Modernising Private Wires

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Hugh Cumberland, Capital Markets Solution Manager at Colt says that it is high time for Private Wires to be brought into the 21st Century in the financial markets sector. He explains the options.

The perception of many is that the financial markets sector is one of technological innovation and progression, in order to facilitate the vast number of trades that are executed every day. Despite this, amidst the fast pace of the markets resides the private wire, an outdated and somewhat overlooked form of technology.

Private wires provide always on connections between traders and other market participants. These lines have become outdated as private wires still route voice through legacy TDM lines, using a technology known as Channel Associated Signalling (CAS). When the switch to IP commenced, these connections were left behind while the speed of trading technology continued to increase.

Consequently, 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.

Trader voice technology is still vital

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 more and more electronic it is still necessary to talk to customers in order to retain business. There will always be the need for human interaction, no matter how far technology progresses. Furthermore, there is still a strong requirement for an always on circuit to ensure traders get through to their client directly as opposed to a secretary, their voicemail or an engaged tone.

Legacy networks are becoming increasingly old and harder to maintain, as a result financial institutions are more willing to leave these behind and make the transition to IP-based systems. However, a major obstacle is the requirement of capital outlay, which unsurprisingly has delayed 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 extremely high.

Bringing trader voice into the future 

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

There are two solutions available to bring trader voice into the future and this involves either a migration that happens all at once to a new system or a more ad hoc upgrade. Arguably, the former is probably 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 credible solution but it also means that customers can migrate at their own pace.

The benefits of making this transition are clear. There will no longer be a dependency on legacy networks, which are becoming increasingly redundant and hard to maintain. IT departments can also capitalise on IP data in addition to making disaster recovery a lot easier to facilitate. Traders will no longer have to physically sit at their desks waiting for a call as mobile working becomes a reality.

Private wires lack the benefits of security and mobility whilst maintaining service, so it is likely that private wire traders will be left in the past. Modern IP-based systems present many benefits and private wires need to be ushered into the 21st century so these can be realised and capitalised on.

The most conceivable way for this to take place is by taking a phased and progressive approach – retaining the existing infrastructure and migrating the private wires estate over IP. The key advantage of this approach is that it doesn’t disrupt the counterparts, who can retain their legacy infrastructure as long as they like.

There is another pressing reason for updating voice trading: regulation. Changes to the regulatory framework mean the financial sector will need to keep voice recordings for longer and integrate voice with other forms of communications, like messaging. Demonstrating compliance will be seriously hampered by legacy and disjointed technologies.

Voice trading will always have a place on the trading floor. As the industry has fully embraced IP elsewhere, it is about time private wire connections caught up.

Ed Says…

The plesiochronous digital hierarchy (PDH) is a technology used in telecommunications networks to transport large quantities of data over digital transport equipment such as fibre optic and microwave radio systems.