to the hassle of carrying loose change when you can swipe a card to make a purchase within seconds? 31 percent of us put an item back on the shelf, if we aren t carrying enough cash. Retailers lose 12 billion a year by not offering a range of payment options to customers. Simon Black CEO, Sagepay Contactless cards help address this problem and although leading High Street retailers now accept them, many independent retailers don t yet. But as we become accustomed to the convenience of contactless, we will expect it everywhere we shop. I ve seen it happening abroad already. In Iceland, the buses don t take cash; taxis assume you are paying by card; coffee shops expect you to wave the plastic for a simple Espresso. Sweden isn t far behind. It will happen in the UK as well, something we re just seeing with cash free buses in London. It s not just our need for quick, convenient shopping with less queues that is driving change. The costs to retailers to process transactions should drop dramatically in the next few years. The comparatively high cost banks charge retailers for processing credit and debit card payments should come down. 0 7 7

Continued According to the British Retail Consortium, credit cards cost retailers an average of 41 pence per transaction and debit cards cost an average of 8.8 pence. However the EU will soon cap the amount that banks charge retailers to process card payments. This should result in contactless transactions being made in most stores within the next few years. Simon Black CEO, Sagepay Making payments with smartphones will also become the norm within a few years. We ve been talking about using a mobile to make payments for at least a decade but now the moment has arrived. Paym allows people to transfer money to retailers or friends by using a mobile banking app on their phone. Since its recent launch, 500,000 phone numbers have been registered. Some 90 per cent of UK current account holders will be able to use to use it by the end of the year. There are a number of similar apps provided by mobile phone operators, technology groups and payment specialists like PayPal. According the Centre for Economic and Business Research, the value of goods and services purchased using a mobile phone will almost triple from 4.8bn last year to 14.2bn in 2018. All these developments mean we will use cash less. A further benefit for us is that it will give us peace of mind as there will be less concern over having money stolen. The technology being used to usher in a cashless age offers security benefits to its users as it s very easy to shut down a smartphone s digital wallet remotely if it falls into the wrong hands. By removing cash, you reduce the chances of becoming a target of crime, while using electronic payments can provide a trail of statements that can help to manage your finances. Even cryptocurrencies such as bitcoin are moving in on the mobile payments act. Apple has recently announced that it has updated its application store guidelines to allow software developers to include virtual currency transactions in applications. Although Apple has not specified which virtual currencies have been approved, it is thought that Bitcoin will be included as it is the world s most widely used virtual currency. Nevertheless, the public still has to be convinced by bitcoin only 1 percent of those we surveyed stated that they had used it within the last month. Perhaps the most exciting development is the prospect of biometrics technology being made available by retailers for transactions in the future. The prospect of biometrics, such as fingerprint, retina scans and voice recognition, will make it even easier for us to buy products in store and online. Biometrics offers simplicity, convenience and security. Biometrics will also make fraud virtually impossible - identification is yours and yours alone, and therefore very hard to copy. Our recent survey shows that 47% of us think we ll be using our fingerprints to make purchases within 10 years. So who knows? With such public expectation, perhaps using a fingerprint to buy our groceries won t be confined to the imaginings of the latest Hollywood blockbuster. 0 7 8

H A R R I N G T O N S T A R R events EVERY YEAR 1,000 SENIOR PROFESSIONALS IN FINANCIAL SERVICES AND COMMODITIES TECHNOLOGY JOIN US TO MEET, CONNECT AND NETWORK AT OUR FREE LEADERSHIP EVENTS. JOIN THE COMMUNITY www.harrıngtonstarr.com 0203 587 7007

FAST GROWTH & HANDLING HIGH GROWTH PERIODS 0 8 0

WHAT THE BEST COMPANIES ARE DOING IN FAST GROWTH PERIODS RADING SYSTEMS INTEGRATOR, GOLD-I, has grown from start-up business to global market leader in less than T five years. The company has a rapidly growing client base in every continent in the world and this year, won the ultimate business accolade, a Queen s Award for Enterprise, in recognition of its success to date and future potential. We talked to Gold-i s CEO, Tom Higgins, for his advice on key areas for companies to focus on during fast growth periods. Finding and retaining the right people to help a business to grow is one of the biggest challenges faced by most organisations and Gold-i is no exception to this. We have had to focus on a wider approach to recruitment and make a significant investment in staff development in order to ensure we have the best people in the business for our current and future needs. In my view, a business needs to focus on the following five areas in order to thrive during high growth periods and beyond: 1. RECRUIT AGAINST CORE VALUES & BELIEFS Since founding the organisation, my vision has always been to be the integration provider of choice for the FX, CFD and equity markets, globally. However, I was clear from the outset that I haven t wanted rapid growth at any cost. I wanted to do so with integrity. From an early stage in the business, we created a very clear set of values such as always being ethical, honest and fair, and treating all customers and staff with respect. It s important that employees of all levels are able to reflect these values and particularly important that as we grow, these values aren t diluted. Tom Higgins CEO, Gold-i As such, at interview stage we ask very probing questions to discover a candidate s attitudes and approach to business. Despite qualifications and an ability to do the job, we only progress to the next stage of the interview process if we believe their values match ours. 2. BRING IN FRESH YOUNG TALENT It s important to recruit fresh, young talent - people 0 8 1

