This whitepaper aims to outline the key considerations that should factor in the assessment of financial extranet service providers and discusses the benefits expected of such considerations particularly in Asia.

1. WHITE PAPER: KVH Financial Solutions
Financial Extranets
The Global Financial Community at Your Fingertips
Table of Contents
2 Introduction: The Connectivity Challenge
2 Factors Driving Demand for Increased Connectivity
4 Key Considerations:
A Wide Community Encompassing the Entire Trade Life Cycle
Value Stack
Low Latency
Reliability
Customer Service
Global Reach, Local Knowledge
Language Capabilities
Agility
Security
Value Added Services (Total Packaged Solutions)
6 Conclusion
8 About KVH
Copyright© 2012 by KVH Co. LTD
All Rights Reserved. Not to be copied or reproduced without express permission of KVH Co LTD
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2. Financial Extranets – The Global Financial Community at Your Fingertips
Introduction: The Connectivity As deregulation allows more execution venue
competition, liquidity is spread over an ever
Challenge increasing number of pools (Exchanges, ATSs, PTSs,
ECNs, Dark pools, etc). Trading firms can gain
The advent of electronic trading and increasing
advantage by spreading the trading activity
market/trading venue fragmentation has started
across these multiple pools. However, this
to expose the significant shortcomings of
advantage is quickly negated by the complexity
traditional leased line infrastructures. Trading firms
and cost of the connectivity required.
today are forced to seek connectivity to multiple
trading venues to ensure they have the widest
2. Adoption of Electronic Trading in Fixed Income
access to liquidity and opportunities. As electronic
OTC Markets
trading gains a foothold in trading of fixed income
Fixed income markets, particularly in Asia, have
asset classes, which traditionally were traded using
been slow to adopt electronic trading. With
voice systems, the data line connectivity
increased use of algorithms and the need to
requirements are growing at an exponential rate.
enable regulatory compliance, gradual adoption
The post-trade processes are also requiring of electronic trading methods is gaining a foothold.
automation. As transaction volumes grow, the Traditionally, the fixed income markets trade
settlement cycle shrinks and regulators demand through (dealing) voice networks which offered
transparent and structured trading of OTC asset an endless array of counterparty connectivity.
classes like bonds and swaps. Brokers report they Replacing these hitherto voice networks with
can be connected to hundreds of clients or more internally managed point-to-point or MPLS data
with every connection backed up with a connectivity soon becomes an unsustainable
secondary line for diversity with a further diverse endeavor due to scale and complexity.
link to a remote DR (disaster recovery) site. For
3. Automation or Straight Through Processing
global multi-venue and multi-asset trading
(STP) for the Post-Trade Processes
strategies, such network topology quickly
becomes very complex and costly to manage. The drive to achieve efficiencies in the post trade
cycle requires increasingly ubiquitous connectivity
with all manner of post-trade value stack
Factors Driving Demand for counterparts. Further, a lot more of the post trade
processes are increasingly being executed via the
Increased Connectivity: “Application as a Service” operating model rather
than via in-house application deployment
1. Deregulation and Liquidity Fragmentation operating models. Again, deploying the necessary
Copyright© 2012 by KVH Co., Ltd. All Rights Reserved
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3. Financial Extranets – The Global Financial Community at Your Fingertips
connectivity via internally managed point-to-point counterparties which in turn expands the number
or an MPLS data network soon becomes an of counterparties a trading firm requires to be
unsustainable endeavor due to scale and connected to in order to complete the post-trade
complexity. confirmation, matching and settlement processes.
4. Increasing Transaction Volumes in Equities and Increasingly, trading participants are seeking to
Exchange Traded Derivatives mitigate their connectivity challenges through
partnerships with financial extranet providers.
The adoption of algorithmic trading has generally
Financial extranet platforms enable trading firms
led to decreased order sizes and consequently an
to access numerous liquidity pools and numerous
increased number of trades necessary to fill the
trade life cycle value stack service providers
same number of securities purchases. These trades
through a single point of access without sacrificing
are likely to be executed with many different
Simplified Connectivity to Ecosystem Partners
Copyright© 2012 by KVH Co., Ltd. All Rights Reserved
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4. Financial Extranets – The Global Financial Community at Your Fingertips
the speed, reliability, security and exclusivity that outsource rather than internally source many
financial transaction communications require. The processes that are necessary but do not add
benefits of financial extranets are in the differentiation in their line of business. The ability to
streamlining of communications between a given seamlessly access these support services is
market participant, their trade life cycle service essential for the success of the new operating
providers, the trading venues, their counterparties models. The financial extranet community needs
and the designated reporting entities and to connect to ecosystem hosting environments,
regulators, as well as the inherent cost efficiencies such as colocation and proximity hosting centers,
of not having to manage the complex with service providers that offer on-demand trade
connectivity portfolio. life cycle support services.
A key challenge for connectivity solution Low Latency
architects is understanding which extranet service
providers can best meet their current and Although ultra low latency is not a primary driver
anticipated business needs as the markets and for connectivity achieved via a financial extranet
their customer demands evolve. This whitepaper platform, some measure of acceptable low
aims to outline the key considerations that should latency is now expected. As algorithmic trading
factor in the assessment of financial extranet becomes the norm for capital markets trading,
service providers and discusses the benefits prices in all asset classes are moving much faster
expected of such considerations particularly in than previously seen. Thus, the ideal extranet
Asia. service should be built on a high throughput,
low-latency backbone to match the evolving
speed requirements of traders. A provider with an
Key Considerations extranet service layered on top of a legacy
general purpose carrier network will not suffice.
