Max Bowie: Data Wizards Must Be Ready For an Unexpected Journey

The most useful tool in my home toolbox isn’t a wrench or a multi-function gadget: It’s a magic potion originally invented to support the US space program, known today simply as WD40, which has helped me start reluctant motors, free rusted bolts, unlock stubborn doors, and silence squeaky wheels. WD40 is the perfect demonstration that something invented for a specific purpose may ultimately find its true calling elsewhere, much like the health tonic developed as Coca-Cola ultimately became the world’s best-selling soft drink, or how the personal computer infiltrated not only every household but also our phones and wristwatches.

And with gradual shifts in priorities within the capital markets, data tools and services developed with a specific purpose in mind are now being put to use in unexpected ways. For example, Brennan Carley, global head of Elektron transactions and platform at Thomson Reuters, describes how a greater emphasis on regulation and compliance among the vendor’s clients is generating new use-cases for its products.

When the vendor originally developed its algorithmic news feeds, it assumed firms would use these to generate alpha by being able to react faster to market-moving news. However, with compliance—and specifically, being able to demonstrate compliance with trading rules—such a hot topic at present, trading firms’ compliance departments are now using the feed to correlate trading activity to news items, to determine what prompted a trade, Carley says.

In addition, Thomson Reuters’ tick history product—originally created to support building and back-testing algorithmic trading strategies—is now being used by firms to investigate every tick around a “curious” quote or trade, 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, since those building algorithms pay for years’ worth of data, whereas a compliance user may only want data for a specific week or day.

The Icing on the ‘Layering’ Cake
Likewise, when New York-based proprietary trading firm Trillium Trading developed its Surveyor post-trade compliance-monitoring platform 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.

With shifts in priorities within the capital markets, data tools and services developed with a specific purpose in mind are now being put to use in unexpected ways.

The firm had itself been investigated and 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 an interactive tool that compliance officers could use to spot questionable behavior and identify—and correct—the culprits.

The Michael Lewis Effect
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 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 Michael Friedman, general counsel and chief compliance officer at Trillium.

But it’s not just spend trends that govern how a tool or service grows once released into the wild. Because for it to sell, vendors must be prepared to look beyond their original designs, and take direction from clients. “As with most new technologies, you often find unintended use cases,” Friedman says. “And often, it is customers that lead you to those.”