OTAS Brings AI to TCA

Market analytics provider OTAS Technologies is rolling out an extension to its natural-language Lingo reporting platform that aims to bridge the gap between trade execution and post-trade transaction cost analysis using a new programming language.

The vendor spent 18 months developing the offering, dubbed Intraday Lingo, using the Haskell programming language, which OTAS also uses in its Lingo platform.

“It had particular qualities that made it the right tool for the job, and we probably wouldn’t have made the progress that we did with any other platform,” said Tom Doris, CEO of OTAS. “Haskell has been an academic programming language with particular properties that only recently have been gaining adoption in the industry. It fits well into this problem space of advanced artificial intelligence reasoning at a high level.”

The new offering takes data generated by OTAS’ market microstructure and analytics platform and translates it into a plain English report for the user.

“The microstructure analytics provide a visualization that human traders can use to understand the dynamics affecting their order in the market at any given time,” Doris told Markets Media. “With Intraday Lingo, all the things that were here to for privy to high-frequency traders, such as book pressure, liquidity pressure, dark volume dynamics, comparison with normal levels of liquidity, spread, volume and price actions, are available to Intraday Lingo users.”

OTAS officials decided to leverage to leverage the natural-language capabilities of its Lingo platform when they noted traders taking screenshots of their microstructure screens and emailing the annotated graphics to themselves to prepare for future TCA discussions on why the particular execution behaved the way it did.

The extension also provides traders with real-time alerts in plain English when unusual events affect the user’s executions, according to Doris.

These could be changes in volume, spread, liquidity, price action, buying or selling pressure as well as if there are indications that someone with more information has entered the market or the market makers are stepping away, he said. “The things that would take several minutes to half an hour in typical trading scenarios for the trader to become aware of. We will tell them in seconds that this is happening to protect themselves are or take advantage of an opportunity.”

Natural Language Processing: An Inside Look at How NLP is Used in the Capital Markets

Waters examines how natural language processing and natural language generation tools are being used on Wall Street

On Tuesday, December 20, 2016, Linde, a German supplier of industrial-gas products, announced that it was entering into a “merger of equals” with US competitor Praxair in a deal valued at $35 billion. The pairing had been talked about for months. The market reacted by dropping Linde’s stock price from 162.15 to a low of 156.00, and Praxair’s from 122.32 to 116.47.

But a subscriber of Bloomberg’s Professional service was able to dig deeper. Using the terminal’s “tren” function ─ short(er) for

OTAS Launches Intraday Lingo Tool assists traders in meeting regulatory and best execution requirements

OTAS Technologies (OTAS), a specialist provider of market analytics and trader intelligence, today announced the launch of Intraday Lingo, an extension of its existing Lingo natural language reporting technology. OTAS Intraday Lingo pairs Lingo’s automated natural language with their microstructure charts to provide a textual report identifying intraday moves and alerts, both in real-time and historically. The tool, providing analyses for the entire trade lifecycle from pre-trade, in-trade and post-trade, provides valuable insights to traders and compliance departments alike.

With Intraday Lingo, traders are presented with an alert-driven timeline of intraday events to build a narrative of what happened during the trading day with a verification option through clicking on each entry and inspecting the microstructure. This functionality focuses on assisting traders in managing regulatory, compliance and best execution obligations by essentially creating an audit trail and tracking every decision made during each trade. With real-time alerts, the software also assists the trader in capturing risk to act accordingly.

OTAS Intraday Lingo specifically addresses best execution post-trade analysis requirements relating to MiFID II. With this innovation solution to the MiFID II compliance problem, both traders and risk officers alike can quickly and easily access OTAS Intraday Lingo reports, which summarize the important events of the trading day for a security. Additionally, OTAS Intraday Lingo provides standard TCA metrics and includes the context of the market dynamics over the life of the order, making it easier to understand the whole situation, including out of the ordinary occurrences.

