With the arrival of MiFID II now seeming like a distant memory (for some), the industry is looking to the future, and it was of little surprise to see that artificial intelligence and data were again some of the main talking points throughout the event. Buy-side firms have clearly jumped on this train with gusto, but are still cognisant that changing market structures and the great unknowable of Brexit mean nothing can be taken for granted.

Whether you attended and stayed until the very final session or were unable to make it Paris this year, here are some of the key talking points from this year’s TradeTech event.

• AI will transform the industry, just not yet

Artificial intelligence (AI) was once again one of the key topics of discussion throughout the conference, a continuation of last year’s trend, although now the excitement has been dampened by a sense of realism about how much work participants must put in to these technologies before seeing quantifiable results.

Automation of manual processes has been a staple of trading processes for some time now, but advances in machine learning are undoubtedly opening new possibilities for buy-side firms. Speakers across several panels and interviews on the subject outlined their own projects with these technologies, but the message that significant investments of resources and time are unavoidable and that firms must be prepared to play the long game came across loud and clear.

However, there are those on the buy-side that believe that AI will become a necessary part of trading and that underestimating this requirement will be a fundamental mistake. Clearly the industry is awoken and alert to the benefits that AI and machine learning can bring to trading beyond simple automation processes, but it will be case of good things coming to those who wait.

• Buy-side still grappling with the data

Similarly to the potential around AI, the buy-side is finally making in-roads into extracting value from the vast quantities of data that is available to them. This has been a historical issue for asset manager, at least compared to their sell-side counterparts that have larger budgets and teams to dedicate to this, but firms have been making strides to source new data sets and dig into those sets already available to them to improve trading performance or seek out new opportunities.

More asset managers are now hiring data scientists to work with their trading teams to provide greater insights to the desk for both in-trade and post-trade, while the importance of data analytics is also growing. However, the caveat to this is the struggle to not only acquire the human expertise, but to retain it – a challenge not just restricted to the buy-side.

Alternative data – such as social media feeds and blog posts – has been held up as one of the more lucrative new data sets for the buy-side to dig in to, but, much like any emerging technology, those that have been working in this area for years have had to warn asset managers that this is no silver bullet and that significant investment in this space will be necessary to derive the greatest value from it.

• MiFID II is now just another fact of life

Last year’s TradeTech conference found that the industry had, for the most part, accepted the new regulatory regime and were adapting their processes accordingly to adjust to the new trading environment. There were of course some contentious opinions thrown around, particularly concerning new trading venues such as periodic auctions and systematic internalisers.

This year, on stage at least, there was little by the way of controversy to be found at the event. For the most part, buy-side firms have acclimatised to the new regime and are now cracking on with the task at hand – optimising execution strategies, reducing cost pressures and wringing the highest possible value out of investments in technology.

It was left to the trading venue operators to continue the fight against regulator’s aims to move liquidity and trading onto lit venues, although the rise of periodic auctions and systematic internalisers so far under MiFID II has gone some way towards alleviating that ire.

How this trend will continue will be interesting to watch play out, but for now, the majority of the industry is clearly more focused on getting back to the daily tasks at hand.

• Shifting market structures mean Brexit is a big cloud on the horizon

The big cloud hanging over this year’s conference was, of course, Brexit. The question in the weeks leading up to the event was whether the UK would have fulfilled its objective of leaving the EU by the end of March (and then mid-April) and how that would be addressed by the speakers.

With Brexit’s delay, market participants still find themselves in a state of limbo, having to enact certain contingency plans early and put other strategies on ice until a sense of clarity emerges. The shifting market structures, partly resulting from the introduction of new regulatory regimes, means that many market participants are simply treading water for now, aiming to get through the headwinds as best they can while making incremental improvements to their trading processes and technology stacks.

A keynote address on the topic of Brexit by provided a number of insights into the political process and how it affects wider economic activity, but when it came to how the event of Brexit will directly impact the capital markets in the here and now, the answer could only be summed up in a baffled shrug.

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Swiss Software specialist Temenos has signed an agreement to acquire hTrunk, a big data and analytics FinTech firm based in India.

Temenos said in a statement that hTrunk’s products and services will be integrated with its analytics product, which helps banks use big data technology and architecture to consume and unlock the value of their data.

“With the addition of hTrunk’s comprehensive data lake product, we will be able to ingest, blend, store and process both structured and unstructured data in real-time, allowing us to create next-generation, analytically-driven banking applications,” Temenos added.

