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New Study Highlights Hedge Fund Tech Spending Hedge fund managers are increasing their investment in technology to create competitive advantages and address regulatory and operational concerns, according to a new study by KPMG International, the Alternative Investment Management Association (AIMA) and the Managed Funds Association (MFA). The study polled more than 100 global hedge fund managers representing approximately $300 billion in assets under management (AUM) and found that 90% of these firms are investing in technology to improve controls and compliance. A similar amount, 88% of respondents, said that efficiency objectives were their top reason for investing in technology.
Flax Joins Pefin

in News, People

Flax Joins Pefin

Catherine Flax, formerly managing director, head of commodities, FX and local markets, Americas, at BNP Paribas, has joined financial advisory firm Pefin.
Data: The Fuel That Powers the FX Market The role of data in FX markets is becoming even more important, from the numbers that drive a pricing engine, through the analysis that underpins the risk management procedures, to the data that provides post-trade execution analysis, it is now, more than ever, at the heart of the FX industry. The Q4 issue of Profit & Loss will include the latest of our in-depth special reports, this quarter looking at how data is changing the FX industry. As part of this, we are conducting our quarterly survey, which asks for your view on a variety of data-related topics from TCA to data mining.
And Another Thing... The current buzzwords are “AI” and ‘machine learning” – barely a day goes by without receiving a missive about yet another “ground-breaking” initiative, most of which appear to be nothing new, it’s just the PR managed to crowbar the words in there. Without doubt, though, firms are looking at this technology and, in some cases actually deploying it, which begs the question – who do we blame if the machine goes rogue? And who is the John Connor of FX?
FSB Investigates AI and Machine Learning The Financial Stability Board (FSB) has published a report that considers the financial stability implications of the growing use of artificial intelligence (AI) and machine learning in financial services. It notes that financial institutions are increasingly using AI and machine learning in a range of applications across the financial system including to assess credit quality, to price and market insurance contracts and to automate client interactions. The lack of interpretability or auditability of AI and machine learning methods could become a macro-level risk, FSB warns.
Drilling for the New Oil If data is the new oil, then how trading firms “drill” it in order to generate alpha becomes increasingly important. Galen Stops reports. So often has the phrase been used recently that it’s in danger of becoming something of a cliché but, apparently, data is the new oil. To see evidence of this, look no further than the technology giants that have emerged out of Silicon Valley. Yes, Facebook doesn’t charge users money for the social media platform it provides, but is it free? Arguably, users “pay” with the data that they create via their interactions on the platform, which Facebook is then free to use and sell to generate profits.
The Human Touch Despite the hype around artificial intelligence and machine learning in an increasingly data-driven environment, Galen Stops finds that humans remain a vital part of the trading process. Intel co-founder Gordon Moore famously noticed that the number of transistors per square inch on integrated circuits had doubled every year since their invention. This observation, which has become known as Moore’s Law, essentially predicts that this trend will continue into the foreseeable future, meaning that computing power will become more and more efficient. Likewise, the acceleration of technology in financial markets – including FX – has meant that these markets have become increasingly efficient.
And Finally... Last month I wrote about the challenges of regulating machine learning, but will AI highlight the different market structure between equities and FX – something that is a long running theme of this column? The value of AI is unarguable, but it strikes me that it will be put to different uses in FX than, for example, equities - and that is because of the different market structures of each instrument. One use is revolutionary, the other? Well we're kind of used to it...
And Finally... While I have little doubt that AI is going to radically change how so many go about their business, there surely must be dangers associated with this evolution? Is it likely to lead to a market divided between the 'haves' and the 'have nots'? How much will data storage cost - for seven years in some jurisdictions (which will be fun for those updating prices in real time) - and above all, how does a firm that has spent the money protect its investment?
Regulators Set to Give FinTech Firms a Long Leash It seems that regulators are unlikely to place any significant burdens on new fintech firms emerging in the wholesale financial markets in the near future, given their lack of familiarity with the technologies involved. Speaking on a recent webinar hosted by Profit & Loss, Justin Slaughter, a partner at Mercury Strategies, explained that, when it comes to fintech, regulators in the US are still very much in “information gathering mode”. “Much of what regulators are doing right now is simply trying to educate themselves. There is a significant lack of understanding about how fintech is so much broader than, say, just cryptocurrencies or even DLT [distributed ledger technology],” he said.