“In a rapidly changing regulatory environment, we are committed to helping our clients maximize efficiency while being compliant to new regulatory requirements,” said Tom Doris, CEO of OTAS Technologies. “Today’s traders are already faced with an immense amount of data to sift through while making trading decisions. Traders make hundreds, if not thousands of trades daily, sometimes with only a fraction of a second to make those decisions.”

Having OTAS Intraday Lingo means that risk and compliance teams can review trades in a few seconds, rather than minutes or hours. Instead of needing to wade through tick data and fill logs, it can be read in a simple plain English report that captures all the important information. Traders can go back and recreate market conditions that day to show why those decisions were made for regulatory and compliance requirements. Intraday Lingo keeps OTAS clients ahead of the forthcoming regulatory mandates to ensure they can continue to trade at their best.

Experts Forum: Ops execs’ forecasts for 2017

We asked operational experts what technology they plan to focus on next year, why and how to prepare

Fund Operations reached out to over 30 operational executives to find out what types of technology they plan to focus on next year and why, as well as how their operational teams can prepare. This included those working at the fund level, third-party administration level and at a couple of vendors….

AI becoming just another tool in the trader toolbox

In the collective mind, the trading floor is often depicted as a chaotic and noisy place where traders shout out orders at the top of their lungs. The reality is much much quieter. Where humans used to shout, bits and bytes now move

silently.

The process started when trading shifted from manual, voice-based actions to computers. Then it developed further when automated order routing was added, saving time and resources. Then, automated trading systems rose in popularity,

responsible for about 75 percent of today’s market volume.

In recent years, with the advent of cheap computational power, the next step of automation is trading automation driven by AI or machine learning. It is here that popular media propagates fears about the ultimate takeover of

machines.

“It feels like some of the buzz and the hype has died down, which is an interesting stage in the lifecycle,” said Tom Doris, CEO of OTAS Technologies, a market analytics and trader intelligence company. Now, he adds, we can get back

to looking at the problems that technologies like these are supposed to solve.

A typical trader, explains Doris, has too many orders in his queue. Faced with this, he will start processing them from the top and work his way down to the bottom. He might linger a little bit more on those that are more volatile or

require more attention, but it might be hard to spot those among the noise.

“The market is generally pretty boring,” Doris said. “If you have 100 orders, 95 of them are perfectly ordinary. It is all very predictable. Your task as a trader is to find those 5 percent where something unusual is happening.” OTAS’

technology is able to create a predictive model of how a stock should behave, and alerts the trader when unexpected information changes a stock’s behavior. The technology can be plugged directly into an Execution Management System, so

that the trader can act on those alerts instantly.

The trend over the last couple of years was towards increased automation, attempting to take humans out of the loop. Now, it’s understood that there is a limit to what a trader can do systematically.

“You want humans looking at situations where there is a human story going on,” Doris explained. For example, when a stock starts to rally because of aggressive buying, only a human with a good understanding of the risk landscape and

the company’s story can discern if this is informed flow or a trend that may revert.

There have been several hedge funds priding themselves in the use of AI software to guide their decision making, including Bridgewater Associates, Renaissance Technologies, D.E. Shaw, and Two Sigma. Many more firms describe themselves

as “systematic”, meaning they base their decision making on computer models, which might not be driven by AI.

Perhaps the most common approach to AI in investing is the use of natural language processing to be able to make sense of unstructured market data and the use of neural networks to identify patterns, relationships and hidden

trends.

AI is seen now more as another tool in the toolbox of traders, rather than a magic bullet, Doris concluded.

OTAS Technologies partners with ExtractAlpha to provide enhanced trading factor analytics

LONDON, NEW YORK, 03 October 2016 – OTAS Technologies (OTAS), a specialist provider of market analytics and trader intelligence, today announced it has partnered with ExtractAlpha the independent fintech research firm to provide unique, actionable trading factor analytics. The content will be available to buy-side and sell-side clients including quants and asset managers.

ExtractAlpha’s Tactical Model is now available within OTAS Core Summary allowing clients to benefit from rigorous quantitative analysis built for alpha generation and superior trade timing. ExtractAlpha’s quantitative models are designed for institutional investors to gain a measurable edge over their competitors, optimize trade entry and exit points, and avoid crowded trades. Currently ExtractAlpha has three stock selection models for U.S. equities, with further models and global coverage to follow.

