When Yann L’Huillier joined trading firm Tradition in April 2010 he had a three-pronged challenge. These were:...
to prepare the organisation for increasing electronic trading; to rebalance IT budgets to favour its trading activity, rather than merely keeping the lights on; and to restructure the global IT organisation.
L’Huillier’s previous job was CTO at trading venue Turquoise, where he built the company's trading platform from scratch (see panel, below). Turquoise was later acquired by the London stock Exchange and L’Huillier moved on.
L’Hullier’s predecessor as global CIO at Tradition was business-focused but the company's need to replace core trading platforms meant it needed a technologist.
Before Turquoise L’Huillier held senior IT positions at stock exchanges such as the Toronto Stock Exchange, where he replaced the entire trading system at the in 2001, and the Boston Stock Exchange replace its core system in 2005.
Move to over-the-counter sector
His years of experience in introducing electronic equity trading to exchanges made him the obvious choice to ready interdealer broker (IDB) firm Tradition for the onset of electronic trading in the over-the-counter (OTC) sector. Unlike the equity trading industry – which has seen the move to electronic at a pace because of demand for high-speed automated trading from high frequency traders (HFTs) – the OTC sector is mainly voice-based.
OTC trades are deals made between banks and IDBs are the brokers of the deals. This might involve a bank doing a deal to buy corporate or government bonds for a large corporate customer. Or it could mean a bank swapping currency for a corporate customer through an OTC trade. These deals are anonymous and do not go through an exchange.
Turquoise IT infrastructure went live in August 2008
Turquoise used off-the-shelf technology, including its core trading platform from supplier Cinnober and a combination of Progress Software and Detica technology for its market surveillance application. It uses software from Neonet to provide market data and EuroCCP for clearing and settlement services. The infrastructure is housed in two datacentres run by financial services IT service provider BT Radianz. It comprises HP blade servers running on a Red Hat Linux operating system.
Tradition is one of five major IDBs, the biggest of which is ICAP.
L’Huillier says the big difference between equities and OTC is that the nature of OTCs does not lend itself to high-frequency trading. Where stock exchanges must offer investment banks the fastest trades possible (milliseconds can make substantial differences), speed is not of the essence for OTC interdealer brokers.
IDBs act like a matching engine for banks. There brokers, which make up about two thirds of its total 2,500 workforce, match traders at banks in the same way software matches buyers and sellers in the equities market. The difference is an automated matching engine at a stock exchange needs to do this is microseconds, whereas in the OTC market, brokers use computers to find potential deals and telephone their trader clients.
“But the OTC market is changing and there is more need to make the market electronic,” says L’Huillier.
He says this is because of regulations demanding greater transparency as well as making the deal making easier.
“We are trying to make what we can electronic. We do not know what the right balance will be but we need to have the technology in place so we can have the ideal balance.” He says he does not think the OTC market will go fully electronic.
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The first part of L’Huillier’s challenge was to build a core software platform to enable new systems to be added when required. The Java-based system, known as Nebula, was completed in May 2011.
“This has all the components of a trading system at an exchange,” says L’Huillier. Nebula and the systems that sit in it process between five and seven million orders per day.
“We do not have high frequency traders in this market so there is no race for speed. Stability is most important.” Traditions up-time is as good as the very best stock exchanges, says L’Huillier.
Systems built on top of Nebula since its completion, include a system that enables to deal in interest rate swaps and another for currency.
The demands on L’Huillier as the global CIO of Tradition also mean he must balance resources between the business critical trading platforms and the IT that keeps the business running efficiently for 2,500 staff in 27 locations.
Tradition has about 200 IT staff with over 90% of new IT developments related to electronic trading. “Most of my time is spent on work related to electronic trading.” Much of this is overseeing development work done by two IT teams in New York and London.
This year much of L’Huillier’s focus on corporate IT will be to bring costs down so more of the budget can be invested in electronic trading. Last year the IT team was cut by about 10%.
Other cost reductions in corporate IT come from tough negotiating with suppliers, says L’Huillier: “We are going to a lot of our vendors and saying ‘look, the world is changing and we still need to be in business, you have to work with us.’
“We want the same service for less money.”
He says most of the meetings he has had with suppliers have been positive. “The industry is going through a lot of transformation and some suppliers are willing to reduce costs for a longer term relationship.”
On outsourcing, L’Huillier says he only outsources software testing.
To support the transformation to electronic trading and the rebalancing of the IT budget, L’Huillier had to restructure the lead IT team. Under L’Huillier there is a group CTO who looks after all the IT infrastructure and in each continent there is an IT head.