Principles of Quantitative Development

1.5 CURRENT TRENDS

Any of the preceding options can be outsourced to IT consultancy firms if the bank wants to minimize the cost of maintaining a dedicated quantitative development team. Most of the advantages and disadvantages of the options apply in the outsourced approach as well. However, outsourcing brings in a few drawbacks of its own. One is the viability of the IT firm, which becomes a critical consideration. Another is the implications in the intellectual property of the bank's products, practices and processes. There may be additional regulatory issues related to the security of the information accessible to the information technology (IT) firm.

Some traditional banks do take the first approach and entrust an established vendor to deploy their product ideas. However, due to time-to-market and profitability considerations, this solution is rapidly falling out of favour. The second approach of exploiting vended APIs is still prevalent, but the lack of flexibility implicit in it will soon make it less than ideal. This approach ties the bank to a particular vendor, with all the disadvantages of the dependency involved.

The last two options are essentially variations on the same theme. The only difference is the scope of the in-house trading platform. Of all the different options listed above, the most popular seems to be the third one – tasking a team of quantitative developers to design and implement an in-house trading platform, plugging the gaps in vended systems, while ...