Terms of the deal were not disclosed, but the company is planning to integrate big data technologies directly into the Temenos T24 Transact service, as well as the Temenos Infinity products. T24 Temenos Transact is the firm’s flagship cloud-based banking technology solution, while the Infinity product includes its open API-designed front office technology which helps banks overhaul legacy systems.

hTrunk was founded in 2015 and has 30 employees based in Bangalore, India. The company provides big data and analytics primarily to banking clients, and also Temenos T24 Transact clients.

“hTrunk will accelerate our ability to offer a productised data lake solution as a fundamental component of our banking software platforms,” Temenos concluded.

Earlier this month, Temenos’ chief executive David Arnott confirmed that he would be stepping down from his role after 18 years with the company, and will be replaced by chief operating officer and chief financial officer, Max Chuard.

Panagiotis Spiliopoulos, head of research for Vontobel, will join Temenos as CFO on 31 March 2019, while founding member, Jean-Michel Hilsenkopf, will take on the role of chief operating officer.

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Deutsche Boerse has acquired a minority stake in data wrangling firm Trifacta as it looks to advance its analytics technologies and launch new big data products.

Based in San Francisco, Trifacta provides services allowing users to prepare large volumes of data into useable data for use with analysis tools.

Deutsche Boerse explained the firm’s products make structuring, discovering, cleaning, validating and publishing analysis-ready data more productive for anyone working with data.

Ankur Kamalia, head of venture portfolio management and DB1 Ventures, commented the investment was made to create new data driven products and services by wrangling of its large data pools.

“With Trifacta Enterprise, we can explore new extensions in our data services offering in areas like risk management, investment decision making and trading analytics,” Kamalia said.

This is the latest investment the exchange operator has made, following its $5 million funding for reporting firm RegTek.Solutions.

RegTek.Solutions is a specialist provider of regulatory reporting compliance software based in New York.

The Trifacta investment will be managed by the exchange operator’s venture capital arm, DB1 Ventures. Thomas Curran, advisor for innovation and technology to Deutsche Boerse, will also join the board of Trifacta as a non-executive. 

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The xyt hub will enable firms to consume, analyse and visualise tick data using analytics capabilities delivered via cloud technology.

Tick data and analytics can be used for transaction cost analysis purposes, as well as algo development, testing and optimisation, all of which will be needed to comply fully with tougher regulations under MiFID II.

“Users can develop algos using any methodology including Artificial Intelligence and deep learning. Furthermore, they can test and optimise algos in order to improve both execution performance and profitability,” said big xyt.

“Designed to process both historical and real-time data, the Data-as-a-Service offering includes an engine for real-time processing to meet specific user needs. Data can be viewed through flexible business functions, like custom snapshots, auction phases or orderbook replay.”

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Hayley McDowell: As one of the original fixed income trading platforms, how has Tradeweb managed its expansion across asset classes and market participants?

Lee Olesky: If you look back over the last 20 years and through Tradeweb’s history, our growth is built upon a couple of different fronts. One is the horizontal growth, which is our network and the addition of clients across various regions, starting with US, then Europe and moving into Asia. Then across our products, or asset classes, and we now offer more than 20 products which we trade. We started in US treasuries and then we added mortgages, European government bonds, derivatives, etc. That’s the horizontal growth of a network of investors and liquidity providers and then across the geography and different asset classes.

The second angle is our technology growth. We now have around 275 people in our technology team, and over the last 15 to 20 years, the team has built more complex technology that allows for all of the things we do at Tradeweb. Essentially, what we are doing is streamlining interaction between counterparties. We are building tools that infuse pre-trade analysis into execution, and then once the trades occur, leverages the data in new ways and in post-trade processing. It’s all about automating the workflow of what used to be - and interestingly enough is still a big component in fixed income - a phone based business. We took a market that was entirely phone based and we moved into a digital environment with the technology that we offer.

Finally, we have managed our expansion through our focus and understanding of market structure. We have tried to ensure we are adopting rules under which the markets can function effectively and efficiently. There needs to be a real in-depth understanding of how these products trade so that when we present them to the market, we make sure we are offering appropriate rules of engagement. This is fundamental for any marketplace to function and has allowed us to drive scale in delivering efficiencies to fixed income and derivatives trading. 

