Market participants will have to deploy better trade monitoring systems, particularly as the debate over the use of high-frequency trading rages, he says. “Dark pools will be forced to become more open, and regulators will take a greater interest in examining everything from policing trading in real time to the use of social media within trading.” Bates foresees increasing use of an “in-the-Cloud” plugand- play style of technology adoption. [In-the-Cloud is a metaphor for Internet-based development and use of computer technology. Usually, business applications are accessed from a web browser, with software and data being stored on servers.] This model, known as Software as a Service [SAAS] will level the playing field, Bates says, “enabling smaller upfront investments, and a move away from on-premise deployment”. Hosted services will be used for algorithmic trading and risk management, thus freeing budgets for other uses. “Hedge funds in particular will be key adopters of hosted trading systems as a way of dealing with the operational and cost challenges caused by the financial crisis,” Bates predicts. Hosted platforms, such as Progress’ OpenEdge, remove the technology burdens and maintenance issues from fund managers, allowing them to focus on making money.

Along with the GFC and the Cooper review, another issue forcing improvements is the transfer of “policing” the Australian Securities Exchange from the exchange itself to the Australian Securities & Investments Commission due to conflicts of interest. Costs friction is thin, but it adds up, says Jason Lenzo, head of Russell Investments’ equity and fixed income investment services. Russell works with 130 different dealers globally, and has more than 200 people working on bespoke and offthe- shelf software worldwide. Reducing slippage may lack the allure of new strategies, but it’s the low-hanging fruit for many investors, and it’s a viable source of administrative alpha.

“There’s three main issues in the back-office efficiency space: dark pools, risk evaluation, and transparency,” he says. His description of dark pools is reminiscent of Goldilocks and the three bears. “There’s the problem of too few in Australia [one only] and too many in the US [49]. With too many, you can’t manage the counter-party risk: there must be ‘meaningful liquidity’. “Europe now has three of four that are significant, and this may be a good number.” The second issue, risk evaluation, is one of “ensuring that there’s adequate liquidity in the alternative exchanges”, says Lenzo. Third, there must be transparency, both legislated and evolved, at every level from the portfolio right down to execution.