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Trading technology is not baking Twinkies

December 5th 2012 · 2 min read

A short discussion of “bakeoffs” and critical paths.

Sometimes we go into trading technology shops, especially at larger banks, and find ourselves participating in this strange thing called a “bakeoff”. The idea is to address a business technology requirement by gathering together a wide assortment of different technical ingredients, then running experiments, and finally producing a report evaluating the choices. The good thing for us is that our TimeKeeper product does really well in those cooking competitions and the recipe books become valuable sales tools for us to leverage. But in many instances, the “bakeoff” seems to be more of an obsolete institutional reflex than a sensible business practice.

Consider this common situation: several critical trading platforms handling large volumes of trades have known vulnerabilities to massive time failures. The software and hardware combination running those platforms has been shown to be inadequate. There are known solutions that could be introduced at once, solutions that have been shown to work in similar institutions and that have costs that are invisible given the scale of the trading system. Furthermore, technology staff is already overcommitted to work that is necessary to keep the business functioning. Yet, the institutional habit is to task the technology team with a bakeoff and to make that a blocking issue. Business managers are then prevented from implementing any fix, possibly for many months, while engineers try to find spare time to build out test systems and collect data. In fact, it is not unusual for the bakeoffs to never conclude as participants keep getting pulled out for urgent tasks. In the meantime, critical systems remain at risk.

Since Wall Street is such a revolving door, we have run into engineers participating in their third or fourth bake-off – each time for a different company and each time with the same results. As financial institutions try to switch from a craft model to a more industrial model and as they emphasize agility and innovation, they might want to consider less baking and more serving up a game changing solution.

It makes sense, particularly in larger institutions; to continually run tests of technology so that as market offerings and business unit requirements evolve, supporting technology teams can deliver best in class technology quickly. Business units benefit from knowing about new technologies, alternatives, and tradeoffs. But that type of evaluation shouldn’t be a critical path activity or used to justify forcing business units to wait for new technology that is already known to work. Even for baking companies with products that have an infinite shelf life, delays in innovation can be very costly.

Less baking, more eating.

VY