The most useful article in my toolbox isn’t a wrench or a multi-tool: it’s a magic potion originally invented to support the space program, known today simply as WD40. Though its inventors may not have envisaged it becoming a household name, the spray has helped me start reluctant motors, free rusted bolts, unlock stubborn doors, and silence squeaky wheels, making it the perfect example of something invented for a specific purpose that ultimately finds its true calling elsewhere.
Similarly, Thomson Reuters is finding its products put to use in unexpected ways in response to clients’ increased focus on regulation and compliance. For example, whereas the vendor always assumed its algorithmic news feeds would mainly be used to generate alpha, compliance departments are now using the feed to correlate trading activity to news items, to determine what prompted a trade, says Brennan Carley, global head of Elektron transactions and platform at Thomson Reuters. Also, in addition to its primary function for building and back-testing algorithmic trading strategies, the vendor’s tick history product is now being used by firms to investigate every tick around a “curious” quote or trade—even in associated underlying markets—Carley says, adding that this need for specific sub-sets of historical data is prompting the vendor to re-think how it charges for the product.
Likewise, when proprietary trading firm Trillium Trading developed its Surveyor post-trade compliance monitoring platform, originally to identify and prevent instances of its own traders involved in the practice of “layering” trades, the firm probably didn’t expect that the tool would also appeal to buy-side firms trying to beat toxic trading strategies from algorithms rather than human traders.
The firm had itself been raked over the coals for layering by industry regulator FINRA between 2007 and 2010, and wanted a tool to prevent future breaches. So, impressed by FINRA’s own analytics for collecting and presenting evidence of trading activity, Trillium built its own version, an interactive tool that compliance officers could use to spot questionable behavior and identify—and correct—the culprits (IMD, Sept. 27, 2013).
Now, however, the firm is adapting the tool to serve the needs of buy-side firms worried about being front-run—or, more accurately, having their strategy exposed and beaten—by high-frequency traders in the aftermath of Michael Lewis’ book, Flash Boys, drawn by the panicked reaction of wealthy clients to the book, and also by the deeper pockets of the buy side than the sell side to fund projects to buy and implement new tools.
“The original version of Surveyor was only for use by compliance professionals, whereas this is for use by the business side. It’s easier to justify money for expanding the business side than for growing a cost center,” says Trillium’s general counsel and chief compliance officer Michael Friedman. “As with most new technologies, you often find unintended use cases—and often, it is customers that lead you to those.”
These comments are echoed by FISD program director David Anderson in reference to the industry association’s FIA professional certification, which is being rolled out by Macquarie. Often, data professionals suffer from being seen as a cost center compared to the money-making front office, and find it hard to persuade end users of the benefits of certain data services for their particular workflow. By demonstrating that they understand that workflow—such as via a professional certification—data staff are better equipped to work with the business side, he says. Anderson also echoes Friedman’s comment that unexpected directions can be led by client input, adding that FISD will be relying on its membership to drive the next round of changes to the FIA certification.
So perhaps the most important tool that we all have isn’t one particular item, but rather our own ability to react and adapt, and put the entire contents of our toolbox to work in new and unexpected ways.
Waters Wavelength Podcast Episode 97: C-Level Execs Talk Bitcoin, Fintechs, Cognitive Computing & Open-Source Tech
In separate interviews, executives from AQR, JPMorgan, Cboe and IBM discuss topics permeating the capital markets.Subscribe to Weekly Wrap emails
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