A small UK software company has enjoyed a bumper year after capitalising on investment banks’ need to monitor their operations far more carefully.
ITRS, based just north of the City of London in Hoxton, specialises in monitoring investment banks’ technology applications, from measuring the performance of the telecom connections from the trading room to an exchange, to a bank’s ability to manage risk.
Results last week saw turnover for the year to March 31 rise 65 per cent to £11.8m, while earnings before interest, tax, depreciation and amortisation jumped 95 per cent to £5.85m.
ITRS is one of a subset of small software companies that have ridden a wave of spending as investment banks’ need to rapidly improve their trading rooms’ efficiency and to keep a firmer management of their Treasury operations.
Combine back office and front office operations and the bank could be looking at ensuring more than 100 separate software applications accurately match up.
It has been a slow development for the 12-year-old company but now its clients include eight of the 10 largest banks and 30 of the 50 biggest financial institutions in the world.
It started operations when Stephen Bates, co-founder and current chief executive and a former salesman at Reuters and Misys, spotted that companies could not handle their complex systems adequately.
He turned to a friend, Misha Kipnis, a software expert working on a separate project that they felt could be adapted to the financial services market.
Previous systems, he said, were “like a speedometer that only told you when you were speeding, not that you were coming up to the limit.”
Nevertheless, ITRS faced an investment banking market traditionally wary of outside companies. Most have developed and funded in-house IT systemst. However, the advent of the Markets in Financial Instruments Directive (Mifid) played into ITRS’s hands.
Among the regulations is an obligation for investment banks to demonstrate best execution, including reducing latency – the system to process the order once it has been received.
Seemingly esoteric – it is usually measured in hundredths of seconds – it has been one of the key features banks have used to sell their trading services.
“What I’ve learned is that it [ITRS’s software] can do well in both up and down markets,” said Mr Bates.
“In a rising market, banks wanted it for a competitive advantage and in a falling market they need it to manage operational risk. Its use is rising and displacing some internal back office systems.”
But the question for the company, which was built up through generating its own investment capital and carrying no debt, is whether it can sustain the growth as the recession bites, trading volumes fall and the number of participants drops.
“We won’t grow like we did last year but I am confident of 20 per cent organic growth,” Mr Bates said.
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