Is Wall Street Innovating Fast Enough?

It started off as a simple question about the implementation of big data processes in the capital markets during the North American Trading Architecture Summit (NATAS) 2015.

A member of the crowd asked the panel, which was discussing the adoption of cutting edge technologies to increase the efficiency of trading desks, what kind of progress firms were making in implementing big data technology.

The response from Mark Palmer, vice president of integration and event processing for Tibco, led to a brief, spirited discussion from the panelists on whether Wall Street is on the forefront of innovation, or even close.

Not On Top

Palmer, who works across several verticals for the Palo Alto-based technology company, said when it comes to big data, other industries are well ahead of the capital markets in terms of innovation.

And while he admitted firms have made progress─ he joked that last year he took a hard stance on the issue, saying, essentially, innovation on Wall Street was dead─ they still aren't close to the top.

Palmer's theory on why the capital markets seem to be lagging behind has to do with firms still dealing mostly in structured data.

"Big data and Hadoop really shine when you're putting a bunch of stuff in there. You don't know what's there. It's really complicated data. It's completely unstructured. You're kind of searching for that needle in the haystack," Palmer said. "On Wall Street, that's not the case. Generally, the data is very highly structured. So I don't see as much innovation happening as a result. I think that might be one of the core issues."

Not Always Needed

Daniel Schwartz, managing director at RBS, agreed with Palmer's point in the type of data used by trading desks. Liquidity providers don't have to ask data a question, limiting what type of innovation they really need.

"There is a blend at the point of price-making activity where you do want to be made aware of news and not be caught out," Schwartz said. "But those true predictive or prescriptive analysis of unstructured data, to bring that to an investment decision, that's not a market maker's problem."

Asif Alam, head of enterprise capabilities for market development of the Americas at Thomson Reuters, added he is seeing some movement in the space. According to Alam, analytics used on unstructured data are becoming a part of the workflow.

The results aren't necessarily used for decision making, though, so much as for validation of what firms are seeing in the markets. However, it's a direction many firms are headed, according to Alam.

"The scope and platform of how can you actually have a very agile software that not only actually takes structured data, but it will take unstructured data very quickly, extract information that you're looking for and then make it into a structure and then you can do what you do," Alam said.

Not Solving the Issue

Jean-Pascal Chauvet, chief technology officer of equities at Deutsche Bank, was interested in addressing Palmer's comments regarding innovation on Wall Street, as well.

Chauvet's first point was innovation does not necessarily solve the biggest problems banks have in the IT space. Dealing with massive amounts of old infrastructure often has to take precedent over installing the latest and greatest.

"How you deal with this huge amount of fixed cost and running on Windows 2003 servers, and being stuck with 30 datacenters that are these massive things that just cost you money," Chauvet said. "It's very hard to move to newer things. I think one element of not investing into new innovation is that it does not really answer how we solve the problem of dealing with legacy."

Chauvet's second point was specific to big data. In the past, he said, typical conversations between the business side of firm and its IT department around big data were uninformed and misguided. Businesses didn't necessarily understand big data; they had just heard how great it was and wanted it.

Now, as vendors help banks solve problems using big data, firms have a better idea of what they're looking for in the space.

"Today, the business is saying, 'now we understand the value of big data', and the IT department is saying, 'okay, we have to also understand how we are going to do this', and therefore they're investing into new technologies," Chauvet said. "There are two or three banks that I see investing into creating labs in California, China, Israel, and elsewhere, but those centers are tech companies that are completely owned by the big bank, and provide the sort of joint-venture mechanism so that we can get into that innovation."

The Bottom Line

·The lack of use of unstructured data by Wall Street firms has limited their innovation in the big data space compared to other industries.

·Another reason for lack of innovation is due to the fact sometimes other issues, such as the cost of maintaining legacy systems, take precedent over innovation.