Continued who are keen to bring the latest ideas and thinking into the organisation. These people, integrated with a team of experienced personnel, provide an exciting combination for driving a business forward. Gold-i has nurtured strong links with the software engineering department at Surrey University. By sponsoring a second year project, we were able to gain an insight into the calibre of students, build relationships with them and inform them about our organisation. This has evolved into providing intern and graduate opportunities and is an excellent route for ongoing recruitment. Building links with a single university department has certainly proved to be an effective way of attracting a pool of local, talented individuals into the business people who are keen to start their careers at Gold-i and who hopefully can stay with us for many years to come. 3. FOCUS ON CONTINUOUS DEVELOPMENT Rapidly growing organisations present plenty of interesting career development opportunities and talented individuals can be given an increasing amount of responsibility as their remit evolves. However, it s critical for employers to provide the right training and development for career growth to ensure the right skills are in the business and to motivate employees to want to stay and develop within the organisation. As well as one off training courses to gain particular knowledge in a single area, we have found that a focus on ongoing development has been particularly beneficial. As an example, our operations manager, who joined the company with an impressive track record in quality assurance and product testing, is currently studying an MBA to broaden his business skills. Since joining Gold-i, he has been promoted to the management team and attends regular sessions with an executive coaching and mentoring organisation called Vistage. As a CEO of a fast growing business, my own role has changed dramatically since I launched the business. For the first few years I was heavily involved in every aspect of running the organisation from planning and product development to marketing and recruitment. As the business has grown, I ve had to build a management team, to delegate and to learn new skills in order to drive the business forward. I attend a CEO group at Vistage and have found it invaluable to have a strong peer network to discuss ideas, share views and learn from people outside the industry. 4. MOTIVATE THE TEAM AND INVOLVE THEM IN THE BUSINESS Having a low staff turnover is key to running a successful, fast growing business so it s important to motivate employees. At Gold-i, all staff are offered share options, which increases their loyalty and motivation to deliver the best products and services in the industry and provides continuity of service to clients which has a positive impact on the business. We also have monthly team meetings to inform all staff about the company s latest successes, developments and future plans. These are open forums and we encourage people of all levels to share their views. 5. LOOK AHEAD, INVEST IN FURTHER GROWTH During busy periods, it can be challenging to keep up with the amount of work needed to service current clients and new business leads. However, in order to maintain a competitive edge, there still needs to be a focus on the future. At Gold-i, 40% of staff costs are spent on R&D and developers are encouraged to spend 10-20% of their time developing new ideas. After all, if we are going to continue to be a fast growth business, we need to make sure that we have an exciting pipeline ahead. For further information, please visit www.gold-i.com Tom Higgins CEO, Gold-i 0 8 2

SUCCESSFUL FINTECH COMPANIES OFFER MORE THAN JUST PRODUCTS & SERVICES Paul Watmough CEO, MDX Technology S THE FINANCIAL SERVICES SECTOR, in particular, as well as energy and commodities, continues to emerge A from the financial crisis and firms strive to keep up with burdening regulation, while trying to find higher returns, it is imperative that the FinTech community, while constantly innovating, also offers value add to its customers both large and small. For instance, when a large global investment bank issues an RFP for a standard Excel add-in for accessing market data, it expects, as a minimum, the responding vendors to be experienced in the field and have an established client base. Of course the product offered should be compatible with the Excel versions used by the bank and have efficient direct interfaces to the necessary data vendors. But the smart FinTech company will go much further offering a team with vast experience that is expert in handling real-time market data at the trader desktop whether Excel is being used for analytics, modelling, prototyping, back testing, P&L monitoring, pricing or quoting. It will also offer relevant and, crucially, reference clients. The company s product will be both backward and forward compatible with Excel versions and have a broad range of direct interfaces available covering the current and potential future requirements demonstrating to the customer a clear vision and roadmap. Agility will be demonstrated by responding to custom requirements quickly and effectively. Complementing the Excel add-in with other components like an API may prove useful for application developers wanting to access the same market data. Offering value add services like custom development, migration and project management will only serve to enhance the attractiveness of the vendor. Offering an eco-system of partners which combined give best of breed solutions may also be a positive. Equally, when a rapidly growing energy & commodities trading firm wants to aggressively develop its trading capabilities the smart FinTech company is able to step up to the plate and offer solutions rather than just products and services. Drawing on years of experience working with the front office, regardless of the asset class, being able to deliver robust solutions to tight 0 8 3

Continued deadlines for demanding end users is imperative. The FinTech company that has invested in market literate IT people able to serve IT literate market people is perfectly positioned. Paul Watmough CEO, MDX Technology Similarly, when a start-up hedge fund, that isn t blessed (or should that be cursed?!) by a traditional market data infrastructure, decides to take a technology-led approach to execute its strategies, the smart FinTech company will go the extra mile at every stage building a mutually beneficial business relationship with the customer. When asked to help with technology setup or give advice on alternative data sources, consolidate data, share data efficiently, the FinTech company is able to respond from experience. When asked to adapt to technologies like R and Python, the FinTech company has the resources. Whether the customer is a large global investment bank, a rapidly growing energy & commodities trading firm, or a start-up hedge fund, the key drivers for FinTech companies should be the same to offer innovative products, excellent service and crucially to add value. This is what customers want. This is what FinTech companies should offer. Those that do will gain the edge. 0 8 4

REGULATION & LEGISLATION 0 8 5

SEEING PAST COMPLIANCE TO COMPETITIVE ADVANTAGE WITH AN ENTERPRISE VALUATION AND RISK PLATFORM HE DODD-FRANK ACT REPRESENTS THE most extensive financial regulatory reform since the Great Depression; T it has changed, and will continue to change, the derivatives markets landscape. Beyond compliance with regulation, however, firms are looking for ways to optimize their financial analytics solutions, using them also to gain a competitive advantage. As the OTC derivatives market moves on-exchange, the cost of trading these assets has increased. Now, more than ever, optimizing the allocation of collateral for derivative positions is important. Margin and collateral requirements are making even vanilla contracts more expensive to trade. In the context of an increased cost to do business in this space, analytics platforms can help optimize collateral rationing and decision-making for enterprise-wide portfolio netting. Matthew Streeter Product Manager, Fincad Regulators are demanding greater risk disclosure and communication from buy-side and sell-side firms participating in derivative markets. To disclose and communicate said risk, the industry is moving from an ad-hoc and desktop approach to risk toward a valuation and risk platform approach. With a platform approach, not only are firms capable of running computationally intensive calculations while enforcing modeling assumption consistency and validity of risk aggregation across the enterprise, but a company-wide view of collateral and margining is creating operational alpha. Regulation has caused structural changes to the derivatives markets. This change has resulted in a measure of fragmentation of the market and, consequently, has provided opportunity for companies which choose to realize it. Firms which proactively adopt enterprise-wide, consistent, and operationally efficient risk management practices will be the first to recognize the benefits in our capital-constrained reality. Automated, integrated, and optimized decision-making and capital allocation for the firm across all desks and businesses is building the bottom line. This proactivity extends beyond sell-side firms to buy-side firms as well. Post-2008, regulators perceive the largest asset managers as potential sources of systemic risk, in line with the gravity, 0 8 6

