The Internet of Things and Wall Street

Anthony Malakian, US Editor, WatersTechnology

As the Internet of Things takes hold in the retail space, Anthony wonders if this concept will spread into the capital markets in the near future, or if this is still too bleeding edge for the banking industry, much less buy-side institutions.

It's fair to say that capital markets firms are rarely on the bleeding edge of technological revolutions. Wall Street has only recently become comfortable with cloud- and mobility-related projects, and while traders may want to buy trendy, wearable technology for themselves, it's hard to imagine that we'll see any institutional rollouts anytime soon.

That's why I was intrigued when State Street chief scientist David Saul brought up the concept of the Internet of Things (IoT) during our recent conversation.

Saul was talking about how cloud-based technologies have revolutionized the capital markets and what the next stage was going to be. He briefly touched specifically on IoT, but that concept is still a bit out there as far as it pertains to actual implementations.

Because I subscribe to Wired magazine, I had heard of IoT previously, but only as it relates to how it may change the way we interact with household appliances and personal gadgets. The term has been around since the early 1990s, but talk of it in the mainstream has picked up of late.

Essentially and simplistically, IoT technology is a device or object ─ like an appliance or car ─ that on its own can collect information and then communicate that data to another device or database to make something happen. As an example, a refrigerator recognizing you are out of a product and ordering more of it; or cars that can read tire pressure and alert the driver that air is needed. It's a physical object taking in information and sending that data through a network to create an active response, without the need of a human entering data.

The Object Management Group (OMG) has an even better description than mine: 

Some time during 2008 the number of individual devices communicating using the Internet exceeded the number of people on the planet, and the numbers continue to grow exponentially. It's estimated that by 2020 there could be as many as 50 billion uniquely-addressable networked devices around the world. They won't just be computers, or tablets - or even smart phones.

Instead, huge numbers of wireless sensors and actuators in industrial machinery, vehicles, domestic appliances or even attached to our bodies will dominate this coming "Internet of Things".

This explosion in the scale and ubiquity of networked devices will enable an exciting range of new applications that will revolutionize global industries, connecting machines, people and data in entirely new ways, many not yet envisioned. However, it will also bring new technical challenges, such as burgeoning data volumes and the need to assure that complex, constantly-adapting assemblies performing life-critical tasks do so predictably, safely and reliably.

This week it was announced that software giant Tech Mahindra and global semiconductor design and manufacturing company Texas Instruments had launched a lab in Bangalore "that will allow Tech Mahindra to launch innovative solutions based on the concept of Internet of Things in industrial, medical and automotive sectors."

For its part, Texas Instruments also announced this week that it enhanced its IoT platform, LaunchPad, to enable "engineers and makers to rapidly prototype a wide range of cloud-enabled applications, bringing expansive connectivity to any new or existing LaunchPad-based application."

For further evidence of IoT's increased demand, General Electric (GE) announced it is investing $1 billion to build its own IoT, dubbed the Industrial Internet.

On Wall Street

Saul is a fascinating fellow, so if anyone was going to lead the charge at a large bank when it comes to IoT, it's him. His job is basically to figure out "what's next" that can give State Street an early advantage over its competitors.

I wonder, though, how many other capital markets firms are thinking about this. I would imagine that if IoT ever takes hold it will be led by the banks and be more in the retail space, and from there it will bleed over into trading and asset management.

State Street's Saul says that the immediate impact of IoT on the trading industry will revolve around the number of portable devices that will have computing and connectivity power. Firms will also have to examine how they deliver data, and IoT will require new device-independent protocols and standards. And there are still questions as to cyber security and privacy. 

In the industries of automotive, aviation, rail and power, where there is a frenetic amount of movement and data, IoT has taken hold. But because of the insularity of finance, IoT is not as largely discussed and used.

Covering the buy side for several years now, I highly doubt that many hedge fund CIOs and CTOs are thinking about this new paradigm at this point. But the main premise of IoT is that of interoperability.

In an article written by Wired's Marcus Wholsen, he references scholar Paul Kominers statement that "[the] one defining feature of the Internet of Things will be interoperability, i.e., its devices will need to be able to send and receive signals from one another and, more importantly, to understand what those signals mean."

That concept should sound very familiar to buy-side firms. As hedge funds and asset managers are hoarding data to gain a trading advantage, they need their data platforms to be able to "talk" to their analytics, risk management and portfolio management systems to look for trends and/or potential problems.

When it comes to the Internet of Things, it's still early days and there are many questions as to the viability of IoT going forward. But if you're looking out to the horizon, this might just be "what's next."

If you have any thoughts on the Internet of Things and how it relates to Wall Street, shoot me a line: [email protected] or 646-490-3973.

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