Attended by executives of large investment banks and technology firms alike, the Intelligent Trading Summit covered a wide array of topics, from what constitutes competitive advantage in today’s trading industry to the possibility of turning regulatory pressure into an opportunity. DataArt, represented by its financial services team, was among the attendees.
Kee-Meng Tan, Head of Electronic Execution Strategy at BNP Paribas, got the Summit off to a bright start by introducing key topics which found much resonance in the following panels.
He noted that execution speed is no longer a primary source of competitive advantage for traders. While “firms are squeezing the last microseconds out of connectivity”, pursuing further reductions in latency is a game of diminishing returns. Companies should refocus on creating superior algorithms and trading models, capable of generating more persistent alpha.
With the diminished edge that market participants once had with speed, panelists explored other ways to make more stable profits. Chris Donnan, Chief Technology Officer at Tyler Capital,stated that speed is only one consideration and there is a trade off between risk estimation accuracy and speed, with slower reaction times for more accurate risk calculations. He further emphasized that data is the foundation for trading and investment decisions and encouraged firms to pay more attention to the quality of data they feed into their trading models.Donal Byrne, CEO of Corvil, brought fill rate into the equation, stating that one should relate the benefit from achieving higher speed to the improvement in the quality of execution. If a higher speed does not lead to a higher fill rate, it may be not worth pursuing.
Kee-Meng Tan encouraged trading companies to look at more technologically advanced industries and academic research to enrich trading technology.Head of Core and Credit MET Quants at Deutsche Bank, Dr. Paul Bilokon also suggested that traders look to large IT companies like Google and Amazon for inspiration. He emphasized the value of simplicity in technological solutions and discussed the pros and cons of technology fragmentation and consolidation concluding that less fragmented, more consolidated solutions are more conductive to optimal performance.
Throughout the Summit an issue of build vs buy was in the air, with a general agreement on the benefits of outsourcing the non-core competencies. Kee-Meng Tan’s advice was to “consider what business you are really in and outsource commoditized functions as much as possible. Then concentrate your intelligence on technologies and models that will benefit your firm and your clients”. The Panel on Optimizing Fast Market Data Through High Performance Technologies also came to a conclusion that one is more likely to buy high performance hardware or software technology than to build it internally. Importantly, Tan noted that even actual trading functions are being outsourced with more and more firms moving from market making to execution business, acting as a broker and offering their knowledge and technology to serve others who take the risk of executing trades.
Louis Gargour, Partner at LNG Capital, reminded attendees that technology is only one factor, that trading is a people business, and the path to liquidity is convoluted and up to human decision making. On a related topic, Machine Learning, Sentiment Analysis and Predictive Analytics panel brought a lively discussion debating if machine learning has reached its prime time or not quite there yet. With good arguments for both sides, no consensus was reached on the matter.
Somewhat unsurprisingly, discussion of regulatory pressures made its meandering journey throughout the Summit. Kee-Meng Tan talked about the complexity faced by banks that must comply with new regulations and invest in regtech while having to respond to market pressures and invest in trading models and infrastructure. He noted the uncertainty around final technical standards of MiFID II and expressed concerns about local application of centralized European regulations.
Donal Byrne, CEO of Corvil, saw the upcoming regulation as an opportunity to restructure technological solutions and build modern systems that go beyond compliance with a specific requirement of a governing law and address real issues behind regulations. Such an approach drives investment into a source of sustainable competitive advantage in contrast to achieving only incremental compliance.
Finally, the Summit featured innovative fintech companies, with a common focus on security.
Cardabel is a start up that uses machine learning to identify and help prevent internal fraud in capital markets activities. Symphony offers a secure, cloud-based communications service to financial institutions, allowing encrypted messaging for teams, workgroups and other communities while keeping with organizational compliance. The argument behind Post-Quantum is that modern scripting cryptography will fail as quantum computing evolves and becomes capable of guessing encrypted keys millions of times faster than modern computers.Their technology, Quorum key, prevents data breaches by splitting the encryption key into fragments. Access to data is only possible when a quorum of fragment holders is in consensus. Everledger is applying block chain technology to track luxury goods, particularly diamonds through certification & related transaction history and provides verification for insurance companies, owners, claimants & law enforcement.
All in all, exciting times in trading industry with much opportunity to come from technology solutions.