Continued importance, and risk that they pose to the stability of the economy. For systemically important asset managers, proactively adopting a platform approach to investment and risk management will not only prepare their firm for a regulation-heavy industry, but also drive operational alpha, enabling a more realistic and complete view of investment opportunities and risk across the enterprise as a whole instead of in parts. Firms which implement a higher level of integration and automation in their investment and risk management practices can realize a competitive advantage. Winners and losers are being separated by their ability to implement firm-wide operational infrastructure across the entire investment and risk management workflow. This infrastructure is enabling the winners to optimize the full economics of increasingly sophisticated investment objectives in the reality of capital constraint. The platform approach to valuation and risk analytics provides the necessary firm-wide, transparent, and consistent view of risk for regulators and also creates a competitive advantage for firms by driving operational efficiency and efficacy. Matthew Streeter, CFA Product Marketing Manager, FINCAD Matt has over 10 years of finance industry experience in New York City at both buyside and sell-side institutions. At Deutsche Asset Management he was part of the cross-asset class structuring team focused on structuring and quantitative product development. Prior to this, Matt held positions on Wachovia s equity derivatives structuring team as well as Société Generale s index arbitrage/basket trading team, working on trade execution, risk management, model creation, and P&L attribution among other responsibilities. Matthew Streeter Product Manager, Fincad WINNERS AND LOSERS ARE BEING SEPARATED BY THEIR ABILITY TO IMPLEMENT FIRM-WIDE OPERATIONAL INFRASTRUCTURE ACROSS THE ENTIRE INVESTMENT AND RISK MANAGEMENT WORKFLOW. 0 8 7

WHAT WILL THE DERIVATIVES TRADING LANDSCAPE LOOK LIKE AFTER DODD-FRANK AND EMIR? S THE FINANCIAL MARKETS CONTINUE to adapt to meet G20-led regulatory and structural reforms, such as Dodd- A Frank in the US and MiFID II/EMIR in Europe, we are seeing the migration of many over-the-counter (OTC) derivatives products e.g. Interest Rates Swaps (IRS) to an exchange type environment. This is intended to reduce systemic risk by moving OTC bi-laterally traded derivatives to transparent electronic trading venues supported by a central counterparty (CCP) clearing model. It may be argued that this is one of the most disruptive eras in the history of electronic trading we have seen, given the scope of regulatory change as firms struggle to comply. In such upheaval lies the opportunity as business models have to be adapted with some saying the inter dealer brokers (IDBs) have to become more like exchanges and the exchanges more like the IDBs. Nonetheless, I would contend the right answer is somewhere in between. Hirander Misra CEO & CO-Founder, Global Markets Exchange Group Limited (GMEX) New trading venues are already being established in this space and at the time of writing 22 Swap Execution Facilities (SEFs) have received temporary registration in the US, with another two pending temporary registration (http://sirt.cftc.gov/sirt/sirt. aspx?topic=swapexecutionfacilities). Whether this will increase further is subject to debate but the trend will manifest itself in Europe when the new regulations come into force, be they registered as Multilateral Trading Facilities (MTFs) or Organised Trading Facilities (OTFs). This is simply far too many to survive no matter how large the swap market, as the vast majority simply automate what was a manual process without any value add. Those which are run by firms who already have liquidity stand a better chance of survival but even so, all will need to find ways to differentiate their business models in an increasingly constrained regulatory environment. We saw fragmentation and then consolidation play out in the equities markets, which were already exchange traded whereas, in the case of IRS, an opaque market is becoming more transparent without any steps in between. It is still early days, nonetheless this has also led to some buy side firms trading over the telephone rather than electronically in the short term, therefore having the unintended consequences of reducing transparency however we expect that this will reduce over time. SEF 0 8 8

Continued consolidators who aggregate venues and data will also assist in the virtual consolidation process ahead of any actual consolidation. Hirander Misra CEO & CO-Founder, Global Markets Exchange Group Limited (GMEX) TIME WILL TELL HOW THE DYNAMICS BETWEEN THE SEFS AND THE FUTURES PRODUCTS PLAYS OUT AS WELL AS THE COMPETITION WITHIN THESE TWO CATEGORIES. Whilst the SEFs fight it out, the real opportunity lies in equivalent IRS based futures products, which can be less balance sheet and margin intensive. There will be additional new venues leading on from those such as Eris Exchange, established in the US, but not anywhere near the quantity of SEFs because creating a derivatives variant for an underlying plain vanilla IRS is not an easy task. These new venues are also supplemented with existing exchange players looking to diversify beyond their traditional product base or geography, such as NASDAQ NLX and CME in Europe, which are live albeit with no IRS futures yet launched and LSE looking to establish a European based IRS futures exchange during 2014 in partnership with some of the banks. TrueEx in the US whilst live with its SEF elements, in its capacity as a Direct Contract Market (DCM) will also launch an IRS futures product. What is true of most of these products including NYSE Swapnote, which was established in 2002, is that they are based on similar contract structures to each other and have expiry dates. At Global Markets Exchange Group (GMEX), we have opted for a different approach with our non-expiring IRS Constant Maturity Future (CMF) tied back to the underlying IRS market at the start and end of day by way of an index, which subject to regulatory approval, will be launched during the fourth quarter of 2014. We reflect the price as an interest rate swap rate rather than all other IRS futures out there, which reflect it as a price. Also unlike other IRS futures contracts, the instrument allows the ability to trade the whole curve. Time will tell how the dynamics between the SEFs and the futures products plays out as well as the competition within these two categories. One thing is clear, in this era of dramatic change, simplicity and low cost must now be the watch words of financial markets enabled by innovative products underpinned by good scalable multi-asset technology. Let the battle commence! 0 8 9

