Trading Reimagined is a content series that examines how the transformative power of technology is prompting a reimagining of the markets. Trading Reimagined is sponsored by Exegy.
What a difference a year makes.
Artificial intelligence / machine learning is predicted to be the most influential technology for trading over the next three years, according to an industry survey of more than 4,000 institutional traders.
JP Morgan’s 2024 e-Trading Edit showed that 61% of traders cited AI / machine learning as the most influential, followed distantly by API integration (13%), blockchain / distributed ledger technology and quantum computing (each at 7%), and mobile trading applications and natural language processing (each at 6%).
In the 2023 e-Trading Edit, mobile trading apps were seen as the most influential trading technology by 29% of respondents, followed by AI / machine learning and blockchain / DLT, each at 25%.
AI has leapt to top-of-mind for trading technologists amid a broader emergence of generative AI, which, simply defined, excels at pattern creation rather than just pattern recognition which is the purview of traditional AI.
In an interview embedded in the e-Trading Edit, Chi Nzelu, Global Head of FICC e-Trading at JP Morgan, discussed how AI is closely linked to data.
“Investment in technology is aligned with data capture,” Nzelu said. “Data capture, electronification feeds very well into more advanced techniques” including AI / machine learning.
Institutional trading and investing firms that have built strong data capture and electronification capabilities will have “a very strong start point” for applying advanced technologies, Nzelu said, and industry uptake of AI “should result in more effective price provision, more interesting products to manage risk, and more intelligence around how we understand markets.”
To the question of what will be the greatest daily trading challenge in 2024, market volatility was number one for the second year in a row, though the 28% of respondents who said this was well down from 46% in 2023. Liquidity availability (24%, up from 22%) and workflow efficiency (13%, up from 9%) retained the #2 and #3 spots.
With regard to market structure, respondents ranked access to liquidity (31%), regulatory change (20%), and market data access and costs (15%) as their top market structure concerns for 2024.
To the question of how electronic trading can further expand, Nzelu said breadth of product, technology synergies, and scale are critical.
Building for scale “requires technology investments,” Nzelu said. “It requires an understanding that ROI is not year-on-year, but probably two or three or four years in advance.”
Nzelu said technology investments are needed industry-wide, across the sell side and buy side, with scale in mind and an objective to connect dots across asset classes to manage costs.
There are challenges with making significant technology investments, such as the need to change established routines and even culture. “Moving systems is always difficult,” Nzelu said. “We get used to executing in a particular way. Any change incurs market risk and operational risk…Sell side providers have to be innovative in the services they want to introduce.”
