Introduction to the Third Generation

Platform for Financial Markets

In an era of high speed trading and intensive regulatory oversight, the human workflow has
become overwhelmed, disjointed and underappreciated. This is a problem. While machines
make us more efficient, the business is about ensuring the financial capabilities of people. To
succeed, we have to form effective and empowered communities through third generation
platform services.
The third generation platform will enable a holistic global community to collaborate, be
informed and market ideas and opportunities...delivered with high levels of security,
efficiency, resiliency and regulatory compliance. This report introduces the expected next
generation platform that will eventually affect all financial services workflows.

Terry Roche
February 2016
www.tabbgroup.com

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

The First Online Community

The first generation platform created in the 1950s was mainframe computers. The
second generation platform created in the 1980s was client-server. So what is the
third generation platform?
The third generation platform, which is evolving now, is based on the cloud and
brings together mobile technology, social platforms and big data. We expect that
third generation platform services for financial markets will consume the legacy
silos of client server services that currently dominate the market.
The capital markets community was the first online community and leader of the
digital revolution. The community did not start with Facebook. Rather, it was
created incrementally via individual offerings and services that shared neither
standards nor open efficiencies. These different offerings such as information and
communications services are delivered via multiple networks with unique data
models, protocol standards, interface standards, service standards and security
standards. They are decades old, inefficient and expensive to maintain.
Disruption, transformation and/or the creation of new models have affected entire
industries through new technology, open standards and shared information flows of
third generation platforms. These factors, however, have not significantly impacted
the financial services industry. At least not yet.
Will new communities disrupt the capital markets ecosystem? Will the capital
markets community catch up with the rest of the world? And will third generation
platforms with mobile, social and big data analytics delivered via the cloud be the
way forward? This note will seek to answer these questions and investigate ways
forward.

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

Third Generation Platform Components

Financial market third generation platforms are built on four key technologies:

Cloud
o The move to the cloud within financial services is gaining steam as
cloud offerings have improved security and operations capabilities.
Indeed the cloud may become the foundation infrastructure for the
industry. While there will be network bandwidth considerations that
will need to be addressed in communicating with the cloud, we expect
that third generation platforms will seek to create their foundation
within the cloud.

Mobile Technologies
o The use and drive toward mobile technologies has been relentless and
it will not abate. Smart organizations work to integrate their
employees personal workflows with their professional workflows to
capture the full attention of the workforce. Any strategy that does not
include mobile by definition is limited.

Social
o As the third platform evolves with Platform as a Service (PaaS)
offerings, we will see a close integration of social media capabilities
within the cloud. The benefits of dynamic collaboration and workflow
across geographies and company boundaries will be key components
of financial services offerings.

Big Data
o The avalanche of data within financial markets continues unabated.
The need not only to collect but to understand and leverage the data
for compliance and alpha capture purposes places a tremendous
demand on financial services organizations of all sizes. Human
hypothesis-driven analytics will no longer be able to keep pace.
Advanced big data machine learning analytics are leading the way to
reveal what is important within all the data.

This industry is about collaboration and interconnectedness on many levels. These

technologies, when combined, could provide opportunities for new offerings and
models to serve the industry in an open, effective way via the third generation
platform (a term first coined by IDC).

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

Third Generation Platforms will Deliver Utility Services

Although the capital markets community has operated information technology the
same way for more than a generation, the augurs of change are on the horizon.
The unrelenting burden of regulatory compliance has forced the community to
consider new models. These new models target commoditized services and deliver
them through mutualized technology and operations or as utilities for greater
operational efficiency.
Fundamentally, a utility model will most likely be delivered as a third generation
platform to enable multiple parties to share facilities for common, typically nondifferentiated tasks. The keys are access to information (i.e., anyone can contribute
or consume data from anywhere), collaboration tools and workspace, and
integrated applications. The capital markets use of open social and collaboration
tools will power the next generation interaction of the industry through delivery of
multiple channel communications, with the security and regulatory compliance that
is essential.

