Staying Afloat in a Flood: How Scalable Platforms Support Advisors During Market Volatility

By Heeren Pathak, Chief Technology Officer

Blog Hero 9 25 20

When the floodwaters are rising, it’s too late to ask if you have a boat that leaks – or even floats. For broker-dealers who have weathered the market shocks of the past year, now isn’t the time to congratulate themselves. It’s time to look at their performance under the shock they know the world can throw their way, and ask themselves: “How will we perform if the next shock is even bigger?”

When we built the VestmarkONE platform, the ability to scale was central to our plans. We think scalability is important even in steady markets because it lets firms grow and operate efficiently, but nobody who has lived through the last two decades can ignore the impact of the unexpected. Markets can be roiled by all kinds of unpredictable events and can react in unpredictable ways, making it critical to have a system that can efficiently manage large swings in volume.

The real question: How does technology let people scale themselves?

One measure of scale is trade volume – how many millions of trades do we need to process in a given time period. During these big shocks, you might see a week’s worth of trades in a single day or a month’s worth of trades in a single week. The actual physical processing of the trades and the speed with which they are posted are one measure of scale.

But we also like to think of how the advisors and other critical staff at broker-dealers experience that uptick in volume. Are the trading and accounting systems efficiently linked? Or are people forced to do “swivel chair” multitasking, placing transactions on one system and getting real-time accounting of a client’s position on another? At Vestmark, we designed the VestmarkONE platform with real-time integration, offering vastly improved efficiency.

A second way we help people scale is by employing an exception-based system, which quickly identifies areas of concern, rather than forcing a person to run reports or maintain notes in a spreadsheet or calendar to keep tabs on activities needed to service investors’ accounts and assets. The faster a person can focus their attention where it is most needed, the better they can perform in a high-volume situation.

Finally, Vestmark has maximized its processing scale to allow us to efficiently process trading activities across vast numbers of accounts. Some systems limit trades to only accounts that track a single model, or limit the total number of accounts that can be traded at once. On a normal day, there are limited models and accounts that need to be traded, so inefficient trading processes can suffice. On high-volume days, there is a need to trade a much larger set of models across a much larger volume of accounts. The VestmarkONE platform can support that volume all at once.

High-water events in real life

The COVID-19 pandemic of 2020 provides a perfect example. The instigating event itself could be anticipated in the abstract, but until it fully emerged, its impact on humans started to be defined, and actors ranging from government entities to individual investors took action in response, its impact on financial markets couldn’t be completely known.

A look at the VestmarkONE platform’s cumulative monthly posted trades for the first four months of 2020 shows the impact of a complex global event on trade volume, which more than doubled from January to March as the market whipsawed in the spring.

Blog Graphic 9 25 20

Not only must the system execute trades efficiently under load, but the follow-up processing – auto-reconciling positions, transactions and taxlots, processing and posting dividends and corporate actions, calculating daily performance at the household, account and sleeve levels, and more must also keep pace. Our platform can do trade generation, with full pre-trade compliance checks, at 10,000 sleeves per minute, doing in minutes what used to take people hours to do.

At Vestmark, we are always looking to future-proof ourselves. In one instance, while performing user acceptance testing for a client, the client accidentally put in a test-environment order that traded 140,000 accounts representing about a quarter of a million sleeves, and they raised a concern because it took about 45 minutes to process. Upon investigation, it was found that due to stale model targets, they generated trades for 18.2 MILLION taxlots. With this in mind, the client realized the performance was quite good.

But the real value of this test was it gave my team at Vestmark a chance to examine how the platform performed under enormous stress, and they found ways to improve it, to the point that the same trade scenario now can be processed in a third of the time.

When future-proofing, firms want to make sure they deploy a platform that can keep up with an unpredictable world of black swans and new high-water marks. And Vestmark is committed to help you stay on top of them all.

By Heeren Pathak, Chief Technology Officer