“Assessing the process of tech integration is always a challenge because no technology is perfect, but it is often much better than human performance,” said Evan Schnidman, CEO and Co-Founder, Prattle, a firm that uses machine learning techniques to analyze human speech patterns to provide a market edge. “Electronic equities trading has proven to be highly reliable, but very rare missteps can have catastrophic cascading effects. With bond trading, and any other technology-driven process in financial services, it is vital to build appropriate circuit breakers and human checkpoints. Simply, technology is a valuable tool, but humans still need to be in the loop.”
When integrating technology into a bond trading workflow it is important to set proper expectations that can be measured on a project plan timeline. Often times expecting the unexpected is a discretionary skill that requires understanding technology’s limits.
“The best practice in tech integration is to remember that technology will not solve all of your problems, but it may be able to streamline the human workflow and optimize decision making,” Schnidman said. “If institutions keep that in mind, they are likely to adopt technology more readily, thereby making each additional innovation less jarring from a tech integration standpoint.”
With technological change coming at an increasingly rapid pace, the imperative is in understand what aspects of human trading can be modeled and what should remain discretionary.
“Instead of fully relying on quantitative approach at the beginning, it is a good starting point to integrate the output of quants and AI models in the human decision making process of position taking and dealing,” said Tsuyoshi Yokokawa, founder and CEO of San Francisco based Alpaca Markets, a firm that in parts helps integrate quantitative trading models into fundamental trading methodologies.
As the last refuge of human-based trading turns algorithmic, the processes and methodologies that drive these projects are likely to determine success or failure to a large degree. In bond trading, the sell side is taking a different approach to that of the middle market.
This article originally appeared on ValueWalk Premium