FIA Meet the Disruptors — Financial Services Trends

Originally published July 20, 2015 on the Maven Wave blog (www.mavenwave.com)

Financial services has seen a great deal of disruption over the past 20 years with the shift from floor-based to electronic trading, serving as an obvious example. Of late, other industries, such as media or retail, have been more profoundly impacted by technology and the perception prevails that financial markets are ripe for a new wave of change and innovation.

With that in mind, the Market Technology division of FIA Americas (Futures Industry Association) recently hosted a “Meet the Disruptors” luncheon and panel. Prior to the event, the group conducted an internal survey to come up with the top five trending topics in the marketplace and five experts were invited to give a brief overview. The topics chosen were big data/artificial intelligence, HTML5 and software development, cybersecurity, cryptocurrencies, and real-time surveillance. Before a large and diverse audience, we’ve compiled a synopsis of what they had to say on these top financial services trends.

Big Data/Artificial Intelligence

Dr. Craig Booth of Narrative Science, a Chicago-based company that is delivering real-time insights through the utilization of Natural Language Generation (NLG) and other technology that turns structured data into narratives, spoke about how big data and artificial intelligence (AI) are touching our lives. He pointed out that AI is all around us, though we stop calling it AI and refer to it as “engineering” as soon as it works. We have come to accept many forms of AI as normal, including how Google uses autocomplete when typing in a search or Netflix recommends a movie or TV show based upon previous viewing patterns.

As much as AI can be useful, however, it is imperative that we not lose sight of the drawbacks to AI. Machines learn differently than humans do and the structural differences in learning should not be forgotten, as we come to rely more and more on AI. At the end of the day, it is critical to remember that having more data isn’t the same as having more information. It is critical that tools are optimized so that they yield insight that is valuable to the widest possible audience.

HTML5

Mazy Dar of OpenFin, the leading provider of HTML5 runtime technology for the financial industry, talked about the future of application development in the financial services industry. He noted that innovation in financial services has come to be driven by advances in the consumer space, the opposite of where it was 20 years ago, and that the hegemony of the Windows stack in the near future is very much in question. In fact, in a recent Greenwich Associates survey, only 35% of financial services IT Managers committed to relying on Windows through 2017, less than two short years from now.

The pace of technological change continues to accelerate and yet there is a virtually unprecedented consensus that has built around HTML5 as the standard for future development. While there are limitations on the desktop, such as performance issues with older browsers like Internet Explorer and the difficult task of recreating older, thick-client software versions, these are being addressed by HTML5 container technologies provided by OpenFin and others. Over time, these limitations will fall as newer desktop operating systems support HTML5 natively. At the end of the day, the unification around HTML5 and the increased performance that it delivers are likely to drive a strong wave of innovation over the next 3–5 years.

Cybersecurity

Michael Phillips is with Rosenthal Collins Group, a full-service futures clearing firm (FCM), and an independent security expert who spoke on the issue of cybersecurity. Phillips used the teachings of Sun Tzu in The Art of War as a useful template for approaching security: know yourself and know your enemy and you’ll win, know only one or the other and your odds go down to 50%.

As a starting point for knowing the enemy, assume that security has already been compromised and your job is to find them. The threats are extremely sophisticated and will undoubtedly become more virulent in the future. As for knowing yourself, this may be the most difficult because humans are reactionary by nature. To address this, take a good look at what assets are most important to your enterprise: what is needed to run it, what would competitors like to get their hands on, and what would shut you down if breached. At the end of the day, cyber threats are going to become more and more sophisticated and it is necessary to commit to the long-haul for addressing these issues.

Cryptocurrency

David Ripley of Glidera, an emerging Bitcoin company, took up the topic of cryptocurrency and the blockchain. He pointed out that the current financial services system is a system of records — electronic records to assign, transfer, and verify ownership — and that blockchain technology achieves the same goals. Blockchain is revolutionary because it is an open protocol in much the same way that the Internet is and, as such, it offers more access than existing systems. Blockchain in general and Bitcoin in particular, have garnered a lot of attention but there is quite a bit of hype and misunderstanding in all of that press. While the Silk Road trial and JP Morgan vet, Blythe Masters, joining Digital Asset Holdings get all of the headlines, Ripley pointed out three recent events that highlight the true potential of blockchain technology:

  1. Overstock.com issuing a bond denominated in Bitcoin
  2. NASDAQ announcing that blockchain-enabled digital ledger technology that will be used to by its NASDAQ Private Market platform
  3. The government of Honduras will use blockchain to create unalterable records of property ownership

At the end of the day, this topic generated the most interest from the audience: every question in Q&A session related to Bitcoin and blockchain.

Real-Time Surveillance

Travis Schwab of Eventus Systems, a provider of big data software solutions focused on risk management and compliance, tackled the subject of real-time surveillance. Noting the intense market focus on behaviors like spoofing, Schwab posited that trying to catch something before it happens is misguided and myopic and normally a waste of resources. As a case in point, the City of Chicago attempted to link over 22,000 security cameras in a system called Project Virtual Shield, but ultimately found that only 1% of crimes were solved with the aid of that technology. In financial markets, the task of prevention is only becoming more difficult as data proliferation continues unabated. Instead of a hyper-intense focus on certain market manipulation activities, a more holistic approach to surveillance and risk management is the better approach and will provide a much more robust safety net.

There’s so much more

At the end of the day, the panelists at the “Meet the Disruptors” event could only scratch the surface of their respective topics, many questions were left unanswered, and other subjects weren’t covered at all. The very nature of the topic lends itself to broad speculation and it’s likely that some of the topics that were not discussed turn out to be the most important in the long run.

That being said, it is clear that technology continues to drive an ever increasing rate of change and it is likely that older, established systems like clearing and trading are likely to see big changes in the near future. At Maven Wave, we are keenly aware of the technology and processes that are driving innovation and we are committed to assisting as they participate in the revolutionary forces that are driving change. Stay tuned in the future for more details.

Chuck is a student of markets and frequently writes on topics ranging from emerging technology to current events in financial services and beyond.