FinTech in FX: An Evolutionary Process Although fintech solutions are likely to change how FX operates throughout the trade lifecycle, expect these changes to be evolutionary rather than revolutionary, explained speakers during a recent Profit & Loss webinar.  The word “disruption” has become synonymous with fintech in recent years, with numerous articles, whitepapers and analyst reports warning that fintech upstarts are looking to upset the applecart in financial services. Yet speakers on a recent Profit & Loss webinar, FinTech in FX: Getting Beyond the Hype, which was sponsored by IHS Markit, preferred to talk in terms of innovation rather than disruption when discussing the impact of fintech in the FX markets.
IPC, GreenKey Team for AI Service IPC, a provider of communications and networking systems, and GreenKey Technologies, creator of voice software with integrated speech recognition, have signed an agreement for a collaboration between the firms. The agreement brings to market an AI-based speech recognition system that converts real-time voice into useable data for financial market users. The two firms have been working together since early 2017 on a voice-to-data solution that will enable IPC customers to harvest their audio streams as structured text data to enhance front, middle and back office workflows.
And Another Thing... You can’t fight progress, but you can rein it in and make sure it goes in the right direction – advances are not always positive. There is so much chatter about financial markets withering and dying if they do not go the fully quantitative path, but is that right? I understand that these firms are largely hiring engineers and mathematics or physics grads but while these people have undoubted strengths and can seriously add value to a business, they are not the be-all-and-end-all.
RegTech Firm Secures New Investment RegTech specialist, Muinmos, has attracted investment from Lars Holst, former CEO of CFH Clearing, and Lars Torpe Christoffersen, an entrepreneur. The firm itself is an automated onboarding organisation that was founded by Remonda Kirketerp-Møller in April 2012. Holst’s 20-year career in the FX industry includes several senior executive positions at Saxo Bank and Currenex prior to co-founding CFH in 2008. He was at the helm of CFH for almost a decade, with the firm ultimately being sold to PlayTech for $120 million in November 2016. According to a release issued today, Holst will play an active role in muinmos, having been appointed as chairman of the board.
5 Big Questions Regarding the Future of AI in Finance There is a lot of conversation around Artificial Intelligence (AI) among different participants in the institutional investing pyramid. Investors are wondering if AI can get higher returns by extracting unexplored alphas or if it can reduce costs, and investment professionals are wondering how machine learning and AI will impact their businesses. Right now there is a lot of exuberance, optimism, skepticism and fear around AI and the impact that it will have on financial markets. Here I explore five key questions that are important to ask regarding this technology and its role in finance.
Register Now for Forex Network New York Profit & Loss Forex Network NYC is set for May 24th at the Crowne Plaza Times Square, with an opening with a Fireside Chat entitled “Keeping Pace with Cryptos” with Mike Gill, Chief of Staff to CFTC Chairman Christopher Giancarlo, and CFTC COO. The annual event will take a look at the emergence of cryptocurrencies and tokens as a “new economy”, one that offers enticing opportunities for traders given the volatility these products exhibit and their lack of correlation to traditional asset classes. The growth in these digital assets in 2017 was extreme, can the beta tailwinds continue in 2018? And with the emergence of so many new exchanges, cryptocurrencies and tokens, where should investors look for the best alpha opportunities?
Forex Network New York is This Week! Profit & Loss’ annual New York conference is set for this Thursday, May 24 at the Crowne Plaza, Times Square and features a host of sessions looking at the world of crypto as well as more traditional FX issues such as the role of currency managers and the future of electronic trading. The programme kicks off with CFTC COO and chairman Chris Giancarlo’s chief of staff Mike Gill, discussing “Keeping Pace with Cryptos” and then continues with a P&L BURST session in which Brian Liston, co-founder of Seed discusses a new approach to trading cryptos.
Using Data to Generate Alpha Signals Charles Ellis, a trader and quantitative strategist at Mediolanum Asset Management, explains how data can be used to help generate alpha signals. The first thing that Ellis points out is how trading firms can most effectively use data is dependent on their investment process and the type of research questions they are trying to use the data to answer. For starters, he says, firms need to consider what investment time frame they are working towards. “Then you have to ask which of these time frames can we add the most value to? What data do we have access to? And then it goes into what sort of questions can we answer using this data over these time frames?” comments Ellis.  