MAKING SENSE OF THE REGULATORY LANDSCAPE FOR TRADING FIXED INCOME AND DERIVATIVES ANY OF THE DETAILS AROUND FUTURE trading regulations in Europe have yet to be fully formed, and M consequently there is still a great deal of uncertainty as to what the impact will be in practice. What we do know is that from 2017 the trading environment for bonds, derivatives and ETFs will look very different. New rules regarding market structure, transparency and the regulation of trading venues will be in place, and will significantly impact the market. As the industry seeks to adapt to the changes ahead, there will be more opportunity for product and service innovation. Most of the jurisdictions that currently have established trading regulations have focused on over-the-counter (OTC) derivatives, in response to the G20 commitment that all standardised OTC derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties. The U.S., for example, introduced laws to regulate the derivatives market, known as Dodd-Frank, under which the Commodity Futures Trading Commission (CFTC) has now almost fully implemented mandatory trading requirements. In Europe, the legislation covering the trading of financial securities is the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR), which jointly replace the original MiFID. The new version incorporates the trading of standardised OTC derivatives as required by the G20 commitments, and will also apply to non-equity instruments such as bonds. The regulatory body assigned with drafting the technical standards for MiFID, the European Securities and Markets Authority (ESMA), has recently completed its first consultation on the implementation of the rules. The trading obligation is not expected to start until 2017. Simon Maisey Managing Director, Tradeweb Although the policy intent of the U.S. and European regulations is similar to create safer, more transparent markets there are key differences in the trading obligations between the two regions. The trading rules in Europe go further in some cases: a broader range of instruments are covered (in addition to derivatives, fixed income securities and ETFs are also in scope), and there are both pre- and post-trade transparency requirements for government and corporate bonds. 0 9 0

Continued In some cases, the U.S. rules are more prescriptive. For derivatives, the CFTC requires trading venues to operate specific trading protocols (for example, swap execution facilities (SEFs) offering a request-for-quote system must also operate an order book); there are no similar requirements within the European rules. It is possible that these, and other, variations could lead to different market dynamics in these regions. However, they also give trading platforms the opportunity for greater innovation, which will of course benefit the swaps user community, but it does raise the question of how beneficial new ideas would be applied globally. LESSONS FROM THE U.S. EXPERIENCE Since the implementation of the CFTC s trading rules for derivatives is largely complete, the experience in the U.S. may provide some useful lessons for Europe. Although electronic platforms offering derivatives trading have been available for several years, it was estimated that less than 10% of dealer-to-customer volume in the U.S. was transacted electronically before SEFs came into existence. Much of the transition towards e-trading only occurred after it was mandated. D2C VOLUME (millions) Simon Maisey Managing Director, Tradeweb 600,000 450,000 300,000 150,000 0 JAN 18 FEB 18 MAR 18 APR 18 MAY 18 JUN 18 JUL 18 One advantage of the phase-in of the made-available-to-trade (MAT) obligation was that it helped the market adapt to the new trading landscape. It allowed time for participants to prepare for the changes necessary, and as a consequence, there was a step-change increase in electronic volume after each of the MAT milestones was passed. On- SEF dollar swap volume now stands at around 60% of the market. Another driver of this increase has been the associated benefits that electronic execution provides, such as the ability to use compression tools. The requirement to clear derivatives trades resulted in the need for institutional investors to effectively manage their line items at the clearinghouse, because each outstanding transaction increases both costs and risk. Netting or terminating this risk has typically been a highly manual process, but electronic venues can offer an efficient mechanism 0 9 1

Continued for executing offsetting swap trades to eliminate these transactions. This functionality proved to be particularly useful to U.S. derivatives users after the CFTC s no-action relief for packages expired in one recent week, 25% of on-sef volume was from compression trades. In Europe, the benefits of these types of electronic solutions for institutional investors can certainly be realised before e-trading becomes mandatory. THE APPLICATION OF TECHNOLOGY CREATES OPPORTUNITIES Innovative technology will make managing the requirements of upcoming trading regulations substantially easier, but electronic execution also offers many additional benefits. Greater efficiency throughout the trading workflow, alongside the reduction of costs and operational risk, have all been drivers of the growth in e-trading in the fixed income markets for several years. Simon Maisey Managing Director, Tradeweb It s possible to dramatically streamline the entire trade cycle by integrating trading venues with internal and third-party systems such as order management systems and clearing houses. These connections make it possible to reduce operational risk, while facilitating trade processing and reporting. Connectivity also helps firms to prove best execution by generating audit trails of each auction, and delivering post-trade summary or compliance reports. Buy-side investors with integrated systems have access to real-time analytics and transaction cost analysis that can be used to continually monitor performance. Although the trading mandate in Europe will not be implemented until 2017, many buyand sell-side institutions operating in the fixed income and derivatives markets are already starting to prepare for future rules. European fixed income market participants are, to a large degree, already comfortable with e-trading, and are adjusting their trading functions to achieve the benefits inherent in electronic execution. Many dealers, keen to provide a more efficient service for their clients, have responded by helping to develop services that increase balance sheet turnover or allow the distribution of axe information. These factors mean that market structure and client behaviour will continue to evolve, providing the opportunity for execution venues to use their insight and expertise to develop innovative trading solutions to help the market address the challenges and opportunities to come. 0 9 2

