Trading Reimagined is a biweekly content series that examines how the transformative power of technology is prompting a reimagining of the markets. Trading Reimagined is sponsored by Exegy.
Distributed ledger technology (DLT) and artificial intelligence (AI) can boost the efficiency of electronic trading, and that will happen as an enhancement of systems that already work (evolution) rather than a dramatic change (revolution).
That was a broad takeaway from the Emerging Technology – What Does the Future Look Like? panel at FIX Trading Community’s New York Regional Meeting, held Aug. 2. Panelists consisted of technology and market structure experts from J.P. Morgan, Precision Algo, R3, and REDI.
The discussion was framed as technology’s downstream effect on the Financial Information eXchange (FIX), theinformation and data protocol used to disseminate price and trade information among investment banks and broker-dealers. In other words, how can capital markets firms interact with each other in a more fluid and seamless way?
The panel assessed blockchain, which is a type of DLT. Despite ample buzz around blockchain, adoption in the capital markets has been “middling’ – indeed, a real-time survey showed 59 percent of the panel audience doesn’t use blockchain and doesn’t plan to, whereas 32 percent of the panel audience uses blockchain and 8 percent plan to adopt the technology within one year.
“Support for FIX continues to be a critical element for trading infrastructure, especially as derivatives trading becomes more standardized,” Norman Escoffery, Solutions Consulting at Exegy, told Traders Magazine after the FIX event. “The audience generally agreed that their firms have an interest in implementing DLT and Blockchain, but it is unclear as to how that will be achieved in the foreseeable future.”
With regard to how blockchain might gain traction, three ways were outlined by the panel: trade execution, new products, and packaging/distributing existing products in different ways. The last way might be most effective, if firms can open up new distribution channels by tokenizing existing inventory.
One roadblock to adoption of digital assets is the current state of paralysis on standards and regulations. Progress here could unlock regulated, and regulatable, digital assets.
The panel noted that FIX is a reliable and trusted form of communication, but there are pain points around onboarding, integrating and recertification. AI and other technologies can improve, expand and expedite market participants’ utilization of FIX, for example by increasing throughput and automating repeatable tasks.
Emerging technologies can “bring you to the edge of the pool faster,” one event panelist noted.
Institutions remain slow to adopting cryptocurrencies, largely because while advancements are happening at the individual-firm level, broader crypto market structure remains deficient.
The panel also discussed data, and moving closer to firms’ holy grail of getting a handle on the data they have access to. The development and enhancement of new and emerging technologies can move the needle on this, for example by smart contracts enabling additional pre-trade price transparency for the buy side.
“Digitization has so much more to go,” one panelist said.
