Restoring Profits and Confidence with Big Data
“Retail and commercial banks should be simple and they should be boring,” Lloyds Banking Group’s chief executive said last week. “The industry must change,” António Horta-Osório told the CBI Scotland annual dinner.
Tempting as it may be for the capital markets to laugh at such navel gazing four years after the financial crisis began, Horta-Osório’s words ring true in electronic trading as well. The market has been losing confidence in computerized trading, from the Flash Crash of 2010 through last month’s Knight Capital scandal, with many other indignities in between.
The financial services industry — including banks and the capital markets — does have to change, returning to fundamentals, as Horta-Osório advocates. But it must also look forward, preparing for future calamity and searching for new opportunities.
Taken By Storm
“A successful business must be thoroughly prepared for unexpected disasters,” wrote Bob Guilbert, managing director of marketing and products at Boston-based investment IT firm Eze Castle Integration. “Even just a few moments of downtime could be extremely costly, so it is essential that firms implement sound business continuity and disaster recovery procedures.”
Systematic protection of a firm’s data is more than a safety net. The business continuity plan (BCP) and disaster recovery (DR) systems that Guilbert discussed last week can safeguard a firm’s business and an industry’s reputation if disaster strikes.
“The one positive aspect of hurricanes and other weather-related disaster scenarios from a BCP perspective is that businesses typically have advanced warning of their arrival,” Guilbert said. “A firm that is ill-prepared for inclement weather is going to face serious challenges when an unannounced incident, such as a building fire, occurs.”
Keeping such humdrum fundamentals strong will keep the industry’s foundation strong. And that can serve as a mighty launchpad for further, more exciting technological strides in the pursuit of new trading prospects.
Big Data Trading Strategy
Citi announced upgrades for its equity options algorithms in the U.S. last week, letting traders choose how forcefully to seek liquidity. Aggressive settings incline the algorithm to cross the spread during a trade, while milder settings tend toward mid-market orders and cross the spread less often.
Other market participants are looking to gain their advantage through high-frequency trading (HFT) technologies. Some of these firms are seeking new trading opportunities via Big Data and complex event processing (CEP) technologies, alongside data analytics engines.
Part of the trick exploiting Big Data is to adopt solutions that provide insight without losing speed. The rest of the trick is to adopt those solutions without going broke. That not only keeps firms in business, it avoids another scandal that could further spoil the industry’s reputation.
On to the Basics
The U.S. Department of Treasury announced Sunday that it will sell half of its stake in AIG. The $18 billion sale means the end of the Uncle Sam’s four-year tenure as the New York firm’s majority shareholder.
This also means that the capital markets have a tremendous opportunity to demonstrate mastery of the basics. But that mastery will mean little without a responsible vision for the future.
So getting back to basics won’t be boring. It will require innovative strategies and technologies to weather storms and conquer new frontiers.
“Banks need to be boring, says Lloyds chief” by Philip Aldrick
“Citi Upgrades Options Algos” by John D’Antona Jr.