A Wide Community Encompassing the Entire Trade
Life Cycle Value Stack Reliability
The extranet service needs to be able to reach a Because the financial extranet connectivity forms
wide community of trading participants, execution a critical foundation in the business processes of
venues and ECNs. In addition, the connectivity trading firms, reliability is of utmost importance.
requirements of most trading firms increasingly When an extranet is used to connect post-trade
include access to all trade life cycle value stack processes, direct financial repercussions can be
players. In a bid to bring cost efficiencies to their incurred if settlement is not effected within the
business models, many trading firms are opting to stipulated time limits. To meet the needs of the
Copyright© 2012 by KVH Co., Ltd. All Rights Reserved
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5. Financial Extranets – The Global Financial Community at Your Fingertips
financial services industry, financial extranets provider has a track record of excellent customer
should be built upon highly resilient networks that service and is able to respond to your
are professionally monitored on a 24 x 7 basis. counterparty’s needs with the same level of
Financial firms should thoroughly assess their SLAs service as would be expected of an internal team.
(service level agreements) in order to guarantee
they receive the level of service and performance Global Reach, Local Knowledge
quality they are paying for.
Asia Pacific is a unique market with a range of
Customer Service different market structures, regulations, corporate
rules and infrastructure maturity levels. Execution
Using an extranet service to connect with your venues, ECNs and regional service providers have
counterparties and other partners, substitutes a an array of connectivity architectures for financial
firm’s own interaction with the said counterparts firms operating within Asia and internationally, it is
and partners with that of the extranet service critical to leverage an extranet service provider
provider. It is essential that the extranet service that offers global reach and yet has enough local
Multipurpose Access via a Single Network Link
Copyright© 2012 by KVH Co., Ltd. All Rights Reserved
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6. Financial Extranets – The Global Financial Community at Your Fingertips
expertise and experience to navigate through can also ensure they are benefiting from the
complexities inherent across the region. services of highly specialized network security
professionals, without needing to make these
Language Capabilities internal staff hires.
For international firms extending their connectivity Value Added Services (Total Packaged Solutions)
across Asia, multilingual support is vital during and
following service implementation. Service The range of value added benefits offered by the
providers with multilingual capabilities throughout extranet service provider can also be important.
the organization will be able to resolve As well as network connectivity, financial firms
cross-border operational issues much faster. today rely on highly secure and robust data
center facilities and, increasingly, private cloud
Agility and managed dedicated server infrastructure
environments for the storing and processing of
The ability of financial extranet service providers to their vital business information. For financial players
provision connectivity in the shortest possible time wanting to leverage a financial extranet service
(usually 1 or 2 days) can make a big difference to provider, it would be significantly more
a trading firm’s bottom line. Each day spent cost-efficient to use a service provider that also
waiting for network connectivity translates to offers data center and cloud services as part of a
missed opportunities. In Asia, where the maturity of total end-to-end solution.
infrastructure and the service expectations vary
greatly from one jurisdiction to another, having an Consequently, the more customizable and flexible
extranet service provider that brings predictability service providers will be able to more effectively
to the provisioning process is critical for business meet the customer’s needs and develop optimal
planning. solutions for their trading strategies.
Security
Conclusion
Financial extranets that use privately managed, Financial extranets offer financial firms a low-cost
purposely built networks will ensure optimal and highly effective way of connecting with other
security as all participants with access to the market players globally at the fastest speeds and
network are vetted community participants. It is within a highly secure environment. For firms
desirable that the extranet has very restricted or trading in or with Asia, it has become necessary to
no gateways to the public Internet. Further, by leverage a financial extranet service that offers a
using an extranet service provider, trading firms rich ecosystem of financial market participants
Copyright© 2012 by KVH Co., Ltd. All Rights Reserved
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7. Financial Extranets – The Global Financial Community at Your Fingertips
and service providers over an international
low-latency network, as well as Asia-specific
expertise and professional services, reliable SLAs,
multilingual support, and a broad menu of IT
solutions that can be flexibly integrated into an
end-to-end solution to support ever evolving
trading strategies.
Copyright© 2012 by KVH Co., Ltd. All Rights Reserved
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8. Financial Extranets – The Global Financial Community at Your Fingertips
About KVH
KVH is an Asia Pacific IT Services and Data Center Services Provider established in Japan. KVH’s
Information Delivery Platform delivers integrated cloud and network solutions and best-in-class service to
its customers. KVH owns infrastructure and provides services that enable clients to store, process, protect
and deliver their vital business information. KVH provides IT Services, Cloud Services, Data Center Services,
Managed Network Services, and Professional Services.
KVH has a presence in Tokyo, Yokohama, Osaka, Hong Kong, Shanghai, Singapore, Seoul/ Busan, and
Chicago, and serves over 1,900 customers in broad industry segments such as financial services,
manufacturing, media, gaming, and e-commerce. More information on KVH can be found at
www.kvh.co.jp/en/
Copyright© 2012 by KVH Co., Ltd. All Rights Reserved
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