The increase in electronic trading across asset classes, especially in foreign exchange, presents growth opportunities for Pico, which provides technology services for financial markets.
Jarrod Yuster, chairman, founder and co-chief executive of Pico, told Markets Media: “The electronification of trading means more firms are focussing on core latency, data and efficiency.”
Trading in fixed income, currencies and commodities was traditionally less electronic than in equities trading but this is changing. Yuster said that foreign exchange presents a large opportunity, especially as Singapore is aiming to become the top FX trading centre in Asia Pacific.
For example, Barclays said in September that it will deploy its latest FX trading and pricing engine in Singapore, under the Monetary Authority of Singapore’s FX Trading Hub strategy. The UK bank will be launching BARX, its cross-asset electronic trading platform, next year in in Singapore as its fourth FX hub alongside New York, London and Tokyo.
Cameron Booth, head of eFICC distribution Asia at Barclays, said in a statement: “Significantly improved latency, and our next generation pricing, execution and algorithms will drive growth and strengthen our broad client franchise in Asia.”
One of Asia’s largest brokerage firms, UOB Kay Hian, said in September it had chosen Pico to provide managed services and support its new trading platform.
Desmond Yeo, director, at UOB Kay Hian, said in a statement: “In addition to lowering our OpEx, partnering with Pico has freed us to focus on optimizing our trading strategies and business operations.”
Andy Fligel, senior managing director at Intel Capital, told Markets Media that Pico is well positioned to capitalize on increased electronification.
“There is no shortage of growth opportunities across asset classes and geographies including Asia,” Fligel added.
Intel Capital, Intel Corporation’s global investment organization, made a strategic investment in Pico this month completing the firm’s $135m (€111m) Series C investment round.
Yuster said Corvil Analytics had been using the Intel Xeon processor for more than fifteen years. In addition, Pico recently introduced Intel’s 2nd Gen Xeon Scalable platform with built-in artificial intelligence acceleration.
EDBI, a global Asian-based investor and new investor CreditEase Fintech Investment Fund were also strategic partners in the funding round. Other key strategic investors and Pico clients include Goldman Sachs, J.P. Morgan, Wells Fargo, UBS, Nomura, DRW Venture Capital, Chicago Trading Company, Capital Markets Trading and Simplex Investments.
Yuster said Pico has been investing over the past 24 months in areas such as providing 24/7 support around the globe and increasing the capacity and resiliency of PicoNetTM, its global financial services network. By the end of last year Pico had enabled 100 Gigabit per second native bandwidth access underpinned by a pure optical backbone network.
“Out of 400 clients, eight were ready to take the faster network in the first quarter of this year,” he added. “In the second quarter there was much more demand.”
This demand was driven by the heightened volatility in March this year caused by the Covid-19 pandemic which led to record trading volumes.
In addition, in July last year Pico bought Corvil, which provides real-time data analytics for clients who trade electronically, and could make further acquisitions. Corvil Analytics is now enabled for 100Gb networks and clients can access Corvil-as-a-Service solutions within Pico’s global network and infrastructure footprint.
“Corvil has grown more than 40% since the acquisition and their impact has been bigger than expected since they joined our network and technology,” said Yuster. “We are looking to provide their analytics in the cloud.”
He continued that Pico was already benefiting from Intel Capital’s strategic and technical support and their expertise will accelerate development in analytics, big data and analytics-based innovation.
With the latest funding, Pico and Intel will collaborate to deliver 100Gbps network data capture and a real-time streaming analytics platform for financial markets trading. They are also setting up a financial services lab to work with clients on new concepts around AI processing, machine learning, network and trade analytics, and cloud monitoring.
Fligel said: “We look for companies where we can work together to provide solutions and drive value in financial services. This is a unique opportunity to showcase our joint technology and meet our return requirements.”
Yuster expects acceleration in the use of the cloud and a significant growth in innovation using blockchain.
“Out of the top 25 banks, between four and six are investing and driving us to new markets such as China, the Middle East and Latin America,” Yuster added. “In addition, quants are using more data in any markets which are liquid and electronic and there is increased demand from high-frequency market makers.”
McKinsey’s Global Banking Annual Review said market infrastructure is expected to grow as markets overall remain liquid.
“So far through the crisis, some financial-services companies, including large banks, fintech companies, and technology platform-based financial-services firms have reacted nimbly,” said the report. “They have continued to invest, particularly in digital channels, and remained customer-centric to grow profitably despite difficult conditions.
The review also said banks need to drastically reform the traditional IT function as less than 10% of technology spend at an average bank increases value-added business functionality.
“Leading banks have already shown that this can improve IT productivity by more than 25% while also shortening time to market by over 50% and improving customer and employee satisfaction significantly,”said McKinsey. “The levers are mostly well known, but the extent to which they are being applied is unprecedented.”
The levers include shifting to a platform-oriented architecture and moving towards automated infrastructure and public cloud.
“Some are choosing to shift first to a “cloud-like” operating model even for on-premises infrastructure, provisioning their own automated infrastructure and enabling self-service,” said the report. “But many are also considering or shifting to public cloud at scale for major parts of the technology stack, such as digital channels and customer data and analytics, and sometimes using cloud-native applications to let internal customers access the full breadth of services offered.”
McKinsey continued that many banks have barely left the starting line. The review said that in leading banks more than 30% of applications are consumable as platforms— for example, they have a clear set of reusable APIs—compared with almost none in traditional banks.
“And leading banks are able to automate 85% of infrastructure provisioning, compared with 5% to 10% in a traditional bank,” said McKinsey.