By Michael Speranza, Senior Vice President, IPC Systems, Inc.
Technology investment among capital markets firms is set to increase in 2013. A survey carried out by IPC at the recent Futures Industry Association (FIA) conference in Chicago asked over 100 traders, back office staff, senior executives and IT management professionals in capital market firms where they expect their firms to invest in 2013, and among other things, whether investment was due to increase or decrease.
At a time when the complexities of today’s trading market are building, competition is increasing and margins are shrinking, the results of this survey showed that, despite it all, trading firms are poised to combat these challenges head on, through increased technology spending.
Among the findings: investment in trading desk technology was named as the top priority for nearly one-third of firms. This was more than double the number of firms saying electronic or algorithmic trading technology was a top priority. Further, nearly half of firms surveyed listed the need to increase efficiency and reduce costs as the primary driver of their technology spending priorities.
• More than three-quarters of respondents said their firms are increasing trading technology spending in 2013, while only two percent indicated they are cutting spending.
• Nearly half of firms said they will invest in technology to support electronic trading, but only 12 percent said it was their top priority.
• 40 percent of firms said they will be investing in technology for traders and the trading desk. And over all, 30 percent said this area was a top priority.
• Other areas named as top priorities were technology for back offices, named by 16 percent, network infrastructure, also named by 16 percent and trading support technology with 14 percent.
• High frequency trading was named as a top priority by 12 percent and algorithmic trading by 11 percent.
Firms are also looking to any new technology to be app-driven to help drive efficiencies and competitiveness.
• Fifty-one percent of respondents cited applications that offer greater integration of market data and trading communication systems as a key tool for success in 2013.
• Twenty-nine percent cited mobile applications as also being of interest in 2013 to increase productivity and transparency into the trading workflow.
It isn’t surprising that traders and C-level executives have differing priorities when it comes to technology, given the apparent de-prioritisation of the back office and compliance technology by traders.
Forty-eight percent of traders reported that they carry influence over technology investments. This is a significant number and highlights a potential conflict of interest between the compliance department and the traders themselves.
Whilst trading firms will undoubtedly want to ensure that they listen to traders’ needs and wants, technology decisions based on these alone would only incorporate half of the picture. Organisations should ensure that they continue to recognise that the back office is increasingly becoming a competitive differentiator in an ever more complex and far reaching compliance landscape.
The results of this survey show that traders seem to have a clear preference towards their roles and the technology that impacts them when compared to the technology that does not. The below statistics appear to support the supposition that traders may carry less regard for the back office or compliance technology, despite their growing significance to the overall trade process when compared to C level executives.
The differing technology investment priorities of traders and C-level executives can be seen below:
• Fifty-one percent of traders see ‘Trader, trading desk or trading floor’ as a key focus for technology investment, in comparison to only 31 percent of C-level executives
• Thirty-four percent of traders see ‘Trading support’ as a key focus for technology investment, in comparison to only 22 percent of C-level executives
• Sixty-nine percent of traders see ‘Electronic trading’ as a key focus for technology investment, in comparison to only 50 percent of C-level executives
• Fifty-five percent of traders see ‘Algorithmic trading’ as a key focus for technology investment, in comparison to only 40 percent of C-level executives
• Twenty-seven percent of C-level see ‘Back office’ as a key focus for technology investment, whilst 17 percent of traders do
Although more C-level executives (77 percent) have approval power over technology investments than traders (34 percent); traders still have significant influence over these investments (48 percent).
Far more traders (69 percent), those actually doing the trading, believe that ‘Desktop trading applications or software’ will be a key technology investment in 2013 compared to just 31 percent of C-level executives.
One thing that C-level executives and traders do agree on is ‘Mobile trading devices or applications’. Both groups see this as of the same importance for 2013 technology investment (37 percent traders and 36 percent C-level)
What does this tell us?
The key takeaways from this survey are three-fold. There are strong implications for traders, the risk department, and the IT department.
1. It is clear that traders are still a top source of investment for financial firms.
o Electronic trading (48 percent) and trader/trading desk/floor (40 percent) are anticipated as the top areas for technology investment during 2013
o Thirty percent expect their firm to invest in mobile trading devices or applications, with 45 percent expected to invest in desktop trading applications/software – this shows the importance that is accorded to trader productivity
2. Improving cost efficiency and competitiveness are key investment drivers for 2013
o Seventy-six percent expect their firm’s investment in technology to increase in 2013, yet with 48 percent saying Improving efficiency and cost effectiveness is the primary driver and 39 percent indicating gaining competitive advantage as key.