HM: What have been the key factors or challenges influencing change and shifts in your strategy to make markets more electronic?

LO: In terms of accelerators, it’s hard not to rank regulation top of the list. Regulation has been a huge accelerator for the derivatives market in the US because of Dodd-Frank and the swap execution facilities (SEFs) rules. That’s a market that was a few percentage points electronic, but has moved to more than 50% electronic, chiefly because of regulation. Regulation has required people to trade on new regulated entities - SEFs - and once that happened, the market moved electronically very quickly. It has also been an accelerator for market participants in the broader sense because of the constraints on capital and the rules around how broker-dealers run their business, which requires a different approach to operation efficiencies. Regulation may look to have paused here in the US, but we have a major push in Europe with MiFID II beginning in January 2018, which will continue to drive an awful lot of change and opportunity in the markets over there.

Additionally, technology innovation has been a huge influence in our strategy. When we started this business, one of the biggest things we had to decide was whether to use the Internet or not. In 1996, it was a big decision because nobody back then used the Internet to trade securities in an open fashion or at the size we had set out to do. When we opened up in 1998, we were really the first firm to establish an organisation that would be trading billions through the Internet.

From there until today, the amount of innovation in technology has been exponential. Whether it’s instantaneous price generation, algorithms or matching on our systems, all of this content has been transformed into electronic data. We believe technology - alongside regulation and operational efficiency components - will continue to be a huge accelerator for us.

The challenge has been behavioural change, where for many years it has been difficult to persuade people to trade electronically as opposed to picking up the phone. I remember the first five or ten years of our business, our competitor was the phone. Although people are more sophisticated in terms of technology usage and their willingness to accept change, phone trading remains a significant competitor because so many asset classes remain relationship-based businesses.

The cost associated with that change is probably one of our bigger challenges, because when we do something in the marketplace, it’s not just the cost of innovating and developing new technology at Tradeweb, it has to be accepted by market participants. That often means all of the firms that connect with us must be able to adapt their technology to deploy with our technology. There’s a collective cost and challenge.

HM: In today’s trading environment, what are the key characteristics that are affecting electronic trading?

LO: Market volatility and the potential for even higher volatility in markets is clearly what we are seeing today. That is going to affect all trading, but certainly electronic trading. The shift from a low interest-rate environment to one that has a likelihood of becoming a rising interest rate environment will be trend we all have to pay attention to.

I also think the business model changes with new types of enterprises in this space that didn’t exist five or so years ago. These are new types of market participants now playing a role. Another key characteristic is the new profile of FinTech - a new term penned in the last few years. It’s an area drawing a lot of capital that will drive new business ideas and ultimately consolidation.

HM: Considering these issues, we haven’t seen disruption of electronic market structure in fixed income and derivatives. Has electronic trading reached a ceiling?

LO: The right way to answer that is to look at what is going on in fixed income. A statistic from Greenwich Associates compared how much U.S. fixed income market volume is traded electronically in 2015 and 2016. It showed that electronic trading has grown in the last year from 40% in 2015 to 45% in 2016. I would say that figure will increase even further in the coming years. It’s hard to predict the shape of the curve, but without a doubt the number will increase significantly in terms of how much of the market is traded electronically.

It’s only 45% at the moment and it could easily increase another 20% - 40% over time. If you delve into this for different asset classes, the credit market - which we now have a huge focus on at Tradeweb - has seen e-trading in high yield roughly double over the last year to 8% electronically traded. Those markets will move significantly more electronic and I think there is no question there will be more business done electronically in the future because of the more efficient workflow.

HM: The concept of data science, or big data, has been around for some time, why is this relevant to fixed income and electronic trading now?

LO: Big data is another area of tremendous growth and we are in the early days of the financial services industry figuring this all out. In the retail space for example, we have seen more advances with this than in finance. As the market moves more electronic - and data and execution become more closely tied together - we will be capturing the information digitally. There is a wealth of growing information in terms of prices, inventories and activities of market participants.

People are spending a lot of time in capital markets trying to distill that with algorithms and artificial intelligence to maximise its value. For us at Tradeweb, we are leveraging data science already with integrated distribution of axes, streaming prices, sizes and inventories. This creates a lot of cross-market information between all of the fixed income markets.

There’s so much happening there and it will be an area that will ultimately lead to a better way of searching for the other side of the trade. Historically there has been a focus on the dealer to customer market in fixed income, but in the future for certain instruments there will be tools that will allow you to search across the entire marketplace to execute a trade by leveraging all of this data.