REGULATION OFFERS OPPORTUNITIES Darren Stevens Director, Planlogic T IS NOW SIX MONTHS SINCE THE European Market Infrastructure Regulation (EMIR) trade reporting I obligations came in to force. The reporting regime has suffered some teething problems, but reporting obligations are here to stay and will become more onerous with time. However, there are opportunities to use the changes forced by regulation to your organisation s advantage, by streamlining business processes, consolidating data sources and positioning your organisation to deal efficiently with coming regulations. CURRENT PROBLEMS It has been widely reported 1 that trade repository matching rates are as low as 3% for some trade types. The European Securities and Markets Authority s (ESMA) response has been to introduce a new scheme for trade repositories (TR) to reject trades with missing identifiers (LEI and UTI). For many organisations who already report trades with consistent identifiers this will have little impact, at least until TR s can reliably pair trades. The TR s must own this issue and resolve it. Only then can ESMA and market participants look at the statistics and make meaningful inferences. 1 See Risk magazine 11 Jul 2014 0 9 3 But what can you do in the meantime? UNIQUE TRADE IDENTIFIERS ESMA s Q&A of 11th February outlining a standard UTI structure and generation hierarchy was not made mandatory. However, this doesn t mean that it should be ignored. You should ensure that your regulatory reporting uses UTI s that have been generated by: A trading platform Your Clearing Bank for all exchange traded derivativesthe seller for any OTC Bilateral trades A mutually agreed party for any other trades The key here is consistency you and your counterparty need to do the same. For OTC bilateral trades this will involve exchanging the UTI at some stage: trade execution,

Planlogic Logo Concept#4 October 2012 PANTONE 655 PANTONE 801 Continued confirmation or portfolio reconciliation. Do this as soon in the trade lifecycle as possible to avoid delays in pairing. Different organisations have different reporting obligations, levels of IT maturity, trading portfolios and staffing levels, so what works for one isn t necessarily ideal for another. Sometimes it s going to come down to good old business process, but ensure you agree this process with your counterparties. Darren Stevens Director, Planlogic RECONCILING TRADE DETAILS Once trades have paired at the UTI level, the next challenge is to match the trade details. Inconsistencies between TR message specifications and market participants interpretations have made this harder, as has the lack of visibility of trades alleged by counterparties through some TRs. In order to implement the portfolio reconciliation obligation (August 2013) ahead of EMIR Reporting (February 2014) you may have used different trade data sets a perfectly valid strategy to deliver timely compliance. But bringing together the EMIR obligations of portfolio reconciliation and trade reporting could help significantly with break management. You should ensure that trade data sets used to report and reconcile are consistent and include the key economic trade details. Consider performing reconciliations more often than your risk mitigation obligation, certainly in the short term, until the level of breaks have been brought to a more manageable level. Looking ahead the jury is still out on whether platforms, operators or market participants will be responsible for REMIT reporting and the market generally is rather hesitant at committing big budgets to meet future regulatory obligations. So address issues where you can, and make reporting legislation an integral part of your normal trade life cycle: Creating Clarity Ensure business functions commit to their roles in regulatory processes. Avoid silo-ing business functions that have reporting roles. Implement daily trade checks to ensure compliant reporting. Regularly check reporting statistics to understand your breaks. Take action sooner rather than later. Your reporting process may be sound, but until your trade reconciles with your counterparty s you re not compliant. 0 9 4

WIDENING IMPACT OF THE UPDATED MARKET ABUSE REGULATION IVEN THAT THE FINANCIAL SERVICES industry in Europe has been subject to a plethora of new and updated G regulation emanating from Brussels in recent times, EMIR, MiFID II, REMIT, AIFMD, Solvency ii, 4th Money Laundering Directive, to name but a few, it is well worth revisiting a regime that was first covered by a Directive back in the late 1990s/early 2000s and is the subject of a significant review and updating and now has the added impact of offenders being subject to criminal sanctions. WHY ARE CRIMINAL SANCTIONS NEEDED FOR MARKET ABUSE? The new EU rules for dealing with market abuse, consisting of the Directive on criminal sanctions for market abuse, together with the Market Abuse Regulation, strengthens and replaces the existing framework, provided by the Market Abuse Directive (2003/6/EC), to ensure market integrity and investor protection. Richard Seaman Director of Regulatory Management, R3cognition The new framework will ensure regulation keeps pace with market developments. It will be adapted to the new market reality, notably by extending the scope to include all financial instruments which are traded on organised platforms and over the counter (OTC), and adapting rules to new technology. It will strengthen the fight against market abuse across commodity and related derivative markets, explicitly ban the manipulation of benchmarks, such as EURIBOR and LIBOR, and reinforce the cooperation between financial and commodity regulators. Since the sanctions currently available to supervisors often lack a deterrent effect, sanctions will be tougher and more harmonised. WHY WAS THE EXISTING MARKET ABUSE DIRECTIVE (MAD) REVIEWED? The Market Abuse Directive (2003/6/EC) introduced a framework to harmonise core concepts and rules on market abuse and strengthen cooperation between regulators. However, a number of problems were identified by the Commission and these can be broadly categorised in five groups: Gaps in regulation of new markets, platforms and over-the-counter (OTC) trading in financial instruments Gaps in regulation of commodities and 0 9 5

