Purpose-Built for Success: Why Not All Front-to-Back Trading Systems Are Created Equal

By Jason Morris, President, LiquidityBook

At the beginning of this year, I joined LiquidityBook as the firm’s new President, and I can honestly say the past few months have been some of the most exciting of my career. It’s not just the chance to take on new challenges and meet innovative new clients and colleagues – it’s also the fact that our products align precisely with where the buy side is heading.

Asset management is becoming ever more competitive, with today’s traders and portfolio managers pursuing incredibly sophisticated strategies and offering more diverse products. The proliferation of multi-manager structures means a firm’s overall trading activity is often more complex than ever, and compliance obligations have rapidly increased.

All of this has led to widespread recognition that front-to-back trading technology is absolutely key to success. A single point of access drawing from a common data source increases efficiency and accuracy while supporting highly sophisticated transactions. Functions like trading based on a percentage of AUM or a certain number of basis points are only possible with a shadow NAV to reference, necessitating a seamless flow from the front office to accounting, compliance and everything in between.

The technology providers to this space have responded by building new functionality and completing acquisitions to shore up their product suites – but not all front-to-back offerings are created equal. In fact, how these systems are built can have a massive impact on their ability to meet the needs of today’s buy-side firms. Let me explain.

Form Follows Function

Front-to-back solutions may be common today, but take a closer look at the origins of these systems and you’ll find an array of different stories. At LiquidityBook, we’re proud to be purpose-built to support front-office trading at its most sophisticated. From our earliest days, our mission has been to give firms with complex multi-manager setups, innovative strategies and aggressive growth plans everything they need to efficiently put their ideas into action. Because our trading capabilities have grown organically to support these use cases, we can meet client needs across the trade lifecycle without compromising on functionality.

Picture a firm with two independent portfolio managers: one who wants to buy 100,000 shares of a given stock and another who wants to short 50,000 of that same stock. In this case, the company’s most efficient move is to approach the Street with a 50,000 buy order and perform a negative allocation, with 200% of the total allocated to the long manager’s portfolio and -100% allocated to the short manager’s. It’s a logical approach that minimizes trading costs – if your solution can handle it. But if your solution originated as an accounting system, a negative allocation is liable to break the model simply because it isn’t recognized as a valid accounting function. There might be workarounds, but these add friction to what could be a relatively straightforward process.

Front-to-back offerings that originated as an EMS aren’t much better. That’s because an EMS by itself isn’t terribly complex – speed requirements aside, it’s just a means of routing orders. These systems don’t need to include OMS-adjacent functions like order calculation, hedging, proper pre-trade compliance and the like. If you’re looking to add data warehousing and accounting to a front-office solution, it makes more sense to add these to an OMS than a pure EMS, which will likely result in a clunky user workflow and harm the performance required from a pure-play EMS.

Bottom line: when it comes to building front-to-back trading technology, providers need to ensure they are not painting themselves into a corner with any foundational decisions they’ve made. Accounting requirements are rigid – if you ask 100 firms what they’re looking for, you’ll get a single answer – while front-office requirements can vary widely from client to client. In LiquidityBook’s case, we live and breathe front-office trading (it’s been our focus for nearly 20 years), giving us a strong foundation to support the middle and back offices. Front-to-back solutions with different origins tend to lack front-office flexibility, inherently limiting what PMs and traders can do.

Built Different

That’s just one example of how we’ve built our platform to deliver where others can’t. Over the years, we’ve made a number of choices regarding functionality and architecture that translate into a better front-to-back experience for our clients. Our roots in front-office trading are just the tip of the iceberg.

One example is LBX Connect, our proprietary managed FIX network. For firms that want to use third-party tools for specific purposes – perhaps to trade a particular asset class or region – our OMS can ingest transaction data via the FIX protocol and seamlessly pass it to downstream functions like compliance. This eliminates the cumbersome integration work that most other systems would require.

This easy flow of data from front to back has become especially important with the rise of investment vehicles like UCITS and ’40 Act funds. Some funds have even evolved to offer ETFs. All of these present real compliance obligations – managers must abide by strict rules and thresholds around diversification, leverage, filing and disclosure, necessitating real-time information to govern their investment mandates. A front-to-back approach is the only way.

Then there’s our platform architecture. We have always employed a SaaS-based, multitenant cloud delivery model, creating a distinct advantage over those who have refactored their legacy systems to create a “cloud-hosted” offering. Any new platform enhancements immediately become available to all our clients, who can select the exact combination of functionality they need – it’s one code base for every use case. In addition, we have long maintained a large engineering organization committed to quickly building new tools based on client requests. Through this combination of flexible architecture and development horsepower, we can offer both customization and instant delivery with no tradeoffs and no on-premise work, supporting our clients’ every front-to-back ambition.

The Road Ahead

If it sounds like I’m passionate about this topic, it’s because I am. Every buy-side firm wants a single point of access for sophisticated, integrated front-office trading, portfolio management, accounting and compliance. LiquidityBook has been delivering this for years. Now, we’re taking steps to bring our offering to as many managers as possible.

To that end, we’re investing in making our platform more accessible, including via an updated GUI and a modern, highly intuitive desktop experience. We’re also actively exploring partnerships with real-time data providers, leveraging our cloud-native architecture to offer economies of scale to our clients. We want to make it as convenient as possible to benefit from a sophisticated front-to-back experience. And just as an aside, firms who aren’t ready to take that leap can still leverage any of our individual products alongside their existing stack. Whether they want to create a path to a future front-to-back solution or simply use a combination of best-of-breed systems, the choice is fully theirs.

I started out this piece by mentioning how excited I am to have joined LiquidityBook. That same sense of excitement can be found throughout our organization. With our front-office focus, unique delivery model and outstanding team, we truly believe that we are the ideal provider to support the buy side both today and long into the future. And we can’t wait to share more about these efforts in the months ahead.

Want to learn more about my new role? Hit me on LinkedIn.



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