Importance of Voice in Electronic Trading

For several market players, the deal becomes real only when there is a voice at the other side of the line.

In spite of the spread of electronic markets, voice trading is still doing well. Yet, traditionally, the provision of voice-based broking and trading services has been an expensive, complex business with no scope for operational flexibility or developing compliance requirements.

However, technological advancement, a progressively tough competitive environment and the requirements of financial regulators in the post-crisis era are altering all of that.

An advanced voice-based system, provided it features the correct architecture and software, delivers the prospect of that voice at the other end of the line being placed anywhere at any time.

It indicates the cost of the connection would be lesser, the quality better and the security impenetrable. Again, all conversations would be tagged and stored efficiently.

By looking at voice as a software, instead of in terms of hardware, an organization could ensure that the data occurring from its voice trading infrastructures are completely combined with data from its other trading networks. This results in substantial benefits with regard to business intelligence as well as regulatory compliance, as voice trades could not only be secured electronically but also recreated and cross-referenced on request.

This flexibility eventually converts into a comprehensive transformation of voice trading, providing substantial cost savings and improved value services. However, it requires state-of-the-art communications systems.

At present, we use extremely robust and advanced communication devices than ever before. At the same time, for several firms, the fundamental model of point-to-point voice communication between dealers and their counterparties has remained mostly unchanged for a long period, despite the huge changes that have happened elsewhere in financial markets technology over the same time.

Previously, open outcry exchanges and brokerage all functioned on voice communication. Though electronic trading has progressed quickly - especially in markets such as equities and exchange traded derivatives - voice trading has evolved extremely slowly.

In spite of all the technological advancements in other features of trading, the dealer boards that are being used by several banks, brokers, and trading firms haven’t really transformed significantly.

The dealer boards and their connected infrastructures have always been costly investments. Hence, firms try to make maximum use of this legacy technology.

However, the advanced software-based voice trading systems being extremely cost-effective, very flexible and simple to deploy than before, several firms are now beginning to re-assess their method to voice trading technology.

In order to understand why a voice system transformation is required, it would be useful to think about three imperatives:

Resilience

The first one is resilience. The system cannot afford to make an error, resulting in traders being exposed to open positions in the market.

At present, advanced software-based systems could be completely distributed and therefore provide more resilience at a lesser cost.

Cost Effective Service

The second one is to deliver the service that clients need without increasing the operational costs. This could be challenging.

As the financial services sector has expanded and disruptive technology has proliferated, competition has become intense. However, an advanced voice system is capable of delivering improved service without resulting in additional costs.

For firms that provide voice services, a wide range of opportunities is available in terms of the location of their staff and where they could operate from. For e.g., dealers who are traveling could use a private peer-to-peer architecture and sophisticated software to provide secure voice-broking to customers at an affordable price.

Trade Reconciliation and Regulatory Compliance

The third one pertains to trade reconciliation and regulatory compliance. If information has to be verified, the voice record becomes crucial, both for the service provider and the client.

At present, the state-of-the-art IP-based voice systems are able to cater to this requirement by securing audio in uncompressed multi-channel format.

Distributed Architecture

The top-notch voice systems operate on a completely distributed private peer-to-peer architecture. This provides the following benefits to the firms:

• Adjusting their voice network to meet demand without any additional costs.
• Managing their enterprise voice and trader voice services on the same platform. This results in cost & equipment effectiveness and interoperability.
• Integrating the trading voice system with the other aspects of their business.
• Providing business intelligence, where data from various channels needs to be combined.
• Ensuring all regulatory compliance requirements are met.
• Facilitating the reconstruction of trade-related data.

A completely distributed architecture is very reliable. As the network expands, so does the resilience as there is no distinct point of failure on the network.

These voice systems are easy to deploy and they reduce upfront & ongoing costs. Significant cost savings can be achieved in the data centre.

There are several reasons driving banks and dealers to convert from the traditional hardware-based dealer boards to advanced software-based voice trading systems.

The top-notch distributed voice trading systems on offer today could provide agility, flexibility, functionality, security, interoperability and reliability.

In the future, banks and dealers must execute voice trading solutions that can be deployed either on-site or as-a-service in the cloud to ensure they are competitive and compliant in the existing market.

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