o Only 33 percent said that they expected their firm to invest in trading support technology (research, risk, compliance) during 2013
o Twenty-eight percent recognised that applications offering greater collaboration between on and off floor traders and support staff would benefit the firm in terms of either efficiency, regulatory compliance or competitive advantage
3. Effective market data integration appears to be central to gaining competitive edge
o Improving cost efficiency and effectiveness (48 percent) and gaining competitive edge (39 percent) were listed as the two primary drivers of technology investment in 2013
o Looking specifically at trading technology, 35 percent said they expected their firm to invest in market data or other feeds in 2013
o Fifty-one percent said that applications providing greater integration of market data with trading communication systems would benefit the firm in terms of either efficiency, regulatory compliance or competitive advantage
These survey results confirm what we have seen over the past year or so. Firms see tremendous opportunities to achieve greater competitive advantage by investing in technologies that allow traders to do their jobs more efficiently and effectively. Unfortunately regulations along with increased complexity can slow down the trading cycle. In the current regulatory environment with new and changing regulations becoming the norm technological investment is absolutely necessary to maintain strong position in the market.
Firms see that new technologies have the ability to make collaboration between traders and off-floor support staff faster, easier and more comprehensive. These can give them an advantage in speed, adaptability and innovation, as well making it easier to ensure regulatory compliance.
The author is senior vice president, Product Management, for IPC Systems Inc., a leading provider of voice and electronic trading communications solutions to the world’s top financial services firms and global enterprises. A full analysis of the survey can be downloaded here.
Bots Are People Too: Robotic Process Automation in Finance
By Tom Venables, Practice Director – Application & Cyber Security at Turnkey Consulting
As technology has advanced, Robotic Process Automation (RPA) has become a valuable tool for finance teams in streamlining everyday processes and operations. Until 2020, RPA worked in combination with skilled human resource to get these vital tasks done – and then came COVID-19.
The economic shock of the pandemic has led many organisations to pare back their workforces, and consequently they are increasingly turning to RPA in order to get the same jobs done for a smaller financial outlay. This acceleration in adoption can deliver huge benefits for these organisations, but comes with a number of tricky challenges to navigate, especially around security, risk and the management of system access.
Removing the margin for error
The premise of using RPA over human finance operatives is clear: robots don’t get tired or bored. Even the most skilled and experienced employee in the world will be fatigued by dealing with a seemingly endless stream of invoice amounts, PO numbers and other data and, over time, it’s easy for mistakes to creep in.
RPA bots don’t have this problem (and neither do they have to be regularly fuelled with coffee). They have the ability to read an invoice, attribute the information within it to the appropriate PO number, and set in motion all the payment and ledger activity related to that data. Not only do they do all that more reliably than humans, but they do so much faster and more cheaply. However, this ideal vision can only be achieved if RPA is built and implemented into a business correctly.
Different cure, same treatment
RPA bots do have incredible capabilities for automating and streamlining all these processes – but they first have to be told exactly what to do and how to do it. At a minimum, the controls that apply to human finance staff also need to be deployed to bots, with a view to these controls being even more robust, given the larger workloads bots can take on. It may also be necessary to amend controls so that they reflect the new ways of working; as the business processes change, so too do the key control points which must be captured.
This requires three key elements to be considered:
- Control execution points: taking an accounts payable (AP) process as an example, an AP clerk will approve processes manually, then pass onto the AP manager so that it has been checked by at least two people. RPA removes this function and reduces the level of human intervention to spot-checks; to avoid errors such as duplicate payments, it is essential to have automated controls working properly.
- Failure indicators: depending on how they are configured, bots can (occasionally) make mistakes, such as misjudging numbers of a similar format and putting a PO number in as an amount. Bots can resolve these issues themselves, but only if they know about the types of errors they should be looking for.
- Robust testing: both of the points above mean rigourous testing is critical; how meticulous that testing needs to be depends on the amount of work RPA is taking on. If, for example, RPA is handling half the cash outgoings at an organisation, then controls need to be sufficiently strong to match the risk posed to the business if things go wrong.
Safety still comes first
Along with controls, how RPA fits in with the organisation’s security provisions must also be considered. Bots can process a large number of invoices in a very short period of time. This speed is potentially enough to trigger warnings around security breaches as System Information and Event Management (SIEM) systems may perceive it as abnormal activity and flag it as a threat to the organisation; allowances need to be made to accommodate this major change in ‘usual’ activity.
It’s also worth remembering that bots are also pieces of software and, like any piece of software, they are therefore at risk of cyber attack. Because they are required to process lots of sensitive information at high speed without triggering alerts, they are often an attractive target for cyber-criminals. As well as considering bot security such as who can access their configuration, it is crucial to keep the authorisation assigned to bots to an absolute minimum in order to limit their risk profile and eliminate credentials often given to them that are unnecessary. Minimum authorisation states that the (bot or human) user should have only the level of access needed to perform the tasks required of them. The high volumes of processing undertaken by bot accounts reinforces the need to apply this principle, despite the temptation to ensure they can work with multiple scenarios without interuption by widening authorisation (which increases the risk they can undertake activity they shouldn’t).
