from pits to picoseconds the evolution of trading · 2020. 5. 5. · level 4, 172 st georges tce...
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Level 3, 533 Little Lonsdale StMelbourne VIC 3000 AUSTRALIA
Level 4, 172 St Georges TcePerth WA 6000 AUSTRALIA
Level 5, 53 Walker StreetNorth Sydney, NSW 2060 AUSTRALIA
+61 2 8039 6000 +61 3 9081 3480 +61 3 9674 9999
FinClear Pty LtdAFSL 246 842ABN 63 607 164 714
From pits to picoseconds – the evolution of trading We’ve come a long way in a short time when it comes to trading in financial markets. From ‘chalkies’ in trading pits to ‘Flash Boys’ in technological ivory towers, the past 50 years have been eventful. What can we expect to see tomorrow?
In the pits Trading before automation was significantly different to the way we trade today. It was less convenient, took a lot of time and it came with a lot of risks. Global stock ownership was low, investing was time-consuming and investment choices were restricted due to limited competition among independent stockbrokers. Investors had to contact their brokers to instruct a trade. After that, a paper ticket had to be printed before the transaction could be carried out. Settlement cycles were manual and lengthy, and prices were inscrutable. An investor had little choice but to contact a stockbroker to discover the current market price on shares. How painful!! While the US stock market was experiencing slow growth during the 1970s, progress and changes in other areas were beginning to take place. Where trading had traditionally taken the form of physical stock certificates, the 1970s saw the birth of electronic trades, with stocks held at a central depository. On time, online As automation and technology improved, the capacity for trading volume increased, in particular trading in derivative financial instruments. Several governments created volatility by relaxing controls on pricing, and a standard methodology for establishing option prices was introduced. Predicting future prices was sped up with advancements in computing technology. Exchanges globally started to automate their trading activity, investing in the latest and greatest computer equipment, at great expense, to help process the rapidly growing number of trades being entered by clients. The algorithmic trading era had begun. Closer to home, the 80’s saw the formation of the ASX and the launch of the Stock Exchange Automated System (SEATS). By 1990, the reign of the chalkies was over. It wasn’t just improvements in computing that helped the financial markets grow in the late 20th century. With cheaper telecoms available and electronic trades predominating, commissions were lower, and investments could be smaller, which drove up volumes. The march of the nerds Today it is possible to place trades from anywhere on your mobile. The internet has proved an invaluable resource to investors, with current prices available in real time and the option of managing daily investments on the go. Online trading platforms, once the domain of banks, began to be supplanted by a plethora of apps offering everything from sophisticated trade management to household budgeting, all underpinned by access to financial markets. The age of fintechs is well and truly here. ‘Fintech’ is a now ubiquitous term describing the delivery of technology-enabled financial solutions. The union of financial services and information technology, the rise of fintech has
Level 3, 533 Little Lonsdale StMelbourne VIC 3000 AUSTRALIA
Level 4, 172 St Georges TcePerth WA 6000 AUSTRALIA
Level 5, 53 Walker StreetNorth Sydney, NSW 2060 AUSTRALIA
+61 2 8039 6000 +61 3 9081 3480 +61 3 9674 9999
FinClear Pty LtdAFSL 246 842ABN 63 607 164 714
been driven by technology advances, financial regulation, speed of access to information and the uptake of smart phones. When looking at fintech adoption rates, it’s interesting to note that emerging markets, which have not had time to develop Western levels of physical banking infrastructure, are more open to new solutions. In China, fintech penetration is well above the average global adoption (33%) as well as that of the average adoption across emerging markets (46%).
Source: https://www.e-zigurat.com/innovation-school/blog/evolution-of-fintech/
Australia ranks highly for fintech adoption and we are seeing the results of this via fast-growing demand for API broking technology. API Broking What is an API? The term is an acronym for Application Programming Interface which is essentially a set of instructions allowing different software components to communicate with one another. The API takes an instruction from one software system, relays it to the next system, translating if necessary, and then takes the response from the second system and relays it back to the first one.
Level 3, 533 Little Lonsdale StMelbourne VIC 3000 AUSTRALIA
Level 4, 172 St Georges TcePerth WA 6000 AUSTRALIA
Level 5, 53 Walker StreetNorth Sydney, NSW 2060 AUSTRALIA
+61 2 8039 6000 +61 3 9081 3480 +61 3 9674 9999
FinClear Pty LtdAFSL 246 842ABN 63 607 164 714
In trading terms, an API broking platform is the interface that allows wholesale clients’ software programs to connect to the local markets via a third party. The API takes orders and translates them into the appropriate language, sends orders to market, manages the execution of those orders, and receives real-time trade confirmations back from the market. APIs extend across all the interfaces required to create, execute, confirm and settle a trade, including CHESS registration, client data, market data, trade and order management. Benefits of APIs API connectivity to the market empowers companies to get to market quickly, with relatively low cost. By using an API broking platform, fintechs can maintain control of their user experience and provide real time market trading to their end clients. This approach removes the necessity for fintechs (or brokers) to build their own market access tools, which are expensive, or rent expensive infrastructure. It enables creativity and allows users to put their energies into building interactive tools and creative client experiences. It presents the opportunity for innovation and to focus on differentiation from competitors. APIs are all about innovation, changing way things are done and making processes timelier and more efficient. Open APIs APIs are the building blocks of online connectivity and can be private to a specific platform or open. Open APIs are simply APIs that have been made public so that anyone can access them without going through the authentication and authorisation processes. Open APIs make it very easy for people to improve existing applications. If a vendor has released a product and its associated API, the community could easily take advantage of this openness and build on top of what the company has released. A good example of this is Salesforce and the approach they are taking using OpenAPI specification to build out their extensive Appstore, which is starting to include financial services. They are but one of many successful firms out there who are adopting more collaborative ways of developing their products and services. As the old African proverb says, if you want to go fast, go alone. If you want to go far, go together.
The future of trading via APIs If you consider the speed at which advances are being made in artificial intelligence and machine learning and the growing uptake of chatbots, I believe we are not far away from the release of conversation APIs. The future for such technology will see users being able to make commercial or customer service enquiries via a conversation user interface. Conversation APIs will be able to provide a response that is not merely made up of data or a dataset structured in a table, but a real answer using natural language that makes sense. To learn about FinClear’s API trading capabilities please get in touch.