Opening Cross: Innovation Isn’t Just About Being Faster; It’s About Being Smarter and Better
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The recent furor over high-frequency trading prompted by Michael Lewis’ book Flash Boys has led many to think that the only source of innovation in financial markets is making things faster, so that some kind of banker-sandman phantom can steal Granny’s savings from her mattress before she realizes they’re gone. As the stories in this week’s issue demonstrate, speed continues to attract investment, but other types of innovation are having an equally important impact across the spectrum.
Take, for example, Infinigon Group, a startup social media analytics provider set up by financial technology veterans and Belzberg Technologies founders Alicia and Sid Belzberg, which has built a tool called Echo that they say delivers advance warnings of market-moving news by monitoring Twitter for mentions of a company or its products, services and executives, given that the first seed of important stories is now often broken by individuals via social media before being identified by mainstream news sources. In addition to providing ranked lists and alerts for companies, Infinigon is also aggregating tweets on specific topics to create gauges that provide real-time insight into key economic indicators that are typically only published on a monthly basis.
Meanwhile, startup cloud “broker-in-a-box” platform provider Tradier has attracted $3 million in new funding from Devonshire Investors, primarily to accelerate development of its API and to fund outreach programs to encourage more third-party developers to build apps on top of its cloud platform.
Sometimes innovation doesn’t need to be technical: Direct Edge’s program of attributing orders to trading firms, introduced last year, now results in 18 percent more executions than equivalent unattributed orders, officials say, and the exchange is now adding another level of attribution that allows approved firms to designate their orders as “retail” flow rather than having to fully identify themselves, a move that—once order-by-order attribution choice rolls out—should improve fill rates while also protecting firms against market impact.
A similarly uncomplicated but common-sense innovation is Wall Street Horizon’s new ETF Calendar feed, which aggregates information from ETF sponsors on projected and announced ETF distributions and dates to help institutional investors better manage ETF investments without needing to trawl a multitude of sources to compile the information themselves.
Of course, there are also innovations that will excite the latency-sensitive traders among us. For example, having rolled out microwave data connectivity for North American markets, Quincy Data is now using microwave connectivity in Europe, and utilizing transatlantic fiber to connect the continents, enabling low-latency data transmission and trading between markets in Chicago, New York, London and Frankfurt.
Meanwhile, low-latency switch vendor xCelor is rolling out XPM², a new line of switch that uses an FPGA card for heavy data processing tasks, and an Intel Xeon motherboard on which users can run their own applications—basically allowing them to run trading strategies or analytics on the switch itself, thus reducing latency and increasing determinism, while introducing features for filtering data streams and bypassing switches for outgoing trade messages.
But in most instances where speed is a factor, the impetus is not to do something faster for speed’s sake, but because it’s a better way of doing it, compared to an inefficient way before. And sometimes, the better way of doing something isn’t to do it faster, but to look at how to do it smarter. That doesn’t mean a new dataset or type of analysis can afford to be slow; but it does mean that speed isn’t everything—in fact, speed is nothing without the smarts to back it up. And at the end of the day, simply going faster isn’t innovating—it’s how you achieve that speed that counts.
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