Continued commodity derivatives Regulators cannot effectively enforce the MAD Lack of legal certainty undermines the effectiveness of the MAD Administrative burdens, especially for small and medium-sized companies (SMEs) The regulatory framework provided by the original Market Abuse Directive (2003/6/EC) had been outpaced by the growth of new trading platforms, OTC trading and new technology such as high frequency trading (HFT). The new Market Abuse Regulation (MAR) and the Directive on criminal sanctions for market abuse keep pace with market developments and extend the scope of existing EU legislation to financial instruments only traded on multilateral trading facilities (MTFs), other organised trading facilities (OTFs) and when traded OTC so that trading on all platforms and of all financial instruments which can impact on them will now be covered by market abuse legislation. It also provides an indicative list of HFT strategies which shall be considered as market manipulation, such as placing orders which has the effect of disrupting or delaying the functioning of a trading system ( quote stuffing ). Commodity markets have become increasingly global and interconnected with derivative markets, leading to new possibilities for cross-border and cross-market abuse. The scope of the legislation is therefore extended to market abuse occurring across both commodity and related derivative markets. Richard Seaman Director of Regulatory Management, R3cognition WHICH OFFENCES WILL BE SUBJECT TO CRIMINAL SANCTIONS? The market abuse offences shall be deemed serious in cases such as those where the impact on the integrity of the market, the actual or potential profit derived or loss avoided or the level of damage caused to the market is high. Other circumstances that might be taken into account are, for instance, if the person has already committed such an offence before, or, for market manipulation, if the level of alteration of the value of the financial instrument or spot commodity contract or the amount of funds originally used is high or whether the manipulation is performed by a person employed or working in the financial sector or in a supervisory or regulatory authority. COMMODITY MARKETS HAVE BECOME INCREASINGLY GLOBAL AND INTERCONNECTED WITH DERIVATIVE MARKETS, LEADING TO NEW POSSIBILITIES FOR CROSS-BORDER AND The Directive also requires Member States CROSS-MARKET ABUSE. to criminalise inciting, aiding and abetting insider dealing, unlawful disclosure of inside information and market manipulation, as well as attempts of insider dealing and market manipulation. Liability will also be extended to legal persons, which will be punishable by effective proportionate and dissuasive criminal or non-criminal sanctions. HOW DOES THE MARKET ABUSE LEGISLATION TACKLE THE ABUSE OF BENCHMARKS, SUCH AS LIBOR? Since March 2011, investigations have been taking place in relation to possible manipulation of the EURIBOR and LIBOR benchmarks for interbank lending rates by a number of banks. The suspicion was that banks had provided estimates of the interest rate at which they would accept offers of funding which were different from the rate they would have 0 9 6

Continued accepted in practice. As a result, the integrity of the rates has been called into question rates which are used as benchmarks for borrowing and as references for the pricing of many financial instruments such as interest rate swaps and consumer contracts such as mortgages, loans and credit cards. Furthermore, the individual contributor banks estimates provided misleading information to the market about their likely costs of funding. In order to capture unequivocally the manipulation of benchmarks and in order to ensure that such manipulation of benchmarks is an offence, the Market Abuse Regulation and the Directive on criminal sanctions for market abuse explicitly prohibits this and subjects such manipulation to administrative and criminal sanctions. Richard Seaman Director of Regulatory Management, R3cognition WHY IS THE MANIPULATION OF BENCH- MARKS A CAUSE FOR CONCERN? Many financial instruments are priced by reference to benchmarks. Any actual or attempted manipulation of important benchmarks can have a serious impact on market confidence and could result in significant losses to investors or distort the real economy. It is therefore essential to prohibit manipulation of benchmarks unequivocally, and to clarify that judicial authorities could impose criminal sanctions for the offence of market manipulation in serious cases. It is also essential that all necessary steps be taken to facilitate the detection of such manipulation by competent authorities so that they can impose sanctions; this is dealt with in the Market Abuse Regulation. A stringent legal framework will act as a credible deterrent to such behaviour, thereby protecting investors and restoring market confidence. As a complement to the Regulation and Directive on market abuse, the Commission adopted in September 2013 a proposal for a Regulation on Benchmarks to ensure that benchmarks are provided in a robust and transparent way based on sufficient and reliable data. This proposal will ensure high standards of governance in the provision of benchmarks, notably by tackling conflicts of interest, to reduce the opportunities and incentives for manipulation. 0 9 7

A MORE ROUNDED SERVICE OFFERING WILL GAIN MORE TRACTION S THE GLOBAL ECONOMY SLOWLY emerges from one of the biggest recessions in history it is clear that A the landscape has changed radically. It is interesting that firms in the financial sector are not as bullish as in the past and certain phrases are becoming almost clichés within the community: the lengthening shadows and the gathering storm being two examples directed at the increasing burden of regulation being imposed. Rather than investing for growth most firms are investing solely to ensure they remain compliant, effectively running to stand still. Whilst it is true that the industry cannot blame anyone else for it s current predicament, it is also true that the regulations being imposed have been, and continue to be, written in a vacuum with no insight or assistance from the industry. One example of this mismatch is Trade Reporting (TR), where the regulatory requirements are overly burdensome and do not currently come close to fulfilling the G20 ambitions of reducing risk in system. Richard Wilkinson Director Post Trade Solutions, Contango 2 ESMA did try to get a deferral on the reporting requirements for F&O, but this was refused by the Commission 0 9 8 Despite the best efforts of the industry and, to be fair ESMA 2 (European Securities and Markets Authority), the reporting obligation started on 12th February 2014. All derivative trades are required to be reported to one of six Trade Repositories. As of 11th August 2014, valuations and collateral need to be reported as extra data elements on the trade records. Although it is not mandatory to report position information, it is a de facto requirement, as F&O activity is only recorded at the position level on T+1 basis. At a regulatory level, it is difficult to see how the data will be interpreted as the matching rate amongst the six trade repositories is a woeful 3% at best. A record of all the trades executed across the EU doesn t give any of the regulators a sense of where risk lies. It is only through the reporting of valuations and collateral that a picture of potential risk concentrations can start to be viewed. On the evidence of the reconciliation of trade data I do not see how risk concentrations can be accurately measured & steps taken to mitigate them if the matching/reconciliation rates are so low. It will be interesting to see whether the regulators will fine a reporting firm for non-compliance, or fine a repository for not managing to match a sufficient

