FORTY YEARS OF TRADING – PAST AND PRESENT

The London Stock Exchange is among the world’s oldest stock exchanges and can trace its history back more than 300 years, but it is in the last 40 years that we have seen how technology has influenced how we trade. In the last four decades we have been privy to the most dramatic progress in the trading industry with technology leading to more effective, efficient, and secure ways of trading.

IQ-MAX

Walk into the trading room floor today and you will hear the electric hum of machines; 40 years ago floor an orderly chaos would have reigned as traders shouted and gesticulated in their distinct coloured jackets to communicate their trades – referred to as open outcry. 1986 was a defining moment for the city as Thatcher’s government introduced the Financial Services Act, which deregulated the market. It was quickly termed the Big Bang due to the amount of changes implemented on one day.

A key impact of the Big Bang was the introduction of new technologies which created striking changes on the trading floor, as the three hundred year old tradition of face-to-face trading with its hand gestures, shouting and brightly coloured clothing was replaced by electronic trading. This led to algorithmic trading and, today, high frequency trading. Nowadays trading is primarily electronic, making transactions easier to complete, monitor, clear, and settle. The end of open outcry meant that trade times were cut from minutes to seconds – and traders gain advantage from millisecond savings.

The inexorable rise of electronic trading has to date resulted in:

• Cost reductions – in everything from people to place
• Greater efficiency in the market as more companies are able to access trades
• Reduction in the barriers to entry, e.g. markets are open to anyone regardless of their size and physical location

But what will happen next? The continued evolution of technology and the regulatory and structural changes taking place in current financial markets (not to mention those that are not yet mature), is guaranteed to cause more disruptive change over the next 40 years. It’s up to those of us active in the markets today, to try and chart a path through that change, and make some predictions about what we and our partners need to focus on to ensure we’re set up for success in the future.

The emergence of hosted cloud-based services, content provision and collaboration tools, and the growth of mobile as a platform, will each take their place in a new generation of trading technology, leading to:

• Increased speed and agility to meet new market challenges and competitive pressures
• Improved collaboration and sharing in a secure environment
• Greater business transparency
• Higher performance through increased operational efficiencies

Technology will continue to shape the next forty of trading, just as we have seen it transform the trading floors of yesterday to those of today. In our view there are three key aspects of how the technology will evolve over the next 40 years, voice, mobility and cloud computing.

Voice as the killer app
As electronic trading continues to automate more and more of the process of trading, voice communications will become ever more important as a human ‘check and balance’. The most recent example of the value of voice communication was the 2013 flash crash where markets suffered a brief, precipitous drop as algorithms reacted to “news” from the Associated Press’s Twitter handle that President Obama had been injured in a bombing attack at the White House. Through simple voice communication, traders quickly examined the situation and discerned the likelihood of the news being a hoax due. While algorithms blindly and near-instantaneously brought the market down, human traders used their voices, and averted a potential global financial disaster.

Securing the cloud
Cloud computing has been able to address and streamline process in many industries. The financial industry has been slower to take advantage because of concerns over security. Now the technology exists to create secure solutions we see our industry following suit. Cloud computing platforms will increasingly help firms by increasing computing power, lowering cost of ownership, improving business and organization agility, and increasing efficiency. They’ll also help companies to present data in a meaningful format, and contextual search will make a huge difference in research efficiency and accuracy. Furthermore, the collaboration fostered in cloud computing is central to an industry that already places great value in communication and collaboration. Placing traders in the social cloud will permit information sharing over a secure and reliable connection.

The end of the trading floor?
Much as electronic trading changed the physical shape, size and layout of the trading floor when it replaced ‘open outcry’, we see ubiquitous mobility platforms doing the same over the next 40 years. Whether on tablets, or via smartphones, traders will increasingly be able to access all the applications and data they need, from wherever they are. And as security improves, and the speed of the data networks that supports mobile devices increases with the adoption of 4 and even 5G we may well see the rise of the virtual trading floor – and a different use emerging for all those glass and steel temples in our global city centres.

However the future changes the way we trade, those of us who have been innovating over the last 40 years and been responsible for much of this change, will continue to look for new ways to make the markets work better – increasing collaboration and transparency amongst all participants – and ensuring the growth and sustainability of our industry for another 300 years.