Overall, RPA bots can and should be immensely powerful assets to most organisations in the unpredictable months and years ahead – but only with the right implementation. With risk, security and controls kept front of mind, the efficiency of finance operations can be improved, resulting in meaningful savings, and a reduction in the pressure put on the human finance staff.
How to drive effective AI adoption in investment management firms
Artificial intelligence (AI) has the potential to augment the work of investment management firms to unprecedented levels, powering decision-making, driving efficiencies, and ultimately improving performance. In fact, the market for AI in asset management is expected to grow to an astounding US$13.43 billion by 2027, expanding at a CAGR of 37.1% between 2020 and 2027. Innovative firms are applying AI across the industry value chain and transforming the ways in which they use the ever-expanding amounts of data that are available to them.
However, that’s not to say that there aren’t challenges and obstacles involved in leveraging the technology. AI adoption is not a ‘magic bullet’ that can solve inefficiencies without the right set-up, nor should it be treated as a simple ‘add-on’ that portfolio managers (PMs) can tap into when they see fit. AI implementation in an investment management firm requires a number of prerequisites in order to have maximum impact. But first, let’s take a look at exactly how AI can boost the performance of investment management firms.
How AI adds value
Implementing data analytics into the investment management value chain holds a number of benefits. For example, when it comes to front office operations, AI can supplement investment decisions by drawing insights from alternative sources of data such as satellite imagery or social media, while also automating the analysis of large datasets. Data science teams working within investment management can build simulations to allow PMs to predict the performance of new investment ideas. They can also use AI for trading – to optimize trade execution and automate trading decisions.
One example of using AI to power alpha generation comes from Man Group, which saw a five times increase in assets between 2014 and 2018, and whose funds that incorporate AI total more than US$12 billion. Front office operations are arguably the business area where AI holds the most potential.
When it comes to distribution and marketing, AI can improve prospect and sales targeting using segmentation, predict and reduce attrition, support personalization, and help develop pricing algorithms. Data analytics can also be implemented into the areas of operations, tech, and support to automate processes, improve talent targeting, predict team member performance, and strengthen compliance, amongst other uses.
Going beyond simply reducing costs and driving efficiencies, AI is providing new opportunities for investment management firms to transform how they use data to operate and inform decisions. But despite all of this, adoption levels are still relatively low: A 2019 survey by the CFA Institute found that only 10% of PMs responding had used machine learning (ML) techniques during the year prior. Furthermore, a 2019 report by BCG found that less than 30% of asset management firms are actively leveraging data analytics. Evidently, launching an AI project is not an overnight process – nor is it one that guarantees success without the right prerequisites in place.
Here’s how investment management firms can set themselves up for success and ensure readiness for AI implementation.
Embed a data culture
Before steaming ahead with any AI project, investment management firms need to ensure that the entire organization appreciates the value of data-driven decision making. A firm may have already hired a data science team or gained access to alternative data sets, but if it doesn’t have a culture of systematic decision making that permeates across the organization, the success of any AI project will be limited.
How can firms ensure that this is the case?
Ultimately, building data-driven must start at the top: the CEO, CIO, and all other executives must lead by example and evidence of their own commitment to data-based decisions. If leaders want their teams to leverage data at all points of decision-making, they must make the data accessible for non-technical employees and provide training on how to use any relevant tools. Teams must feel comfortable with the why of data analytics solutions, so management must make them explainable while ensuring they are aware of the capabilities and limitations of AI. And finally, the data science team must avoid working in a silo, away from the other business functions of the firm.
Reconfigure the team structure
The core investment process must be re-thought, from the ground up. Data science teams must be driven by a business need which is provided by the PM, and then the two must work together to co-develop the right solution.
In addition to having a centralized data science team, the firm should have decentralized data scientists that sit within the business unit. The central team should focus primarily on data acquisition, cleaning, and ensuring reliability. The rest of the work should be done by data scientists on the PMs team – this will ensure the work is in-line with the business needs and will actually be used by the PM. With the clean, reliable data coming from the data acquisition team, the data scientists can rapidly prototype ideas for the PM.
Invest in the right software
Too many investment management firms attempt to build all of their AI software in-house. While the software that’s required for core operations and stems from core finance expertise should be developed internally, this does not apply to all other solutions being used.
