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FinTech Chicago Gets Democratic

Today’s financial technology dialog is often about a word you don’t usually associate with it – democracy – bringing software, data, reporting, testing and trading to the masses.

And it’s not just one size for everyone – its customizable too. At the FinTech Exchange 2015 Chicago event, 13 firm executives spoke during its lightning round and one prevailing theme was the shift in technology from “tools you can use” to “tools that help you design what you want.”

Drew Shields, director of product management at Trading Technologies, said that his firm is more focused on using a variety of technology tools, programing language and cloud technology to build more flexible and accessible trading technology.

Among the lessons learned at TT, as it has shifted from its legacy trading platform to a new  HTML5-based system, which utilizes the cloud and exchange hosted servers, is the realization that speed is key, but functionality is the future.

“We certainly have specific latency targets that must be met, but you need to define those requirements, and build to the requirements, rather than endlessly building for more speed,” Shields said.

The trend in fintech is away from one common programing platform or language.

“There is an anti-pattern in software engineering called the golden hammer, and it’s essentially the equivalent of “if the only tool you have is a hammer, then everything looks like a nail,” he said.  “Engineers are prone to use tools used in one place, and use it over and over again to solve every problem. And that’s the way specialists, especially in FinTech have worked, for too long. At TT, we’ve adopted a number of different approaches, each one to try to solve a specific problem.”

Instead, TT and other firms are looking for that balance of speed, flexibility and accessibility for clients. Shields said fintech is becoming more open and yes, democratized.

“The democratizing force, in the form of internet technologies and the commoditization of low latency technologies means that if you are in professional trading, your competitors have access to the same things you do,” Shields said.  “So you’re differentiator needs to move from being about your technical expertise to being about understanding the user and the problems that they face.”

Scott Kenik, director, Anova Technologies, which builds ultra-high speed connectivity through microwave and other wireless technologies, is also heading down the road to make what was once a premium priced service, more affordable to more customers in the financial space.

“The last challenge that we’ve come across is, how do I take an exclusive technology, one that has had a lot of development dollars and by itself costs a lot, and structure a service that tempers the cost down to where I could bring it to the masses,” Kenik said. “Is latency important still? Yes. To what extent? What maybe trumps that even more is, is my network reliable? Can I trade on it when I want to trade on it, independent of weather. Finally, am I able to utilize and access tier one facilities and services so I have an equal and fair playing field against all participants in the marketplace? I think we’re striving to achieve that.”

Glastnost for traders

In a similar way, ORC is also pushing for a more level playing field with its January acquisition of trading app maker, Tbricks. This key strategic move will help allow trading firms and end users to build and combine algos. Beyond that, ORC is getting far more transparent with the code it uses, which allows for more access and flexibility. Chris Anderson, product manager at ORC, called it “building for change.”

“It’s about empowering our clients and letting them change the system as well,” he said. “And going at their own pace, and their own direction, independent of the vendor. Building for change is also about empowering the clients. It’s not just about us. So it stands to reason they’ll want to change the apps that we provide as well. The only way we can provide that is to provide the full source code of all these apps to all of our clients.”

This glastnost approach has also been adopted by Tradier, which provides an open API to brokers, trading and investment firms, taking a massive amount of the technology lift out of the process of building a brokerage or advisory firm. It also has partnered with more than 20 firms that also provide their technology through Tradier’s API, which is designed to provide customers with the tools and services they want.

“Our primary form of delivering brokerage services to the end client, to that retail trader, to that advisory client, is not through some wiz-bang front-end, proprietary front-end that we’ve built out because we think we have all the knowledge and we can deliver all things to everybody,” said Craig Russell, senior vice president product, chief evangelist at Tradier.  

“We provide through our API, an engine that powers trading across applications. We’re disaggregating the brokerage experience. We’re taking it and saying, here it’s open and available. We’re empowering innovation. “

Even exchanges are getting into the “pick-and-choose,” or shopping mall space. Julie Menacho, executive director, market technology business development at CME Group, announced the exchange will launch the “CME Tech Corner” by year-end, aimed at helping customers search for and find vendors and trading tools online.

“The purpose of it is really to help our market participants search and find the right vendors they are looking for, for their trading purposes,” Menacho said, adding that CME will be launching an app store this fall on its site.

Loving a good crowd

Two other firms touted how they are using modern internet democracy to develop better tools to analyze markets. Joe Gits, CEO and co-founder of Social Markets Analytics, explained how Twitter is being digested and used by market participants to determine everything from sharp moves in various stocks to new opportunities for investors. His firm scans and filters the 30 million Tweets on financial markets and presents the data in a variety of formats.

“Social media is disrupting the capital markets. And if you don’t believe me, look back at The Wall Street Journal last week when people were talking about a tweet on Alterra being acquired by Intel Communications and the subsequent reaction to the securities prices,” he said. “Social media is the feeling of the pit…they used to pump crowd noise into the trading desk so you could see what the noise was in the pit. That’s what social media is; it’s really the feeling and energy of the pit. “What we do is we harness these messages and turn it into useful information for traders.”

Leigh Drogen, founder and CEO of Estimize, is using a wisdom of the crowds approach to the archaic earnings and economic estimates, by expanding the universe of economists and analysts who contribute to them. Estimize, a free site for such information, includes estimates from about 250 sell-side banks and brokers and 60 to 60 different economists per data set.

Drogen is looking to disrupt what he calls the “oligopoly of Bloomberg, Factset, Thomson and Cap IQ.”

“These fundamental estimates are used in basically every investing model, no matter your dogma regarding how you like to value an equity or option, or whatever you’re trying to do,” Drogen said. “This is one of the most important market at the end of the day. That model sucks. It’s basically 30 years old.  We have a better model.”

“What we do is use a mix of regression and machine learning models to look at the behavior of how people make their estimates, to look at the accuracy of those estimates, to look at all sorts of other characteristics of those estimates,” he added. “We get higher accuracy. Our data set, about 70 percent of the time, is more accurate than the Thomson-Reuters or Bloomberg consensus. But most importantly here, its more representative of the true expectation of the market. And we made it completely free.”

Drogen said Estimize is now working on a new data set that will “destroy stock ratings forever which I think will be a really good thing.”

The FinTech Exchange 2015 brought together more than 400 attendees and more than 20 speakers and panelists. Can it also usher in a new era of financial technology? A bit premature, but the early polls say trend is heading that way.

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