“We partnered with OTAS as together both companies can provide a unique offering of trading analytics to the market that isn’t available through any other company. OTAS’ data sets are extremely valuable and will help our investors profit from this exclusive source of information,” said Vinesh Jha, CEO of ExtractAlpha. “With the proliferation of new data sets available today, forward thinking managers will now have an opportunity to be ahead of the game.”

“OTAS is proud to be working with ExtractAlpha, adding to the growing list of integration partners we are already working with,” said Tom Doris, CEO of OTAS Technologies. “OTAS is continually looking to extend our list of strategic partners, ensuring clients are armed with the tools they need to be as successful in their trading decisions as possible. With this integration, clients will now be able to take advantage of this unique analysis allowing them to make trading decisions in a quick and efficient manner.”

Stock and bond bull runs show bubble-like qualities

David Oakley considers the consequences of quantitative easing and ultra-low interest rate policies

“We are part of the biggest financial experiment in world history and the consequences are yet unknown.”

These were the words of Lord Rothschild, scion of the Rothschild banking dynasty and chairman of RIT Capital Partners, the investment trust, last month in his semi-annual financial statement to investors.

This financial experiment has distorted markets and propelled equity and bond prices to record highs. Central bank quantitative easing and ultra-low interest rate policies have fuelled simultaneous bull runs in stocks and bonds.

It is hard not to jump to the conclusion that these bull runs have bubble-like qualities. In other words, some asset prices have gone up too much and must burst at some point.

Valuations in two particular markets look extremely stretched: US large-cap equities and government bonds.
The biggest companies in the US are trading at historically high valuations last seen in July 2015, just before the market plunged because of worries about China’s economy, says OTAS Technologies, the data company.

Of the top 500 companies in the US, the median valuation is trading at an 18 per cent premium to the 10-year average.

The risks of a violent reverse, therefore, may be in the large US companies on the S&P 500, which is trading around all-time highs, rather than other markets. Valuations in small and medium-sized US companies and European stocks are well below their peaks.

James Maltin, investment director at Rathbones, the wealth manager, says: “There is a wide gap in valuations between the large-cap US stocks, and the mid-caps and smaller companies. QE [quantitative easing] has driven the big stocks higher.

“It is the US large-caps where the valuations are artificially stretched by QE. If you scratch below the surface to the smaller stocks, you will find value.”
Although he is not warning that these large US stocks will sell off, he is not buying them at these prices and valuations.

Other fund managers are more worried. The speed of the upwards move in equities since the UK voted to leave the EU in the June referendum has taken them by surprise. Matthew Beesley, head of global equities at Henderson, the investment group, says: “Equity markets are on a giant piece of elastic that could snap at any moment.”

Adding to the chances of a sudden reverse are a large number of equity investors who are doubling up on high share prices by selling put options too, says OTAS.

This commits them to buying the shares should prices fall. These investors are exposed to an equity market sell-off through both their ownership of the stock and the recently written put options.

In bonds, valuations look just as stretched, particularly in the sovereign markets, where the biggest price distortions can be found because QE programmes have largely involved buying government debt.

Government bond yields, which trade inversely with prices, have been driven down to record lows by QE purchases and ultra-low interest rates. According to Andy Haldane, the chief economist at the Bank of England, interest rates might be at the lowest levels since the beginning of civilisation, 5,000 years ago.

Some fixed income investors are also issuing apocalyptic warnings. Bill Gross, the lead portfolio manager at Janus Capital and co-founder of bond house Pimco, says inflated fixed income prices and ultra-low yields have created a “supernova that will explode one day”.

Mr Gross may be painting an overly pessimistic picture. It is difficult to forecast where the financial experiment might lead us.

As Lord Rothschild also said in his financial report last month: “We are in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates.”

However, the sensible fund manager should take some form of defensive action. In the case of Mr Maltin, he has taken on his largest position in gold bullion.

