Updated: Apr 13
Beacon Co-Founder Mark Higgins shares his views on the challenges of externalizing in-house bank technology, and how to overcome them.
We at Beacon welcome this exciting industry trend of empowering quantitative developers. We also know how tricky it is to open up in-house platforms because my co-founder Kirat Singh and I designed, built, and used them for sixteen years prior to launching Beacon.
Goldman’s and JP Morgan’s recent steps towards opening up API access to some of their data and analytics will certainly add value to their clients. But there are two key limitations: clients must run analytics on the bank’s infrastructure, not their own; and clients can only access applications, not the bank’s actual in-house developer platform.
We founded Beacon in 2014 to build the next-generation platform that solves both of these problems. Beacon was designed from the beginning to make it easy to spin up securely segregated sandboxes for clients. And a Beacon license comes with the full stack developer platform that powers our applications.
This article offers a peek under the hood of what banks are really doing - and introduces Beacon as an alternative way to externalize in-house technology.
What Are the Banks Really Doing?
It’s an exciting time to be a bank client! Standard dealer services like market making and algorithmic execution are becoming increasingly commoditized, and each dealer is trying to figure out ways to attract clients and keep them in their franchise. One approach is to give clients the powerful tools that the dealers use internally.
For example, Goldman’s Marquee is a website where clients can access market data, portfolio information, research, and some of the internal analytics that are implemented in SecDB. Clients use web applications that ultimately run their calculations on servers inside Goldman running SecDB. Goldman also recently open-sourced software around API access to those same services.
JPMorgan is doing a similar thing with Athena, letting custody clients run Athena’s analytics on their portfolios to give them advanced risk and pricing information.
An important distinction, though, is that neither Goldman nor JPMorgan are giving their clients the actual developer tools that they use internally - just end-user applications. That means clients have to give their data to the banks to run those calculations.
Giving out their developer tools, as it turns out, is quite difficult for them, because SecDB and Athena (as well as Bank of America’s Quartz, another similar platform) are monolithic in-house software, and spinning up securely segregated sandboxes is something that they just weren’t designed to do. That design decision was early and deep and is very difficult to change. Supporting a lot of client-specific sandbox environments is too expensive to be commercial.
So Goldman and JP Morgan aren’t going to be selling developer tools anytime soon, but their clients will still get a lot of advanced analytics powered by those platforms. Those clients just won’t be able to run those analytics on data that they’re not comfortable sharing with their bank. And they won’t be able to extend these applications beyond some API-level customization.
As a result, clients will miss out on the benefits of Goldman and JP Morgan’s developer platforms. I wrote a post about the history, components, and advantages of these “enterprise innovation/institutional quant” platforms. Their true secret sauce is their ability to enable an organizational model that is both controlled and commercially effective. In this “strategist” model, business-savvy quants and developers have a full stack developer platform so that they can build and deploy applications to business users quickly.
Is There Another Way?
Let’s go back to the two key limitations that banks and their clients face with externalizing in-house technology: the calculations are hosted at the bank, so clients need to give up their data to the bank; and client developer teams don’t get access to the real secret sauce, which is the developer platform.
Here’s how Beacon solves both of these problems.
Beacon was designed from the beginning to make it easy to spin up securely segregated sandboxes for clients, with cloud compute as an integrated infrastructure layer. This design choice means that, rather than being tied to the bank’s infrastructure, clients can get their own instance of Beacon and keep their data private. For example, if a bank wants to expose an analytics application in a client’s Beacon instance, the client can run those analytics on all of their internal data in a secure and fully segregated environment which the bank cannot access.
Beacon’s platform also includes a modern implementation of all the enterprise technology platform components, based as much as possible on open source components. The trick is stitching them together in the right way to provide an integrated platform that can enable that strategist organizational model - and unlock a new level of productivity from commercial developer teams. With Beacon, we’ve done the hard work so that our clients don’t have to: a Beacon license comes with a full stack developer platform and secure sandbox infrastructure, as well as an integrated suite of business applications.
We’re thrilled to be offering our platform to clients across the sell-side and buy-side at a time when the industry is embracing innovation and empowering quantitative developers.
Let us know your thoughts at firstname.lastname@example.org.