How an API-first strategy for the investment industry reduces operational costs and opens up better access to data
Investment fund infrastructure has not typically been optimised for the rapid exchange of information, but rather for functionality around a narrow set of instruments, vendor services and third-party administrators.
As a result, infrastructure can quickly become convoluted with scale: picture the interplay between an EOMS, PMS, Performance and Risk across multiple third parties and vendors, each insisting their instruments are correctly typed and none enforcing consistency in their common interface. Transaction, instrument and market information needs to move seamlessly between these systems with no loss of fidelity to efficiently run an investment management business, but legacy systems were not built with connectivity front of mind.
Alongside this, we’re seeing the growing influence of data science on the investment industry. We all know that higher quality data leads to better decision making which ultimately leads to better performance. Today, the management of data could not be more critical to the success of a fund. Yet, the enforcement of quality, ontology and lineage as data passes between people and systems is an operational challenge facing almost every asset manager.
APIs are often touted as the solution to many data problems. So, what is an API-first strategy, and how can it enhance operational efficiency to meet the challenges described above?
Enter the modern API
APIs – or Application Programming Interfaces – are protocols that define the behaviour of software interfaces, whilst abstracting away the complexity of the underlying implementation. APIs are hardly recent innovations, but since the advent of the OpenAPI standardisation initiative, productivity and uptake have increase enormously. With uniform standards now in place, there’s a much lower barrier to connectivity. Auto-generated Software Development Kits are cost-effective, easy to update, and reduce workload and the API interface is far easier to maintain. If done correctly, the modern API can provide a consistent and easily implemented window into connected applications.
Across the board, we’re witnessing modern applications built with an open API approach designed to support communication with an ecosystem of other applications. From OpenFin with its Platform API that allows for a common user experience for developers across multiple applications, to FX data provider TraderMade making its data available via API so it can easily integrate into an existing workflow.
It should no longer be unusual to see an EMS generate an order and use an API to speak to the PMS / OMS and vice versa, translating data between different formats, without merging the operational systems themselves. This is increasingly important in the investment world, with demand for data growing irrespective of fund size and workflows becoming more complex. An API-first approach gives you more agility to quickly add new systems, meet new customer requirements, and get better control of your data.
Learning from Open Banking
The Covid-19 pandemic has accelerated consumer use of contactless and online payments and in the UK, several banks have launched open banking services (using APIs) that let customers of multiple lenders make instant online payments without needing to use a debit/credit card. We’re now seeing first-hand the benefits an API-first strategy offers retail banks as they build closer relationships with their customers and quickly adapt to changing markets. But there are even more benefits that an API-first approach can bring to the asset management industry – benefits around controlling data, reducing costs, and enabling deeper understanding of that data.
A platform for efficiency
Understanding: APIs enable investment managers to embed data driven decision making throughout the business. Through API usage analytics you can gain insights around identifying data processing delays due to loads at specific times, pinpointing systems that require additional scale, and streamlining processes where there are multiple inefficiencies that could be resolved with a single API call.
Control: APIs let you efficiently integrate disparate data sets by eliminating batch processing. For example, using APIs can enable trading systems to produce and consume a real-time investment book of record by eliminating EoD or BoD batch processes.
Cost: An API first platform lets you choose best of breed systems without needing to maintain the upgrade and integration costs of these systems. The cost savings an API first platform provides are self-evident when bespoke file drops, translations, and interfaces are removed.
Reporting: MiFID II created challenging regulatory reporting requirements for buy-side firms around transactions and best execution among others. Reporting becomes far easier with an API-first approach as you can have confidence in your data’s fidelity and the ability to gather it more quickly.
When asset managers implement a successful API-first strategy they reduce operating costs, remove siloes and get better access to strategy-enabling data. In our next article in the series we’ll explore what a good quality API looks like, standards for delivering a best practice experience and what you should look for in an API-first vendor platform.
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