Human and Machine-Rise of the Cyborg: The Cycle of Voice Trading

Celent has explored voice trading in Human & Machine-Rise of the Cyborg: The Cycle of Voice Trading, published yesterday. In this piece, we look at the power of voice trading as well as the business drivers, challenges and forces that are driving change in voice communication, collaboration and voice market engagement.

Celent believes that voice is a key channel that will remain relevant and will work more seamlessly with electronic and data channels in the coming years. A move toward unified communication approach and advances in technologies, combined with a challenging business environment, are reshaping the modern trading desk. Cost cutting, front office effectiveness, gleaning better insight into customer behaviour combined with digital automation are pushing this frontier forward. Voice trading remains the major channel for transferring risk, across asset classes, yet remains a challenge due to the difficulties in leveraging this unstructured data set.

Advances in both preparing and leveraging data for advanced analytics are creating a demand for business insights-the demand for better data is ever growing. Firms are beginning to leverage advanced data tools for not only risk mitigation and regulatory requirements, but are creating front office opportunities for better counterparty engagement and communication.

Fintech continues to advance in the capital markets and the implications are profound for incumbent players. Firms that effectively leverage the full spectrum of innovation available are becoming more streamlined and more effective. The overarching need for business model evolution and the importance of technology in the markets continues to ramp up. As one example,last week alternative dealer Citadel Securities hired Microsoft COO to be the new CEO of it electronic market making business.

We are surrounded by advances in voice technology for interacting with machines in our life in general. We are getting comfortable with Apple’s Siri on mobile, and Amazon's Echo in our homes. Similar technologies have advanced in areas outside the capital markets, but leading firms are trying to leverage voice data for better insight, engagement, and automation. While we are nowhere near Robotic Stingray Powered by Heart Cells from Rats published in last week’s WSJ, in merging machine and biological elements we are heading more into an era of the cyborg-where capital market participants will increase their direct engagement with machines via voice interaction.

Proof of artificial intelligence exponentiality

I have been studying Artificial Intelligence (AI) for Capital Markets for ten months now and I am shocked everyday by the speed of evolution of this technology. When I started researching this last year I was looking for the Holy Grail trading tools and could not find them, hence I settled for other parts of the trade lifecycle where AI solutions already existed.

Yesterday, as I was preparing for a speech on AI at a conference, one of my colleagues in Tokyo forwarded me an Asian newswire mentioning that Nomura securities, after two years of research, would be launching an AI enabled HFT equity tool for its brokerage institutional clients in May –  here it is: the Holy Grail exists, and not only at Nomura. Other brokers have been shyly speaking about their customizable smart brokerage, e.g. how to use technology so that tier5 clients feel they are being served like a tier1. Some IBs are working on that, they just don’t publicly talk about it.

Talking to Eurekahedge last week I realized that they are tracking 15 funds that use AI in their strategy, I would argue there are even more than that because none of those were based in Japan (or Korea where apparently Fintech is exploding as we speak).

All this to reiterate that AI is an exponential technology, ten months ago there were no HFT trading solutions using AI, and we thought they were a few years away but no, here they are NOW. And the same with sentiment analysis, ten months ago they were just a marketing tool, now they are working on millions of documents every day at GSAM. Did I forget to mention smart TCA that’s coming to an EMS near you soon?

Stay tuned for more in my upcoming buy side AI tools report.

Hack attack or cyberspionage

As I started writing this blog, yet another major hack has occurred; data for about four million US Federal employees (over 1% of the overall US population) was stolen–in what is certainly a criminal act, and potentially an act of “cyberspionage”, if not an act of 21st century warfare. It is interesting to consider whether we are actually in the beginning of a new cold war, as state actors attack, both commercial and government organizations to harass. Is the purpose criminal, to utilize major data sets for criminal gain, or to learn more about one’s enemy? To bring the focus to the financial services vertical, it is clear that ever increasing vigilance is required to defend the banking perimeter, but what needs to be done on the capital market side? The threats of theft of money, theft of confidential information, and the loss of reputational are shared by every industry, and capital market participants are no different. Moreover, there are additional concerns that are specific to the capital markets, which include:
  • Control loss at an execution venue
  • Spoofing attacks that create false liquidity or deter liquidity
  • Wealth destroying false news
  • Central depositories & clearing houses data attacks
To meet these myriad concerns, the challenge is talent. I do not think we have enough former NSA employees and hackers that want to come to the good side to meet the demand required.  The solution for cyber protection of the capital markets will come from a number of directions: greater cross industry efforts to share insights and knowledge about known intrusion vectors; greater development of big data tools to overlay simple rules based approaches—given the incredible amount of false positives for intrusion, and hence the natural inclination to begin ignoring data; increased focus on holistic risk assessment encompassing internal and external resources; working closely with infrastructure and telecom/data providers to monitor traffic across networks; development of AI tools that help market participants stay a step ahead of the dark side, allowing robust technology defences that can respond. Please see these recent Celent reports for more information: