Technological optimism defines that vision of a future continually improved by technology. Harmony lies in thinking outside-the-box and accepting even embracing all things new.
As industry revenues continue to decline, firms are rethinking a critical component of their business - data and data management. To say that the trading business is all about data management is like noting that Mount Everest is all about snow. It states the obvious but also the ominous. On a human scale, you cannot consume or make sense of what’s inside the avalanche of today’s fragmented markets without the right technology, infrastructure and analysis any more than you can climb to Everest’s peak without the right gear.
[See Louis Lovas's related story: Data Management in Capital Markets Welcomes the New Year ]
Cloud technology and Social media define a revolution in content, dissemination and consumption. Combined they represented the democratization of information.
Below are handful of reflections and expectations for the coming year on the influence of cloud and social media on the capital markets business.
This is the Year of the Cloud Burst in Capital Markets for Data-Heavy Solutions
The phrase "cloud computing is" everyday vernacular in our personal and professional lives. We use it for email, social media, entertainment and to manage business. The $18 billion cloud computing industry offers commercial business access to vast computational power, storage and a wide variety of application solutions at a lower cost structure. Yet the capital markets industry has largely avoided cloud for all but the most mundane of services (e.g. email).
Well that’s about to change in the coming year. The cloud’s main attraction, to bring down technology costs is now resonating well in capital markets. As industry margins have thinned, cost management has taken center stage. Firms are rethinking their technology deployments and in 2014 it will include public and in some cases private cloud to augment, replace and coalesce data centers.
Data storage is a primary driver behind cloud adoption. The cloud offers lower cost of entry to scalable storage on a pay-per-use model. Right behind that will be a number of data-intensive applications deployed as cloud-based services. The dominant use-cases will take advantage of cloud-scale storage architecture for; a) strategy model back-testing, b) quantitative research and c) transaction cost analysis. These three decision support functions are ideal candidates to leverage all that cloud offers – dynamic storage and elastic compute power more cost effectively.
In justifying a move to the cloud, firms must carefully navigate through the risks of externalizing infrastructures and applications against the enhanced business value in doing so.
It is unlikely that the operational side of the business (i.e. trade execution) will jump to public cloud anytime soon. There are just too many risk factors.
Social Media will be the next Strategic Weapon for Smart Algorithms
The chatter on Twitter and other social media outlets has reached peak volumes providing a vast collection of stories, commentary and opinions. This represents a significant paradigm shift in information’s delivery, consumption and value. Business now views social media as a tool for brand awareness and as a guide for strategic objectives and product refinements gleaned from insights discovered in mining the story behind the story.
While social media can be more noise than signal, for market participants the potential lies first in accurately determining sentiment from consumer’s opinions about a product or service and secondly the consequential impact on market prices.
Analysis of social media data will parallel that of quantitative analysis. Just as firms leverage market history to shape and refine trade models they will do much the same with social media data. However, not in and of itself but used in conjunction with market history as corroborating evidence to further validate trends, reversals, statistical and/or econometric analysis.
As the number of firms deploying algorithms increases, they will be chasing ever thinning margins against increased competition. This will drive a think out-of-the-box attitude towards social media. Sophisticated algorithmic strategies have a new strategic weapon in social media analysis in their arsenal.