The London Stock Exchange is among the world’s oldest stock exchanges and can trace its history back more than 300 years, but it is in the last 40 years that we have seen how technology has influenced how we trade. In the last four decades we have been privy to the most dramatic progress in the trading industry with technology leading to more effective, efficient, and secure ways of trading.

IQ-MAX

Walk into the trading room floor today and you will hear the electric hum of machines; 40 years ago floor an orderly chaos would have reigned as traders shouted and gesticulated in their distinct coloured jackets to communicate their trades – referred to as open outcry. 1986 was a defining moment for the city as Thatcher’s government introduced the Financial Services Act, which deregulated the market. It was quickly termed the Big Bang due to the amount of changes implemented on one day.

A key impact of the Big Bang was the introduction of new technologies which created striking changes on the trading floor, as the three hundred year old tradition of face-to-face trading with its hand gestures, shouting and brightly coloured clothing was replaced by electronic trading. This led to algorithmic trading and, today, high frequency trading. Nowadays trading is primarily electronic, making transactions easier to complete, monitor, clear, and settle. The end of open outcry meant that trade times were cut from minutes to seconds – and traders gain advantage from millisecond savings.

The inexorable rise of electronic trading has to date resulted in:

• Cost reductions – in everything from people to place
• Greater efficiency in the market as more companies are able to access trades
• Reduction in the barriers to entry, e.g. markets are open to anyone regardless of their size and physical location

But what will happen next? The continued evolution of technology and the regulatory and structural changes taking place in current financial markets (not to mention those that are not yet mature), is guaranteed to cause more disruptive change over the next 40 years. It’s up to those of us active in the markets today, to try and chart a path through that change, and make some predictions about what we and our partners need to focus on to ensure we’re set up for success in the future.

The emergence of hosted cloud-based services, content provision and collaboration tools, and the growth of mobile as a platform, will each take their place in a new generation of trading technology, leading to:

• Increased speed and agility to meet new market challenges and competitive pressures
• Improved collaboration and sharing in a secure environment
• Greater business transparency
• Higher performance through increased operational efficiencies

Technology will continue to shape the next forty of trading, just as we have seen it transform the trading floors of yesterday to those of today. In our view there are three key aspects of how the technology will evolve over the next 40 years, voice, mobility and cloud computing.

Voice as the killer app
As electronic trading continues to automate more and more of the process of trading, voice communications will become ever more important as a human ‘check and balance’. The most recent example of the value of voice communication was the 2013 flash crash where markets suffered a brief, precipitous drop as algorithms reacted to “news” from the Associated Press’s Twitter handle that President Obama had been injured in a bombing attack at the White House. Through simple voice communication, traders quickly examined the situation and discerned the likelihood of the news being a hoax due. While algorithms blindly and near-instantaneously brought the market down, human traders used their voices, and averted a potential global financial disaster.

Securing the cloud
Cloud computing has been able to address and streamline process in many industries. The financial industry has been slower to take advantage because of concerns over security. Now the technology exists to create secure solutions we see our industry following suit. Cloud computing platforms will increasingly help firms by increasing computing power, lowering cost of ownership, improving business and organization agility, and increasing efficiency. They’ll also help companies to present data in a meaningful format, and contextual search will make a huge difference in research efficiency and accuracy. Furthermore, the collaboration fostered in cloud computing is central to an industry that already places great value in communication and collaboration. Placing traders in the social cloud will permit information sharing over a secure and reliable connection.

The end of the trading floor?
Much as electronic trading changed the physical shape, size and layout of the trading floor when it replaced ‘open outcry’, we see ubiquitous mobility platforms doing the same over the next 40 years. Whether on tablets, or via smartphones, traders will increasingly be able to access all the applications and data they need, from wherever they are. And as security improves, and the speed of the data networks that supports mobile devices increases with the adoption of 4 and even 5G we may well see the rise of the virtual trading floor – and a different use emerging for all those glass and steel temples in our global city centres.

However the future changes the way we trade, those of us who have been innovating over the last 40 years and been responsible for much of this change, will continue to look for new ways to make the markets work better – increasing collaboration and transparency amongst all participants – and ensuring the growth and sustainability of our industry for another 300 years.