Apple products like the iPhone have an air of exclusivity about them. Some apps, for instance, come only in iOS versions, meaning they’re unavailable to Android phone users. Conversely, Google offers many of its apps—YouTube, Google Maps, Google Docs, and more—to iOS users. It’s as though iPhone users have a side door into the Android world.

Perhaps this is how some capital markets firms approach interoperability—and maybe, just maybe, it’s not necessarily a bad thing.

Apple is known for locking users into its ecosystem, yet its products are still extremely well sought after. In a similar vein, Stephen Pemberton, global head of product management, direct custody and clearing, markets and securities services at HSBC, believes there will always be a space for deep domain experts or specialists in the capital markets arena, even as products “open up” for interoperability purposes.

Although there’s a risk that interop will dilute the “exclusivity” of a platform, Pemberton says expertise will prove a differentiator. “Maybe they don’t need to be as open as people want them to be… it’s just a different business model. But where there’s a need to interoperate, to collaborate, it will drive convergence to an extent,” he says. Whether “closed off,” or not, Pemberton says they will need to be more open-minded about potential partnerships that could benefit clients.

The theme of interoperability is making increasing inroads into capital markets, pushing the boundaries of openness in various ways.

BlackRock, for example, launched Aladdin Studio, a suite of tools focused on integration and collaboration that allows developers and clients to build applications directly on top.

Then there’s State Street, which is working on integrating its Alpha trading platform into the Charles River Investment Management System, essentially delivering a front-to-back solution for the buy side. Meanwhile, its Alpha Data Platform offers access to a wide range of third-party data products.

And take Goldman Sachs, which is creating an ecosystem centered around its Marquee platform that is more interoperable with its other applications, enabling users to get everything they need around information, risk, and execution in one place. 

All these firms have other systems that could be opened up further. But would that mean those platforms couldn’t command their current premiums? Could there be value in certain systems remaining closed off? 

Flexible friends

For HSBC, it’s all about offering clients maximum flexibility. Its MarketSpace platform, for example, allows clients to access post-trade services and solutions from HSBC and third-party providers.

The platform, which launched in October, has an open architecture that allows clients and third parties to co-create and develop services and solutions. “From a client-centric point of view, we have to create optionality and flexibility for our clients to consume products and services, but we also need to give maximum optionality to those third-party providers and fintechs to deploy their products and services,” says Pemberton.

The idea is to create a network ecosystem where HSBC sits at the center and provides clients with choices. It could look like Amazon, he explains, where multiple suppliers list products on the site, but Amazon lists its own-brand products that customers can buy.

“At some point, it’ll be almost like a ‘network of networks’ as we bring more capabilities onto this platform.”

But firms like HSBC are likely to choose only those third-party providers that make sense to them. After all, big trading platforms only want to open up so much—going too far might destroy the factors that make them special or unique to their clients in the first place.

Would they be willing potentially to give that up, along with sacrificing some short-term revenue, in the name of creating an interconnected ecosystem? I think not.

Maybe this means capital market participants will get the choice to go with a service provider that gives front-door access to all its partners, or perhaps just a side-door. I believe there’s a place for both.