Trading technology product of the year: FIS

Risk Awards 2017: Front Arena has kept clients despite two acquisitions and regulatory upheaval

Pontus Eriksson, Front Arena: people want to use as few systems as possible

Complaints about technology vendors are common among financial institutions. If there are no gremlins in the software itself, there will be gripes about client service – upgrades take too long, staff change too often, or complaints are left unresolved. In very large companies that go through periodic ownership changes, such issues can be exacerbated and consistency of service is lost.

Users of Front Arena, which started out as the flagship trading platform of Stockholm-based Front Capital Systems before its acquisition by SunGard in 1992 and then FIS in 2015, might have been expected to suffer in this way. In fact, the platform continues to be highly regarded by its clients, some of which have lived through both deals and noticed little change.

"We started using Front Arena in 1998 and still use it today for fixed income, equities and credit derivatives. We have had a very stable relationship with the team and the quality of the software is excellent – in nearly 20 years, we have never felt the need to consider other systems," says Werner Burger, IT manager at BayernLB in Munich.

For banks of BayernLB's size and scale, Front Arena's strength has been in providing a single trading platform to support over-the-counter derivatives and exchange-traded instruments across asset classes. Its functionality covers the full trade lifecycle, including order management, trade execution, position keeping, accounting and risk management.

But Front Arena's user base is not restricted solely to regional banks. The platform boasts roughly 10,000 individual users, representing more than 100 banks, 30 brokers, 200 hedge funds and 40 asset managers. Within FIS, a 530-strong team dedicated to Front Arena clients is set to grow to around 570 by year-end, highlighting the platform's continued growth since the latest acquisition.

Mifid II will make OTC derivatives trade more like listed products, which is an unprecedented change. As every client interaction will need to be logged, firms need an integrated platform that supports both trading and position management
Pontus Eriksson, Front Arena

"We have always believed people want to use as few systems as possible with as broad coverage as possible, so they can reduce costs and avoid complicated interfaces between systems. We have seen the power of this platform strategy in some of our clients, which have grown their businesses significantly while using Front Arena," says Pontus Eriksson, Front Arena head of strategy at FIS in Stockholm.

Front Arena's success derives not only from its well-established reputation and broad coverage – which means firms with limited internal resources can use it as a one-stop-shop – but also from its ability to adapt to the needs of individual users. The principle of extensibility allows clients to customise the platform while retaining the benefits of a packaged application.

That flexibility has allowed Front Arena to attract and retain clients from multiple sectors and geographies over the years, and it has proven particularly valuable as financial institutions seek to comply with new regulatory requirements. FIS believes three regulations – the recast Markets in Financial Instruments Directive (Mifid II), the Fundamental review of the trading book (FRTB) and Solvency II – are likely to have the biggest impact on users of Front Arena.

As Mifid II drives swaps trading onto electronic platforms and introduces new reporting requirements, Eriksson believes the need for a consolidated platform will only intensify. It could also be beneficial when implementing FRTB, as the rules will penalise banks for any internal differences in profit and loss (P&L) calculations.

"Mifid II will make OTC derivatives trade more like listed products, which is an unprecedented change. As every client interaction will need to be logged, firms need an integrated platform that supports both trading and position management," says Eriksson.

"Equally, if disparate systems are used to calculate P&L on different desks, the results will inevitably vary and the penalties under FRTB could be huge. Some clients have already suggested they may have to stop trading certain products if they can't get their P&L to align."

Extended benefits

Meanwhile, for European insurers, Solvency II is bringing asset and liability management closer together, extending the benefits of an integrated platform to the insurance sector. "The actuaries running liabilities in insurance firms now need to interact with the assets side of the business and conduct real-time hedging and analytics, and they can only do this if the two functions are integrated through one platform," says Eriksson.

With such a large number of clients drawn to Front Arena from different sectors, it might have been easy for the platform to lose touch with its users over the years. One way it has avoided this is through regular user group meetings to allow clients to engage in the development of the product.

"Given the number of customers, there will always be different views on the way we are developing Front Arena, but if we get feedback that is echoed by most users, then we recognise there may be something we need to change. The benefit of extensibility is that we can also respond to issues raised in isolation with individual clients," says Eriksson.