The Robots Are Coming

We have a surprising flux of news about surges in demand for program trading, smart routing and direct market access capabilities in this week’s edition. We are entering a world where trading software (and computing grids) are governed by algorithms and supported by ever-faster hardware. Automation, with its cost-cutting benefits, is quickly gaining ground and changing the atmosphere for trading firms. The number of options for replacing humans is expanding, and is forcing us to decide just how useful human traders really are—an issue that will not go away.

Technology has also forced the New York Stock Exchange (NYSE) to consider historic changes to the trade-through rule while e-commerce has caused the demise of the mid-tier market maker in the foreign exchange industry (see story, page 9). Looking back to recent history, the swift conversion of Liffe from outcry to total automation still stands as a stunning revolution.

So, in almost every niche that we cover, humans are feeling the heat of their automated brethren.

Humans cannot compete against speedy third-party systems that are constantly scanning ECNs, exchanges and all obvious and not-so-obvious pools of liquidity. The human mind cannot assimilate the latest market data as quickly as IT systems can, and, while we may come to the same conclusions as software, we cannot act as quickly as machines can. Of course, this has been the set-up for countless science fiction stories and movies that end with robots dominating the world (by strange coincidence, I, Robot, the movie version, debuts on silver screens in the U.S. this week).

We haven’t yet reached the stage where we will start to point fingers, mostly because complete and total automation has been the Holy Grail of financial technology for a long time. Nils Nilson touched on this point recently when he says he foresees a future where “the only participants in the marketplace are computers fighting each other” (DWT, July 5).

I predict that humans will survive the onslaught but will have to develop new skills to control the automated systems and step in when they inevitably fail.

Comments? Send them to egrygo@riskwaters.com