Continued amount of trades & positions. Beyond the obvious sarcasm it will be interesting to see how the industry reacts as the fines & censures are meted out. Richard Wilkinson Director Post Trade Solutions, Contango So where are the opportunities in the new world? The short-term view has centred on outsourcing the TR process, from the buy-side to the sell-side (the GCM/FCM community). This has been done somewhat reluctantly (due to the costs) and the firms that have outsourced are now realising that it is still their responsibility to ensure reporting is accurate. Over the longer term, there are opportunities for firms willing to take on the reporting requirements and data transport mechanisms. Whilst the responsibility for reporting still lies with the owner of the trade, a more rounded service offering is likely to gain traction. Smaller buy-side firms are most likely to take up this type of offering since they have the least amount of slack within their organisation to manage the process themselves. Additionally, and possibly of more importance, backend reconciliation services are being developed to provide regulatory certainty over what has been reported, irrespective of whether it was outsourced or not. One such product is being jointly developed by Contango (a specialist derivatives consultancy) and Kynetix (a technology company) TRAMS was launched at the 2014 International Derivatives Expo in June and provides the certainty that submitted trades, valuations and positions reflect an organisation s books & records. WHILST THE RESPONSIBILITY FOR REPORTING STILL LIES WITH THE OWNER OF THE TRADE, A MORE ROUNDED SERVICE OFFERING IS LIKELY TO GAIN TRACTION. 0 9 9

WILL ESMA S HECTIC SUMMER LEAD TO A WINTER OF DISCONTENT? EOPLE AT ESMA HAVE BEEN VERY BUSY over the past few months. There are now several active consultation P processes and some discussions can now be turned into proper consultations. The following list represents a selection of what is now actively being discussed: 1. MiFID II/MiFIR Consultation/Discussion paper. The deadline to submit responses was 1 August 2014. 2. Market Abuse Regulations (MAR) Level 1 was approved in mid-june. 3. Regulatory technical standards for the central clearing of interest rate swaps and credit default swaps (two separate consultations). 4. Discussion paper on the calculation of counterparty risk by UCITS for OTC financial derivative transactions subject to clearing obligations. 5. A joint paper with other European Supervisory Agencies (EBA and EIOPA) covering a draft regulatory technical standards document on risk concentration and intragroup transactions under Article 21a (1a) of the Financial Conglomerated Directive. To read what ESMA has published on everything listed above would require a full time commitment for at least a few weeks - understanding the impact of the changes would take even longer. Although not everything becomes effective at the same time, it would be a costly waste of effort, time and money to ignore, for instance, the papers on MiFID II and MiFIR due to the kick-off date being sometime in the second half of 2016. The regulatory technical standards for central clearing trades in specific asset classes are a good starting point to consider what affects the trading workflow of a specific type of financial instrument. We can look at all those changes irrespective of the date that they will become effective and of how many details are known of what will change. Silvano Stagni Group Head of Marketing & Research, Hatstand For instance, take the case of credit default swaps (CDS). They are the subject of one of the two consultation papers that were published on 11 July 2014 that discuss how the central clearing of CDS will work. Looking at all of the regulations, we know that: 1 0 0

Continued A. MiFID II/MiFIR will introduce an obligation to trade on an organised venue non-equity instruments that are liquid enough to be centrally cleared. b. MiFID II/MiFIR will also extend best execution principles to non-equity financial instruments. This will have a direct effect on some of the procedures that control the relationship with clients that submit orders to trade in those instruments. Best execution implies keeping records of each trade, of the relevant trade and conditions associated to the trade, of client data and of market data for ten years. The rules demand that records should be kept for ten years as best execution can be challenged for up to ten years after the execution of an order. All information will have to be warehoused in a way that will allow for its easy and quick retrieval as you must be able to rebuild the environment of a trade in less than 72 hours following a challenge on best execution. Silvano Stagni Group Head of Marketing & Research, Hatstand c. MiFID II/MiFIR will introduce a new type of trading venue the Organised Trading Facility (OTF). An OTF is an authorised institution that operates a trading platform for its clients. It is reasonable to assume that anybody currently operating a trading platform for those types of asset classes might seek authorisation to operate as an OTF. Operators of an OTF have clients and are therefore subject to the pre-and post-transparency regime (as are the regulated exchanges and multilateral trading facilities) and best execution rules. This is an important point to consider before deciding whether or not to apply to become an OTF, or to operate as a broker and execute clients orders through trading venues. d. The central clearing technical standards also deal with the details of back loading requirements for that specific asset class. In essence, these describe what to do with derivative trades that took place after 16 August 2013 or those that were still open on that date. e. We should not forget the post-trade reporting to transaction repositories that started last March and that should already have been implemented. Nor should we forget the regulatory guidelines relating to a ban on naked CDS trading for some types of sovereign bonds. Although this list is quite long, it is not really exhaustive and it does not provide an exhaustive assessment of the impact of regulatory activity this summer. There is no silver bullet to minimise implementation efforts. However, you can take steps to: Declutter data and procedures. Clean your database. Make sure you capture all of the data that has to be captured for reporting to repositories and for sending information to central counterparties. This data will be required for trades that were still open on 16 August 2013 (when EMIR level 1 was approved) or that took place between 16 August 2013 and March 2014 (when reporting to repositories started). Make sure you have a way to capture the details of each trade because they will be required for the pre- and post-trade transparency regime in the future. Since you are looking at this now, you may as well put an environment in place that will make it easier to deal with later requirements. Make sure you have a clear and consistent framework for reference data across all of the relevant systems in your organisation. Review all workflows. Do not leave fundamental tasks to systems that are not supported any more or for which there is no knowledge base left in the organisation. Decluttering data and workflows alone will not solve all of your implementation problems. However, it will give you a good head start in avoiding the winter of discontent that might follow the summer that the European Supervisory Agencies did not take a holiday. 1 0 1