For example, data analysis and automation tools that leverage ML domains such as language processing, big data processing, or image processing should not be built in-house. Constructing these systems internally is expensive, time-consuming, and means hiring for skills that would otherwise not be required within the firm. Not to mention, such systems would need a large and active development force to continuously maintain them.
That’s why it’s advisable for firms to find a third-party vendor who can take care of building the feature set that’s required, update the software with its latest version, and scale according to needs. This vendor will also take measures to ensure that the firm’s standards are consistent with its peers, and importantly, keep the system stable and secure. By integrating with a third party vendor, data science teams can focus on the core business objectives and maximize the use of overall resources.
While AI offers countless opportunities for investment management firms to augment and power decision-making and is already setting apart the top-performing firms from those that lag behind in adoption. With so much potential to enhance portfolio performance, AI adoption should be viewed as non-negotiable for forward-looking and innovative firms. It is paramount, however, that these firms embed a data-driven approach across all teams – not just PMs – and provide the structures and tools necessary for results to flourish.
Democratising today’s business software with integrated cloud suites
By Gibu Mathew, VP & GM, APAC, Zoho Corporation
Advances in the cloud have changed the way we interact with the world. From how we pay our bills to how we communicate, to how we navigate the city streets, the cloud’s arrival has proven disruptive to the old ways of doing things.
This is perhaps no more true than in the realm of business software, an industry that has seen seismic shifts in the last two decades, and is now witnessing rapid adoption due to the global crisis in the last six months. Expensive, exceedingly complicated software that once was the purview of the few is now available to the masses, courtesy of the cloud and attendant improvements in technology. These strides have resulted in the democratisation of business software, the changing of an once-scarce resource into something everyone can access and use.
The shift to a more democratic, user-friendly, and affordable breed of business software has come about for a lot of reasons. Here are a few of the biggest ones:
THE CONSUMERISATION OF IT
As software has become more and more important to our day-to-day lives, it has also become friendlier for the end user. Actions that used to require reams of code and loads of technical know-how can now be completed with just a drag and a drop. Business software has followed suit, and increasingly looks, feels, and acts like consumer software. And with intuitive interfaces and familiar features, no specialised skills or training are required to get things up and keep them running.
MAINTAINING PRODUCTIVITY ON-THE-GO
The smartphone has put powerful computing technology in the palm of your hand and lets your business go everywhere you do. Sophisticated yet easy-to-use software is available ubiquitously, meaning that employees are no longer chained to desktop systems. In fact, driving and maintaining information across while you are on-the-go becomes a more seamless process. Software vendors whom are more customer centric, are providing mobile version as another mean of access on top of their services that runs on browser. Through real-time function, employees remain connected, and ground observation made during field work are readily updated through the cloud.
THE TECHNOLOGY BUFFET
Part and parcel of the democratsation of software is the rise in consumer choice. Every day, new solutions are added to app galleries and marketplaces around the web, giving people multiple ways to tackle any business process. These app stores also give businesses the opportunity to see what other companies are doing to tackle similar problems.
There used to be a handful of software vendors that a business could choose from; now there are hundreds. Because there are so many options, customers can choose how they want to manage their processes without having to learn new skills.
THE GREAT EQUALISER
Business software used to require a massive capital expenditure. As a consequence, only large companies with deep pockets could afford the features and capabilities software systems provided. However, the rise of the cloud and mobile technology have put an end to the need for installed, on-premise systems, and the costs (and time) associated with them. You no longer need a room full of servers or high capEx to run your business; a smartphone will do just fine. The result? Small businesses finally have access to the tools the “big boys” have had for years, and can now provide the same world-class experience to their customers.
SOFTWARE THAT YOU CAN PROVISION
As software has gotten easier to use, more people are using software. Decisions about what systems a business would run was left to people with diplomas in computer engineering. But no more. Today’s business software is more user-friendly than ever, meaning that even non-specialists can be as empowered as the pros to make decisions about the systems they’ll employ.
What’s more, advances in data virtualisation enables people to access the information they need without requiring special tools or knowledge. Data can now be retrieved and analysed by non technical individuals without having to know its structure, location, or format; this means a lot more people can have access to the details they need, without needing a bunch of training to get there. You can finally get rid of the IT gatekeepers and take charge of your business.
We believe that software is making the world better, but you still need the right suite. You need software that is easy enough for a tech novice to use, powerful enough for the expert, and priced reasonably enough so as not to impact anyone’s bottomline. Find a business solutions suite that’s “all-in” on cloud computing, includes a large selection of apps that are designed to handle every business process and run on every device. On top of that, it has to be affordable and, in the current times, prioritise data privacy and security. Most importantly, be confident that the provider you choose has business goals aligned to yours and are happy and willing to help you every step of the way.
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