AI in Trading: Human Ingenuity on Steroids One of the key benefits of the use of artificial intelligence (AI) tools for trading is that it can massively enhance human capabilities, explains Andrej Rusakov, CEO of Data Capital Management. “The way I see it is that AI can really put human ingenuity on steroids,” he says. “What I mean by that is that it really allows you to take way more data points into account and find structures in data sources that are impossible for the human eye to spot.” Rather than displacing humans, Rusakov explains that this technology is most effective when it is deployed in tandem with a human understanding of how markets work. When building strategies, his firm uses this understanding of markets and then codifies and enhances them by using AI, and in particular machine learning, tools to find new patterns in different data sets.
Understanding the Limits of AI in Finance Artificial intelligence (AI) and machine learning have become buzzwords in financial services, but while this technology can be applied in finance in numerous ways to improve returns, it also has some significant limitations that market participants should be aware of. This was the message from speakers at the Profit & Loss Forex Network New York conference, on a panel discussion titled  “AI: Regular Quants with a Bigger Bazooka?” “In my mind the biggest problem with machine learning in its application to finance is the problem of non-stationarity.
Firms Likely to Dominate Markets Using AI The increasing use of AI technology is likely to create incumbent firms that dominate markets, said panellists at the Profit & Loss Forex Network New York conference. However, they also said it might not be the biggest firms in the markets today that become these incumbents. “I think [AI] is changing the landscape quite a bit,” said Andrej Rusakov, a partner at Data Capital Management, a hedge fund that uses AI tools to develop trading strategies. “People who are missing the wave are going to be left behind, I don’t think there’s any question about it. I think that human day traders will be wiped out, if they’re not already.”
Thomson Reuters Unveils Eikon Digest Thomson Reuters has announced the launch of Eikon Digest, what it terms a personalised proprietary service containing the most significant news, research, data and information from Thomson Reuters Eikon, its financial desktop platform. The new service is built upon the foundation of Reuters News and the firm says that unlike popular news aggregation services that use destination apps or home pages to deliver news, Eikon Digest goes further to include AI algorithms that sift through terabytes of news and data to deliver personalised information according to the company list/portfolio, industry sector, language, content entitlements and regions that interest clients the most.
Survey Highlights Hedge Fund AI Usage Artificial intelligence (AI) and machine learning (ML) are reshaping the alternative investments landscape, but professional financial managers still make the most pivotal decisions, according to a new survey from BarclayHedge. In a sample of 55 hedge funds that responded to the survey, 56% said they use AI/ML to inform investment decisions, with most of the firms that use these tools saying that they do so in order to generate trading ideas and optimise portfolios. Well over half of the respondents, 58%, have used AI for three or more years, while 37% have used the technology for five-plus years. Hedge fund managers were among the earliest adopters of advanced algorithms and artificial intelligence techniques, which helps explain why a plurality of survey respondents said they have been using AI/ML for more than five years.
In the FICC of It In this week’s In the FICC of It podcast, Galen Stops breaks ranks to say he found one of Colin Lambert’s columns interesting, while the latter makes an appeal for expert knowledge on risk-free rates – if only so he doesn't have to blag another podcast feature. They also discuss the latest unfair dismissal outcome in the UK in which yet another FX dealer was found to have been wrongly sacked, as well as the potential implications for the fintech industry from a legal case in the US. In a busy podcast they also dispel some myths about AI – while at the same time making a big statement (is there any other kind?) on what will make AI trading successful; and they pick out their early selections for must-not-miss sessions from Forex Network Chicago in September.
In the FICC of It In this week’s In the FICC of It from Profit & Loss Colin Lambert lifts the veil of secrecy around how this podcast is created and Galen Stops talks about democratising financial markets. They also engage on the latest FX volume surveys and ask ‘are they accurate?’ as well as talk about the impact of regulation on non-bank market makers. They also seek to explode the myth that people are leaving the banking industry in droves and briefly touch upon what Colin Lambert calls ‘the madness of regulation’.