REGULATION AND LEGISLATION: GETTING TO THE GOLD BEYOND THE BURDEN Andy Gent Director, Arkk Solutions OR FINANCIAL SERVICES professionals there is now a third certainty in life: death, taxes and F regulation. As the reach of various European regulators continues to grow and force more legislation on UK firms the burden of new regulations becomes more onerous for businesses that need to be compliant. Without sounding too UKIP on the subject the regulations generally penalise UK firms more than anywhere else. For instance the recent CRD IV legislation works well in continental Europe where most investment managers fall under large groups or banks. In the UK this is less so the case with a large proportion of the asset managers falling under the legislation being small independent firms who still have to spend time and money on the interpreting and implementing the new reporting regimes. Getting on the front foot and planning a well defined project to collate your information and having a test run, before using live data is a best practice, although we still see many firms leaving compliance to the last minute. Across our broad range of customers we deal with a large proportion look at their implementation of new regulatory reporting as a two phase approach: achieving tactical compliance, then strategically embedding the solutions into your reporting infrastructure. Broadly the initial adoption of new legislation can be thought of as three interlinked stages. The initial stage is to understand how exactly a piece of legislation is applicable to your firm. This generally involves the engagement of third party consultants, lawyers or accounting firms. The next stage is to run an internal project collating the data required under the directive. This can often be an extensive piece of work dependent on the granularity of the data and how many independent systems is needs to be gleaned from. The final stage is to push this data into the prescribed template format mandated by the regulator (and where applicable convert to a reporting language such as XBRL of XML). Is there an upside to the increased reporting? Perhaps. Whether you are wrestling with COREP, AIFMD, Solvency II or CASS one thing that new reporting 1 0 2

Continued regimes do force you to do is go focus on the quality of your internal data. A strong focus on data governance and data management is a critical first step in order to increase confidence in the quality of data is a prudent measure for any finance business whether it forms part of a regulatory compliance or not. Reporting your internal data in, perhaps, a slightly different format to how you currently manage it internally can have some value in itself giving you a slightly different perspective on your data. Andy Gent Director, Arkk Solutions Once our customers have got through the initial few reporting periods we see a shift in perspective from many of them. When the main legwork is out of the way, and the business is compliant, the question becomes what else can I do with this information to make it useful internally? The opportunity here lies in taking the data, which, has to be reported, and using it as an everyday measure rather than periodic reporting to the regulator. Additional data sets can be incorporated into the existing information to deliver additional insights on business performance. So whilst regulations are here to stay (and increase as time goes on) there is undoubtedly business value in using this information to drive business decisions, and a deeper understanding of the company s ever changing and leverage and financial positions. TAKE AWAY Regulation in the Banking and Finance sector will continue to increase. By changing your perspective the reporting challenges thrown up by this can be harnessed within businesses as additional management information, turning regulator data for compliance into business insights. About Arkk Solutions Arrk Solutions is a leading regulatory reporting business. We help our customers through a combination of software and consulting services to deliver compliant reporting for COREP, FINREP, AIFMD and Solvency II. Our easy to implement solutions are used by clients ranging from BlackRock, Schroders and Zurich to small limited license investment firms. To find out more visit www.arkksolutions.com 1 0 3

About IARRINGTON farr Harrington Starr is a recruitment business based solely around the needs of the customer. Global specialists in Financial Services and Commodities Technology recruitment, Harrington Starr offer permanent, retained, interim, and contract solutions to over 400 of the leading companies in the world and many thousands of the globes most talented industry professionals. Covering Investment Banks, Hedge Funds, Prop Trading Houses, Exchanges, MTFs, Market Makers, Brokerages, Trading Companies, Vendors and Consultancies, the company is ideally suited to connect world class talent with world class opportunity. We strongly believe in authentic networking and being of service. With this in mind, our offer extends well beyond traditional contingency recruitment. White papers, commentaries, market information, networking introductions, consulting, video, content and a series of events all combine as complimentary services aimed at delivering true partnership in deed as well as word. The foundation of the business is, however, excellent delivery with old fashioned values of manners and respect. We believe in excellence through understanding both the sector itself but also the real needs of our clients and candidates. We love this industry and would be delighted to discuss the Harrington Starr Mystique and how we can help you in more detail. Harrington Starr Company Registration Number: 7246003 Company Headquarters: Capital Tower, 91 Waterloo Road, London, SE1 8RT Company Telephone Number: 020 3002 2850 Company Email: info@harringtonstarr.com Company Registered Address: Cornerstone House, 9 Lord Chancellor Walk, Kingston Upon Thames, Surrey, KT2 7HG. For more information, please contact: Toby Babb at Harrington Starr T: 0203 587 7007 F: 0207 022 1750 E: toby.babb@harringtonstarr.com GLOBAL LEADERS IN FINANCIAL SERVICES AND COMMODITIES TECHNOLOGY RECRUITMENT 1 0 5

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IARRINGTON STARR LIMITED WWW.HARRINGTONSTARR.COM T: +0044 203 587 7007 E: INFO@HARRINGTONSTARR.COM 99 WATERLOO ROAD LONDON, SE1 8RT FOLLOW US ON TWITTER FOLLOW US ON LINKED IN @harringtonstarr (search Harrington Starr) DOWNLOAD OUR FREE APP GLOBAL LEADERS IN FINANCIAL SERVICES AND COMMODITIES TECHNOLOGY RECRUITMENT DESIGNED BY DANIEL BIDDULPH ~ DAN.BIDDULPH@ME.COM 1 0 7