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Data Initiatives to Fuel Finance’s New Era of Experimentation

Traders Magazine Online News, November 21, 2018

Neena Dholani

“Age is no guarantee of efficiency—and youth is no guarantee of innovation.” So goes the conversation in Skyfall, the recent James Bond film, that finds Bond contemplating whether he’s still up to his job while meeting his new, much younger and more technologically-inclined quartermaster. It is a pivotal point, after which the pair deploy a little bit of both old and new to vanquish an antagonist intimately familiar with MI6.

In the post-crisis era, it has often been asked what would come after the period of big regulation; frequently, disruptive technologies are posited as the answer. But as speakers pointed out at this year’s FIX Trading Community Americas Trading Briefing, adopting these technologies—whether to virtual currencies’ institutionalization, artificial intelligence (AI) applications, more sophisticated algo wheels or wider post-trade automation—isn’t as easy as plug-and-play. Far from it. Despite trendy topics dominating the day, the overriding watchword was not “revolution” but rather “experimentation”. And as the audience heard at this year’s event, hosted by State Street in Boston, there is lots of room—indeed, even necessity—for data wisdom to pair with innovation.

Crypto Symbology

The year 2018 was certainly one for cryptocurrencies’ rise—one which saw the price of Bitcoin spike and fall and roil, greater adoption of tokenization for better and worse, and major investment banks and institutions all taking acute notice. Panelists, including two from Boston-based buy-side giants, agreed that interest in digital assets is no longer drawing from internal curiosity for the future, but instead directly from client demand bubbling up today.

As they engineer new crypto platforms and infrastructure, many questions remain. For starters, colorful disagreement arose around the extent that tokenization can—and should—go. Some panelists saw it ultimately reaching not only to traditional market activities like initial public offerings (IPOs) and bonds issuance, but to trading in esoteric, real assets as well. Others argued that would be a bridge too far, creating additional operational risks—when the intent is the reverse—and over-occupy regulatory attention, as fraudulent initial coin offerings (ICOs) already have.

Meanwhile, it was pointed out that institutional trading in existing crypto “bearer assets” like bitcoin remains mostly off-exchange, negotiated over the phone or chat. Panelists agreed this is down to staying away from “whales” hunting in the space, as well as lack of portability across crypto venues, and taking a conservative approach to a space that remains nascent in its oversight.

That was demonstrated in a FIX study of the landscape this year, which analyzed 84 different crypto venues’ application programmable interfaces (APIs). “The functionality in FIX has 98 percent of what you need for order flow, execution, and settlement of cryptocurrencies. The missing thing is the symbology, really facilitating the payment channel,” explained one panelist, noting that choosing the right industry entities to manage and maintain those processes is still in its early days, but “standardizing them now is easier than herding traders towards adoption later.”

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