Ushering private wires into the 21st century

01 September 2015 | Hugh Cumberland

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Hugh Cumberland

Blog Author | Colt; Capital markets, solution manager


The financial markets arena is perceived as a technologically progressive space with trades being executed by the thousands each millisecond. However, in the midst of the rapid markets there rests an outdated form of technology: the private wire.

The financial markets arena is perceived as a technologically progressive space with trades being executed by the thousands each millisecond. However, in the midst of the rapid markets there rests an outdated form of technology: the private wire.

Private wires have existed for a considerable period of time, offering dedicated connections between banks and brokers that are used to place trades with preferred partners. They provide permanent connections as they are always on. 

These lines have become outdated as all private wires still route voice through old TDM lines using a technology known as Channel Associated Signalling (CAS). When the switch to IP took place, these connections were left behind as the pace of trading technology continued to increase. That means the benefits of modern IP-based systems are not being capitalised on. 

Global private wire connections are still running on legacy technology, whilst almost all other trading connections use IP – this has significant implications when it comes to productivity, reliability and disaster recovery. Additionally, these systems may not be compliant with future market surveillance regulations. 

 

Life on the trading floor

There is still a strong demand for communication on the trading floor. Voice trading differs from typical phone systems as it involves a number of capabilities that are designed to specifically meet the needs of financial traders. 

Although markets have become increasingly electronic it is still necessary to talk to customers in order to retain business. No matter how far technology progresses, there will always be the need for human interaction. 

Furthermore, there is still a strong requirement for an always on circuit to ensure traders get through to their client directly, and not their secretary, voicemail or an engaged tone. Informal means of contact are often unreliable, consequently trader voice platforms are necessary so reliability can be guaranteed.

As legacy networks become increasingly old and harder to maintain, consumers are more willing to leave these behind and make this transition to IP-based systems. 

However, a key obstacle is the requirement of capital outlay, which has unsurprisingly hindered the adoption of IP technology on the trading floor. If the existing infrastructure can be retained whilst still being able to reap the benefits of VoIP technology, traders will be able to quickly and cost effectively connect to new sources of liquidity in emerging markets where the cost of traditional connectivity has often been exorbitant.

 

A significant disconnect

When it comes to the electronic voice and trading worlds, there is a significant disconnect. Trader voice is currently still carried out predominantly on legacy Plesiochronous Digital Hierarchy (PDH) technology. This leads to issues as compliance departments struggle to bring these legacy systems in line with an increasingly screen-based electronic trading environment.

The two options available for bringing trader voice into the future involve either a migration that happens all at once to a new system or a more ad hoc upgrade. 

Arguably, the former is seemingly impossible and will leave trading floors incapacitated as the system is such that if you upgrade a CAS circuit your counterpart needs to be able to upgrade at exactly the same time. The second solution is to migrate in such a way that permits either party to upgrade to IP independently of each other, where CAS is processed and translated to IP and back again if necessary. Not only is this a much more plausible solution, it also means that customers can migrate at leisure.

Making this transition removes a dependence on legacy networks which are becoming obsolete and harder to maintain. There is also the ability to take advantage of IP data as well as making disaster recovery a lot easier to facilitate. 

Traders will no longer have to physically sit at their desks waiting for a call as working remotely becomes a possibility. Private wires need to be brought into the 21st century so the benefits of modern IP-based systems can be realised. 

The most plausible way in which this can occur is by taking a phased and progressive approach which will adapt trader’s infrastructure. While voice trading will always have a place on the trading floor, the industry has fully embraced IP and it is time private wire connections caught up. Without the benefits of mobility and security whilst maintaining service, private wire traders may be left in the past.