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Financial News - 20th January 2003
FFastFill Provides Outsourcing

FFastFill, the software firm that specialises in derivatives, has created a new division which it believes could revolutionise the way brokers use technology to connect to exchanges. The plan is to provide an outsourcing service enabling brokers and intermediaries to give up expensive and troublesome links to derivatives exchanges on which they trade.

Derivatives brokers use independent software vendors (ISV) systems to place buy and sell orders with exchanges such as LIFFE and Eurex.

However, these systems only provide a front end, similar to an order sheet of trades sent and received by broker and exchange. The information is transmitted by a connection between exchange and intermediary, which is set up and maintained by the intermediaries’ technology departments

FFastFill aims to break the current model whereby brokers maintain their own links to derivatives exchanges. Instead, it offers outsourcing that will give the brokers the freedom to focus on trading, without worrying about whether their IT departments can support all the links they need to trade on different exchanges.

Nigel Hartnell, business development director for the new FFastFill business says,: “When they are not hindered by the limitations of their existing technology, brokers can increase their product coverage, execution quality and build their inventory of clients. They can concentrate on being brokers again”.

Hartnell says many fund managers and brokers would like to offer clients a greater product range and take advantage of arbitrage opportunities that exist in the derivatives market.

However, they are often constrained by a limited number of technology links to exchanges and they cannot always meet clients’ requests for these products. “All intermediaries want to expand their product ranges, but setting up the links to exchanges from scratch is an expensive business,” he says.

“As the capital markets have come under increasing cost squeeze over the past two years, firms are looking for suppliers that can provide the total solution and the services around it, thus allowing them to reduce their fixed in-house IT costs.”

IT managers must oversee the sound functioning of hardware, networks data provision and support services to an entire trading floor to maintain a service to brokers. These are the elements Hartnell is proposing to cover in FFastFill’s outsourcing service.

He says the service could reduce brokers’ IT costs by 20% if they maintain the same quality of service. But Hartnell thinks the model should be applied for improving services to find managers, in which case the cost of the ASP model may be the same as in-house maintenance, but that could be offset by increased revenues from fund manager clients. Intermediaries would retain their membership status with exchanges and could keep their existing trading screens.

FFastFill provides a similar service to Dresdner Kleinwort Wasserstein, the investment bank, which awarded a £5.3m (€8.1m) deal to the software firm last year to build and manage its business. The deal makes FFastFill responsible for connection to exchanges, business continuity and disaster recovery and support services.

This could be extended to include an outsourcing agreement.

The firm is talking to other financial institutions about increasing their productivity and client base by outsourcing essentially commoditised processes.

Derivatives exchanges are joining the discussions. Hartnell says: “At the moment exchanges must have a separate technology alliance with each intermediary, and they are learning that there can be a more efficient way to manage the connection process.”

“Mature exchanges, such as Eurex and Euronext.liffe, realise they can no longer differentiate themselves on the basis of technology: they have to differentiate on service.”

“In the longer term, technology outsourcing in support of particular trading processes will become more prevalent. It will spread throughout the capital markets’ supply chain as institutions realise there is no competitive advantage to be gained from providing such services in-house.”

FFastFill developed its outsourcing initiative following intense competitive pressure within the ISV market over the sale of trading screens to financial intermediaries.

Competition intensified after exchanges, such as Eurex and Liffe, abandoned floor trading in favour of screen-based trading, which led to a plethora of independent software vendors developing trading screens to use in the Exchanges.

20 - 26 January 2003

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