Trading 30 per cent below its 2011 peaks, gold looks good value. It is the ideal hedge against market volatility and inflation, which the great financial experiment may one day unleash.

David Oakley is the FT’s corporate affairs correspondent

Is Brexit Really to Blame for Falling Bank Shares?

First published in Institutional Investor on August 4, 2016.

Corporate chieftains have a ready-made excuse for downgrading earnings expectations. The U.K.’s vote to leave the European Union is providing cover for a range of events that would most likely have happened anyway.

For those looking for cracks in the edifice, the fall in bank share prices following the June 23 Brexit vote was evidence of a seismic event. Bank share prices, however, had rallied ahead of the vote, even as earnings estimates continued to slide. The postreferendum adjustment was merely a return to trend.

Estimates have fallen further in recent weeks. This decline stems not from the Brexit decision but from the Bank of England’s response to the event. The pound has fallen, which has real implications, and some cross-border funding of investments is subject to a new round of scrutiny. Yet there is no evidence from equity markets of the uncertainty that is regarded as a call to action.

Financial markets have a gauge of uncertainty in the volatility of future prices that is implied by options. These securities allow investors to make predictions about how much prices will move over specific periods. The striking feature of the run-up to the U.K. referendum was the stability of predictions that one could infer from equity options, as investors bet that there would be little disruption to prevailing trends. The rapid fall and recovery in U.K. stock indexes in the aftermath of the vote are testimony to the accuracy of these predictions.

For investors, it is important to follow those with skin in the game. As the Brexit furor has given way to hyperbole surrounding the election of a new president in the U.S., such scrutiny is doubly important.

For all the heat and light of the political theater, expect a smooth ride in the equity markets over the coming months. The overarching reason for this is an understanding that the Federal Reserve and its fellow central banks have got investors’ backs. Each time volatility rises, authorities respond with monetary palliatives that have the desired effect of suppressing risk. Volatility is uncertainty, and the more certain investors are about the future, the higher the price they pay for securities.

Low interest rates depress bank profitability, though. That factor, coupled with mounting capital requirements, reduces the availability of loans. Thus, one important mechanism by which confidence in financial markets spreads to Main Street is broken. By responding to political events with promises of more easing, central banks depress the outlook for commercial banks further, even as they provide support for stock markets.

Monetary policy is turning banks into utilities more effectively than is accomplished via regulations. With discussion of negative interest rates out in the open, the prospect of banks charging interest on deposits increases. Commercial customers in parts of Europe are already facing such costs. The beneficiaries will be in the nonbank financial sector. Because these so-called shadow banks are lightly regulated, this result could mean further loosening of the links between central bank activity and the real economy.

Prolonged low interest rates also threaten the profitability of the insurance industry, because companies and their clients in that sector share the pain from the minimal returns on savings. The increasing numbers of middle-class savers fearing for their long-term financial security swells the ranks of those prepared to vote for whatever change is on offer, including Brexit and a businessman candidate for U.S. president. Thus economic policies designed to preserve the status quo may instead be having the opposite effect.

One definite risk to business as usual is being faced by London’s bankers. Access to the single market is at risk if the U.K. is denied the passport rights that allow institutions in one EU country to operate in all others. Executives have responded to the U.K. vote with horror at the prospect of having to abandon London for a European city without the same infrastructure and where English is not the common tongue. For all the grandstanding of politicians around the how-to-Brexit negotiations, we might expect the residency of U.S. power brokers to be the driving force behind an eventual compromise.

Artificial Intelligence for the Human

Theoretical hurdles are likely to prevent us from creating any time soon robots with human-level intelligence. But the practical applications of machine learning and artificial intelligence in capital markets can provide tremendous value, suggests Tom Doris, CEO, OTAS Technologies. Speaking with Terry Roche, principal and head of fintech research, TABB Group, Doris examines the applications of A.I. to market data and how it can help augment traders’ and portfolio managers’ performance. He also discusses the challenges of combining the domain expertise of traders and portfolio managers with computer science and the democratization of A.I. and big data technology.