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In Trading Technology, Automation Sits Side-by-Side with Human Intelligence

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Over the past several years, we have witnessed a rapid acceleration in the emergence of cutting-edge technologies across the trading lifecycle. It is safe to say there will be no turning back for financial institutions. The ability to collect and analyze data and intelligently use it for automated action within trading workflows has been far too successful for any bank to reduce its ongoing investment.

Technology will continue to take over more of the activities that traders, sales desks, managers and other trading participants are accustomed to doing themselves. In many ways, newer data-driven applications and workflow automation tools combined with emerging technologies like AI are becoming more of the decision-makers for these trading operations, spotting opportunities amidst changing market conditions and deciding the best course of action, well before any human could.

Yet despite these advances in automation, there remains no question that human intelligence will continue to be among the crown jewels of a bank’s trading strategy. For example, humans continue to better understand the risk implications of large or complex trades, execution in emerging markets and illiquid products, novel macro market moves, as well as the bank and a customer’s strategic objectives across the entirety of its products. A regional bank’s strengths are in its local market: deep trading relationships across numerous assets, a strong underwriting footprint and greater secondary bond coverage.

Trading technology cannot fully replace the depth or value of these human advantages or relationships, but it can make the workflows behind humans stronger. Technology can provide actionable decision support intelligence based on extensive use of data, all presented through tactically savvy rich user interfaces that let humans focus their effort on what human thinking is best at. With better intelligence and information at their fingertips and the workflows that can be automated removed from their workload, the strengths humans bring to the table can be exponentially multiplied by a smart hybrid technology strategy.

Strategic banks will invest in stronger automation, data, workflow and algorithmic capabilities within their trading technology while also investing in the elements that give them a true competitive advantage – unique human intelligence and the tools to best leverage it.

Platforms that provide open data integrated across all the systems a bank uses will enable the richness and extent of the large amounts of data available at a bank to be brought together and actioned by tools or humans. Open APIs that allow multiple technologies to be easily united, changed and upgraded will allow automation to be rapidly added to workflows, whether from third parties or purpose-built by a bank’s technology staff. Powerful workflow tools will allow complex workflows to be managed across the sales, trading, risk, compliance and regulatory workflows and span multiple systems, people and automation strategies – and enable processes to be quickly changed as requirements and markets continue to undergo rapid evolution.

User interfaces built on such an open platform and APIs that access aggregate information produced from the multitude of integrated automated systems will allow a human and trading system to maximize each other’s capabilities and filter out tasks where the human does not need to participate. It will succinctly highlight the data, analysis and events they must react to along with controls and capabilities to quickly respond to those events or override automated aspects of the workflows, and “go manual” when unforeseen events occur.

If a bank can channel the parts of their intellectual property that can be automated into these types of technology solutions, it can connect the dots between countless data sets and market conditions faster and intelligently react to either take automated action or alert the humans. And that will enable the bank to emerge in a strong position to outmaneuver their peers.

In this situation, partnerships make sense, such as a partnership with a technology provider who can deliver the connectivity and workflow automation capabilities or data analytics to handle some of the broader coverage. Or it could be a regional bank’s partnership with another bank who can provide 24/7 coverage on heavily traded bonds while the regional player focuses its technology and human strategy on higher margin products.

The idea that the 24/7 nature of global financial markets put pressure on major financial institutions to provide complete coverage for their clients is true to a certain extent. The real advantage lies in knowing where the true human edge lies – and where technology can step in.

Many aspects of bond trading will continue to be built around human-to-human relationships. Technology will enhance, not subvert, the quality of these relationships. As more data and better data is built into workflows, and more steps of the workflow are automated, traders and sales desks can price orders and manage risk more dynamically, supported by greater intelligence around trading volumes, patterns, frequency, risk and client profiles. They will also be able to deliver greater transparency into trade performance, cost and strategies to avoid leakage.

Finding the right balance between human and technological intelligence requires institutions to take a deeper look at where they truly own an edge over their peers, whether that be relationships, specific product coverage, scalability, etc. From there, it is important to weigh the inflexibility and extremely high costs of maintaining complete ownership of the trading architecture and where it makes sense to lean on trusted and flexible technology and relationship partners. Finally, institutions must be honest about whether their technology stack enables specialization. If a bank can’t build its own applications and can’t integrate them into their trading infrastructure with relative ease, then their ability to leverage their own IP will be far more complex. Today’s trading technology must be able to unlock the value of data and intelligence from across the organization.

For the last two decades, technology has delivered an edge in a largely human-centric trading world. The scales have arguably tipped towards machines for good, but the importance of human intelligence has not been diminished. Technology will give traders and sales desks the insights that enable them to strengthen relationships as well as the ability to expand their trading architecture to allow the humans to seize new business opportunities with ease.