Bill Wagner, President, Wagner Consulting

 

The Problem

 How many CIO/CTO’s are personally involved in trader voice technology? I would submit the answer is very few, because if they were, it would be quite a different market. The trader voice market, specifically turrets and ringdown private wires, have been described by many as a melting ice cube. This is evidenced by the shrinking market share, price fluctuations, declining margins, vendor consolidation and abandonment, and a lack of competition in some regions.

The origins of trader voice can be traced to a wealthy financier putting in a private phone line to the New York Stock Exchange when phones were a hot new technology. Since then, the PSTN was deemed to be too slow, and subsequent rotary dial and touch tone innovations took too long. Speed dial resulted in a wait while the PBX dialed pulses and waited for the telephone circuit switches to complete the call, which could eventually result in a busy signal. Dealer Boards or Turrets were born, and with them ring down private lines/wires. We can debate the technically inaccurate abuse of the terms ‘hoot’ versus ‘shout down,’ and the need for an actual MRD in 2024, but they are still commonplace. Most enterprises today are looking to replace IP PBXs with cloud-based collaboration tools which do not speak to other collaboration vendors who do not provide an API that allows for a tight integration with a turret (i.e., common lamping, line sharing, barge-in and privacy etc.). While I would venture that if you took a turret having 40 years of features still in it (so a vendor can claim more than another) that traders use only a rely on a few. However, the ones they do use must be available in the next generation service.

We all know and manage the four major categories of risk which include strategic, compliance, financial and operational. Each has numerous additional nuances such as reputational, technical, internal, and external, among others. So, what are some of the risks that firms face with voice on the trading floor, and how do they mitigate them? This is a great deal of territory to cover in one sitting, so we will try to cover what are deemed some of the most pressing considerations.

Top 5 Risk Considerations

1. Corporate

• Is your vendor viable and stable?
• Will they remain in the trader voice business? For how long?
• Is their culture one of innovation, or do they to limit your options to maximize theirs?
• Why are some large players exiting the market?
• Are they breaking down or putting up barriers to compatibility and integration?
• Is their strategy helping you achieve yours, or is it making it more difficult?

 

2. Financial

• What are your vendors investing in R&D? (10-15% is the norm)
• Have they been laying people off, and closing offices and markets?
• What is their roadmap, and is it realistic and achievable?
• If they are private, have you asked for their financial status? Did they willingly provide it?
• Are their price increases justifiable and provide added value?

 

3. Technological

• Is their hardware an accessory or a major investment?
• Do they provide Cloud, Premises, and Hybrid options?
• Where are you in your evolution, and can they support your vision?
• Do their solutions fit your business plan, not stifle it?
• Is diversity, redundancy, and BCS/DR inherent in their offerings?
• Are EOL/EOS forcing a purchasing decision with them, or don’t they offer a migration?

 

4. Compliance & Ethics

• Do their solutions encourage bypass of regulations and compliance technologies?
  • 2024 year to date: $81+ million in fines for ‘off channel communications’
  • Since 2021 nearly $2 billion in fines
  • Recent fine of $350 million for violations from 2014 for ‘unspecified infractions’
• Are they offering you tools that either capture everything or integrate with other tools?
• Are they partnering, or forcing you to be the integrator?
• Is your staff writing RFPs for their vendor of choice and not your corporate strategy?
• Is your firm paying the high price for vendor gifting?

 

5. Security

• Do the underlying components the use guarantee that you have no vulnerabilities?
• Does AI put their solution at risk?
• Is their architecture secure? How do you know? Did they provide or demonstrate their plans?
• Did you demand penetration and other testing results?

 

The Solution

Perhaps ‘the’ solution is a bit strong, as there is no silver bullet to solve all of the issues listed. However a possible solution is to find an answer that mitigates the risk, an allows you to retain and migrate at your own pace, not your vendors.’

One such alternative is XOP Networks. Vendors such as XOP can help you mitigate the vulnerabilities that some incumbent vendors face and add value at the same time. For example, some legacy conferencing systems depend on outdated OS and other vulnerable software components. They are not cloud ready (or even NEBS compliant) nor do they offer secure remote access, LDAP, or other common features. By replacing their core, you can achieve both with the XOP USN. It can also provide a universal, device independent UX, and do so cost effectively, while allowing you to retain your legacy CPE in most cases. They can literally bridge any protocol to any other and can offer a variety of codecs and recording interfaces. And if you require customization, they perform their own development and have a robust API.

Conclusion

There is so much more to discuss, in much greater detail than time and space will allow. The purpose of this blog was to encourage reflection on the market. The primary question that I have asked for many years is whether customers will drive innovation or continue to be passengers along for someone else’s guided tour?

For the last 20 years I have seen the largest and most powerful firms in the industry accept status quo from their vendors. There was a time when firms banded together as an industry purchasing juggernaut and held vendors accountable and demand action. They had legal representation from powerhouse industry attorneys and pooled the best tech talent to create to negotiate standards that benefited all. At some point, the vendors broke that bond to divide and conquer. Trades happen between firms. Creating a common standard, with an effective and efficient ecosystem to support that goal is in everyone’s best interest. Unlike disruptive startups, incumbent vendors have little incentive to offer innovation that would potentially reduce the revenue steam supporting their bloated operations, and service their excessive debt at your expense. At the very least, you should maintain a multi-vendor strategy to keep all players competitive. So, CIO/CTO, who is your alternative vendor and is it realistic or eyewash? Are you split 50/50 between them, or did your staff nominally meet a procurement requirement?

So, is the future that bleak? Hardly. Competition will eventually accomplish what cooperation has not. The right disruptive innovator will introduce the right technology and service bundle that cannot be ignored or mitigated by a slight billing change by a vendor that lacks an innovative response. When the ‘Gameboy Generation’ CIO’s fully engage the trading floor, uninfluenced by external incentives, they will address these risks and real change will finally occur.

Bill Wagner is a financial industry technology consultant with over 30 years’ experience as an industry executive in hardware, software, engineering, operations, R&D, product development and introduction, and strategic development.