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

Spoiled for Choice

In short, this industry needs to collaborate to function. Business does not happen
until trading parties come together to share information, trading ideas and
strategies, and to consummate a transaction. So it seems that industry participants
would benefit from an open and easy way to interface with each other beyond the
many silos that are in place today.
The industry is spoiled for choice for use cases that could benefit from the third
generation platform model. One example within the realm of pre-trade activities
would be liquidity discovery and an opportunity to standardize Indications Of
Interest (IOI) messages and requests for quote communications across many
platforms. There would then be the opportunity to provide a fabric of
communications across multiple execution facilities and all companies participating
in the markets. This platform would give the industry the ability to have any to any
communications to unlock opportunity instead of segregated communities
swimming separated in non-connected ponds.
The social aspect of the third generation platform will enable market participants to
rate each others performance, platforms, services, etc., in the same way that Uber
users rate their drivers and drivers rate their passengers. Thus performance data
will be available to guide the community to better results.
The same would hold true for any secure middle office communications to facilitate
trade settlement at an affordable price. Therefore, once again the open platform
eliminates existing silo platform communications barriers and data transfer.
Other options for use would be research publication and consumption,
crowdsourcing data and data analytics.

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

Collaboration Made Safe

The third generation platform service is a distributed architecture, which means
communications will need to transit across networks to access cloud services. Of
course, there are myriad regulatory requirements that govern communications that
must be met in all cases. Data delivered via the internet or other public networks, if
not encrypted, is an easy target for hackers. Sending unencrypted data over the
internet is the same as standing on a street corner screaming your message. Add
the use of cloud services, and the data further needs encryption because it resides
on computers that are out of your physical control. The reputational and real
bottom line, stock-affecting consequences of security breaches are severe. Risk and
compliance officers require protections for the data and all the data must be made
available to regulators. One would think that everyone in financial services is well
aware that encryption of data that transits outside their organization is an absolute
necessity. But that would be wrong. TABB Group has found an alarming percentage
of market participants who said encryption was not part of their of their technology
landscape.
Exhibit 1: Do You Use Encryption?

Source: TABB Group

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

Encryption
Financial information, counterparty collaboration and financial transactions happen
over private and public networks such as the internet.
Encryption is the method to encode regular text into an unreadable form called
cypher text. The recipient of the encrypted information uses a key to decrypt the
data to its original form. In other words, encryption turns understandable
information into gibberish and then back again.
Symmetric and asymmetric are the two basic types of encryption. Symmetric key
algorithms work with a single key, shared between the sender and the recipient of
the data. This algorithm and key both encrypts and decrypts the data. Asymmetric
encryption uses a key pair, a public key and a private key, to protect information.
The public key is available to all for senders to use to encrypt data sent to the
owner of the public key. Data decryption happens only by the entity that holds the
private key of the key pair.
Additionally, it is important to confirm the identity of those with whom you are
communicating. The use of digital signatures or certificates that validate the parties
to the communication is the way to achieve identification certainty. A valid
signature lets the receiver of data know whether the data is from a known sender
and unchanged while being delivered. A digital certificate is an electronic message
that uses a digital signature to tie together a public key with an identity. The
identity could be a person, a server, a company, etc. The certificate confirms to
whom a public key belongs and creates trust.
These methods are the traditional tools used to encrypt data and are tremendously
important. However, when considering a cloud-based third generation platform, one
must also take into consideration the transit of the data to and from the cloud. With
that in mind, one should look to end-to-end encryption as a key aspect of the
architecture. Basically, end-to-end encryption is designed to protect data from the
source to the destination, thus preventing third parties from deciphering the data
while it is in transit. Only the source and the destination systems are able to
decrypt the data. Cloud-based systems are a distributed architecture, and one
should look to ensure that the data is protected at every point between the source
and the destination. End-to-end encryption should be a priority when considering
third generation platform solutions.
There is one more important factor to consider. That is, when using encrypted cloud
or third party services, whether the service provider has access to the encryption
keys. If the service provider has access to the encryption keys, that provider could
compromise your security without your knowledge.