HM: How will this impact Tradeweb and market participants in terms of their electronic trading?

LO: Intelligent Execution will drive the next wave of e-trading, connecting data science from the marketplace with a flexible market structure that allows you to execute properly. It will also provide a better sense of best execution, which is another factor that has led to people trading electronically. Meanwhile, the tools that surround electronic trading will continue to grow. The demand for electronic trading will be stronger because the value you gain from it will be greater. So how to evolve best execution in this space is critical. Tradeweb has a number of tools that are already deployed under this umbrella of using data science or big data to help with Intelligent Execution.

We have functionality that helps inform and automate the process of selecting who you would go to for a trade, and tools that help aggregate buyers and sellers regardless of where they might be coming from. There’s an awful lot of innovation that will impact Tradeweb in the coming months and years.

We are at a point now in the market and we’ve had a strong November where we hit a record of $7.9 trillion in volume. Now, across all of our businesses we are facilitating over $400 billion in trading a day. It’s a moment in time where there has been a lot of positive momentum, kicked into hyper drive by the US election, and I expect next year will be very active for fixed income markets.

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Crown Jewel Consultants (CJC) has launched MosaicOA, a big data visualisation platform to help firms monitor the performance of their real-time market data systems.

The tool is the first release from CJC’s Mosaic Suite, which has been in development for the past two years.

Users provide a real-time stream of their infrastructure data which is logged for long-term analysis and supported by CJC’s team, to ensure the stream suffers no interruptions.

Peter Williams, senior technical director at CJC, explained as well as collecting health and performance metrics, “our environment receives over 256,000 separate infrastructure measurements.”

He added that for users to gain an accurate view of their software performance “the sample frequency needs to be high, therefore the system generates massive quantities of data every day which we store and visualise for our clients.” 

An anonymous client of CJC’s MosaicOA explained it has not needed to update or modify its existing infrastructure to implement the tool.

“MosaicOA will assist us in providing a unique insight into how our systems are performing, along with making far more qualified decisions on future technology investments,” the client added. 

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Global custodians and other asset servicers see enormous commercial opportunities with harnessing client data. The sheer volume of data possessed by global custodians can be homogenized and consolidated, and distributed back to clients.  This data can then be used by clients to make informed business or strategic decisions.

However, the data must be presented in a way that can be easily digested by end clients. “Simply having the data on its own is not helpful. Fund managers have significant volumes of work and they do not want to spend time digesting data that does not add value. Any big data must be business relevant insofar as it helps move the business forward or solves a problem. I do not believe global custodians or technology vendors can provide this in isolation. One area big data could assist is with industry benchmarking, and helping me identify how my business is doing relative to my peers,” said Sonia Maloney, chief operating officer at Norrep Capital Management, an investment manager in Calgary, speaking at the Global Custody Forum (GCF) 2015 in London.

Big data can have huge regulatory benefits as well. The financial crisis has prompted a number of regulatory reporting initiatives for fund managers including Dodd-Frank’s Form PF (Private Fund), the Alternative Investment Fund Managers Directive’s (AIFMD) Annex IV, derivative reporting under the European Market Infrastructure Regulation (EMIR), position level reporting to insurance clients under Solvency II and transparency and transaction obligations under the Markets in Financial Instruments Directive II (MiFID II).

The penalties for non-compliance, either deliberate or inadvertent, are varied but the reputational risks can be severe. As such, harnessing big data can be a means by which firms can improve their adherence to regulatory compliance.

However, there have been a number of challenges towards big data. Privacy law in some countries could cause issues for providers of big data, particularly given how quickly the concept is evolving. Furthermore, a number of service providers are constrained by legacy technology systems making the collection and collation, as well as supply of big data operationally challenging.

Others point out some organizations’ senior managers are bound by inherent conservatism and reluctant to embrace radical change. A survey at GCF found that around a quarter of attendees said both silos within their organizations and a lack of understanding by their managers had stunted the embrace of big data. A smaller percentage said clients were unwilling to purchase big data.

However, there are concerns. 40% of survey respondents at GCF expressed alarm at the risk of liability as a result of big data. This could be, for example, by supplying clients with erroneous big data, which precipitated trading losses. 17% said they were concerned client data could fall into the wrong hands, a justifiable concern given the growing threat from cyber-criminals. 

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