Ganesh Iyer, IPC Systems
"The adoption of a MNaaS solution allows firms to enjoy the benefits of industry best practices and places the onus of keeping the network competitive to the managed network service provider."
Conventional business theory says: "What does not directly add to profit - but still costs money to operate - is a cost centre." It's a mental trap that can easily affect networks; after all, networks require compliance not only with telecommunications rules but also various rules from regulators. But without the network, there would not be any business. Instead of a cost centre, financial services need to view networks as a nervous system, invisible to the naked eye but through which everything is accomplished.
Like the body's nervous system, the network carries out dozens of functions at once. Firms use it to:
- connect to liquidity venues and execute trades
- communicate with institutional investors
- enable access to counterparties
- access market data and various trade lifecycle services such as order management systems, portfolio management systems and risk management systems
Unlike one's own nervous system, a firm's doesn't come pre-built, ready for business. Networks a company uses require building an infrastructure capable of reaching the global community of capital market participants. They require resources to maintain, along with the flexibility to change on demand.
Making sure the network stays up to date with compliance and technology requirements is time consuming and costly, too - leaving most firms, particularly buy-side firms, reluctant to redirect the resources required to accomplish it.
The current reality in capital markets is that reliable, global connectivity through a state-of-the-art network is more critical than ever. Since the global financial crisis, changes have swept through the industry. Capital requirements are stricter than they were, there are limits on leverage, and proprietary trading has been throttled. Market-making has shrunk and liquidity is drying up. Even something as basic as finding a counterparty has become much harder. And these challenges barely take into account the upheaval that reams of new regulations have unleashed.
The entire situation looks like being caught between a rock and a hard place. Creating an in-house network infrastructure can be costly, but neglecting or cutting it actually hurts the firm in the long run. Rather than make it a Catch-22, the situation could be best resolved by choosing a third option: a Managed Network-as-a-Service (MNaaS).
In the MNaaS model, firms gain access to an expertly built, fully compliant financial ecosystem. By having someone else focus on investing in and maintaining the network, market participant firms reduce their capital and operational costs while freeing up their resources to focus on their core competencies. In addition, the adoption of a MNaaS solution allows firms to enjoy the benefits of industry best practices and places the onus of keeping the network competitive to the managed network service provider.
Networks are the nervous systems through which the capital markets operate. Their silent yet essential role in capital markets can lead to their value being understated and labelling as a cost centre. Short-sighted thinking like this may easily result in significant long-term damage for a firm. The burden of maintaining a state-of-the-art network may also be a costly divergence from core competencies. Under such circumstances, it's better to use a managed network-as-a-service, freeing up resources for the primary goal of capturing alpha.
A dedicated MNaaS provider would focus on the necessary work to maintain and secure a reliable network - so you wouldn't be as nervous about how much your firm's critical nervous system is costing.