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

In a cloud environment, storing encryption keys using a hardened virtual appliance

is the first step to secure customer data. Some firms go even further by supporting
customer controlled Hardware Security Modules (HSMs) either on premises or as
part of a dedicated cloud service. An HSM is a secure processor that provides
cryptographic keys and can accelerate cryptographic operations using the keys. It
has features that protect against physical tampering and provides strong
authentication. An HSM provides significantly enhanced security above softwareonly encryption since it does not have an operating system. Additional features
prevent physical tampering with HSM, making them ideal for hardening and
protecting encryption keys.
Exhibit 2: Hardware Security Module

Source: TABB Group

HSMs are used for their ability to provide a tamper-resistant root of trust to store
mission-critical encryption keys within dedicated segments of the cloud service.
HSMs can securely generate, provision and store cryptographic keys for enabling
data encryption under the clients control. Even if HSMs are hosted in the cloud,
when customers control the devices using their own credentials, the cloud provider
managing the HSMs would not have access to customers keys.

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

Conclusion
Generational platform shifts seem to occur every 30 years and the next shift is
happening now. Industry verticals outside of financial services have already begun
to embrace the third generation platform model with fervor. What does that mean
for capital markets?
Capital markets remain tied into the client server service delivery of the past 30
years and its associated silos of service. While capital markets have expertly and
aggressively pushed the limits of technology to do things faster, bigger and broader
within the data and transactions realms it remains resistant to the structural
changes new technologies offer.
The financial services industry has a significant opportunity to achieve process and
service delivery transformation. This transformation can provide the opportunity to
reconstruct the legacy information collection and distribution services within the
industry and create a social-based business fabric for open collaboration and
business execution.
Where there is opportunity, there is also risk. The established providers of market
data, silo communication services for trading collaboration such as IoIs, order
management systems/networks and legacy client server application services will all
need to recognize and respond to this model or see their businesses displaced.
Displacement will not happen in one move but will occur simultaneously from every
angle over time. Many established services firms in our industry have proven
themselves highly resistant to escaping the innovators dilemma and may have
seen their businesses survive but decline. The next slope of decline will be steep
and come without ropes or nets.
The beneficial cost model of the third generation platform, with the ability to tie in
mobile access, social collaboration methods, along with big data and big data
analytics, will be compelling on many fronts. As long as the needed security,
operational excellence, entitlement and regulatory controls are in place, there
should be little doubt that this generational platform shift will fundamentally disrupt
the way financial services operate. New and different service providers and
collaborators will be empowered to bring efficiencies and new operating models to
financial services.
The technology is available. The will is there. The only question is how long it will
take financial services to embrace modernity. Why wait?

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

About
TABB Group
TABB Group is a financial markets research and strategic advisory firm focused
exclusively on capital markets. Founded in 2003 and based on the methodology of
first-person knowledge, TABB Group analyzes and quantifies the investing value
chain from the fiduciary, investment manager, broker, exchange, and custodian.
Our goal is to help senior business leaders gain a truer understanding of financial
markets issues and trends so they can grow their business. TABB Group members
are regularly cited in the press and speak at industry conferences. For more
information about TABB Group, go to www.tabbgroup.com.

The Author
Terry Roche
An industry veteran with 30 years experience, Terry Roche is responsible for the
FinTech practice at TABB Group. Prior to his current role Terry was Chief Operating
Officer at NYSE Technologies. Before joining NYSE Technologies, Terry held a
number of executive positions at Thomson Reuters and Reuters, including Managing
Director, Global Head of Elektron Real Time and Platform, along with Global Head of
Strategic Business for Focus Group Accounts. Terry also held a number of senior
positions at HSBC that included Global Head of Market Data, Head of Global
Middleware, and Commercial Director, Fixed Income e-Commerce. His career
started at Telerate and included time at Salomon Brothers, Republic National Bank
of New York, where he was head of trading infrastructure and data, and WhiteTree
Solutions, an advisory firm he founded.

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

Introduction
to the
Third| Generation
Platform for Financial Markets | February 2016
Buy Side Operational Agility: Pitching
the Perfect
Game
December 2B

www.tabbgroup.com
New York
+ 1.646.722.7800
Westborough, MA
+ 1.508.836.2031
London
+ 44 (0) 203 207 9477

2016 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission. |

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