By Shai Popat, global head product and commercial strategy, Financial Information, SIX
Exciting technological developments often – quite understandably – create a frenzy. But this doesn’t quite explain the AI mania of recent months. After all, AI is by no means a new technology. Its roots trace back to the 1950s, when pioneers began exploring algorithms and machine learning. As for chatbots, the first, ELIZA, was created as early as 1966. Business applications for AI then emerged in the 1980s, notably in expert systems and risk assessment. And in more recent memory, many of us will recall IBM’s Deep Blue beating chess master Garry Kasparov in 1997, when a computer finally bested the human race’s most formidable champion.
Despite its longstanding history, however, the current narrative surrounding AI is dominated by sensationalism and, frankly, misunderstanding. We are bombarded with headlines touting AI as the perfect solution to all our problems, from skyrocketing stock prices to the looming spectre of job loss. But the first dose of reality around AI may have been felt in markets last month, when chipmaker Nvidia’s 10% stock price slump made for its steepest plunge since the start of the pandemic. Indeed, the true impact of AI may take longer to materialize than many anticipated – but that doesn’t mean its influence won’t be profound, especially in financial markets.
Co-bots, not robots
One of the greatest fears surrounding AI is that it could render human expertise obsolete, but nothing could be further from the truth. In the financial sector, AI isn’t about replacing skilled professionals; it’s about enhancing their capabilities. Consider Bing AI, a recent development whereby a search engine is powered by a large language model. This tool doesn’t usurp control from the user. Rather, it streamlines repetitive tasks, providing valuable insights in seconds that might have taken minutes for an expert to gather manually.
This brings us to a crucial point: practical applications of AI are already making a tangible difference. From data mining to language learning models, AI tools are empowering financial institutions to make faster, more informed decisions – and they are doing so now. It is high time we moved beyond theoretical discussions and embraced these real-world use cases.
One example is how AI is revolutionizing client support services. Initially met with apprehension, AI-powered tools are enabling several prominent financial institutions to support their teams to focus on higher-value tasks, ultimately enhancing the quality of service they can offer clients. Far from displacing jobs, AI is enriching employee satisfaction, enabling professionals to concentrate on tasks that require creativity, critical thinking, and empathy – qualities machines may never replicate.
Its potential advantages far surpass mere operational efficiency gains and employee satisfaction, though. It could inform and radically transform many financial institutions’ entire business strategy. By adopting AI capabilities like natural language processing, for example, financial institutions can identify patterns and uncover opportunities that were previously hidden in vast oceans of data. Using a large language model, one can compare and contrast a share price in relation to five other prices. What might have taken an expert on a terminal one minute can now be done in ten seconds. Essentially, the use of a terminal wasn’t necessary, they simply typed in the request and received the share price information they sought instantaneously.
Open to all
Beyond enhancing productivity, profitably and client service, perhaps the most significant impact of AI lies in its ability to propel us further along the path towards fully democratized markets.
Buying shares in the early 1980s was mostly the preserve of the wealthy, with private investors having to telephone their broker to attain the latest price information and place trades, before mailing a cheque. The dot-com boom of the 2000s then helped popularize the early online trading platforms and fund supermarkets. The sector continues to boom and was boosted by the pandemic, which brought with it surging interest in online trading, as people had more free time and – in many households – fewer financial outgoings.
Now, large language models have the power to level the playing field, making complex financial concepts accessible to a broader audience. No longer confined to the realm of experts, critical information – such as portfolio attribution – can now be readily understood and utilized by practically anyone, regardless of their background. While some may view this as relinquishing control to machines at the risk of detrimental market outcomes, AI is not about abdicating decision-making; it’s simply augmenting human intelligence.
If the 1700s to 1800s was about the transition from creating goods by hand to using machines to drive economic progress, what is the difference with AI in the 21st century?
FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
