Franklin Templeton AIR Summit 2015: Changing Technology, Finding Alpha – Part 2


By Joseph Sowin, Head of Global Equity Trading at Highland Capital
One of the key takeaways from the conference for me was awareness: what new innovations currently exist that can improve investment making decisions? How do I access innovative and potentially alpha generating ideas? AIR Summit 2.0 provided a forum, a collaborative showcase for not only buy-side but all market participants. This continued through a theme of interoperability. Once new alpha enhancing innovations are discovered, it is our job to map across investment infrastructure, and with technology moving at a faster pace, innovation/capitalism knows few boundaries. My challenge is to remain ahead of the technological curve.
Social media has virtually zero boundaries. News is coming from non-traditional sources at faster paces. The challenge becomes filtering noise to deliver actionable signals for the investment process.
Technology has allowed us to do more in less time and in more efficient manner. Examples include but are not limited to; functions such as trade entry, pre-trade compliance, trading platforms, risk management, operations, and trading which are easier due to technological enhancements.
Trade Entry: at the click of a button, portfolio managers now have the ability to send multiple orders from positions screen to trading desk.
Pre-trade compliance: checks are automatically performed prior to an order being placed on blotter. This is scalable. Many rules for various investment preferences have widened the asset managers’ range.
Multi-asset class trading platforms: integration of exchange and broker data allows seamless routing to counterparties via fix connection which leads to facilitation of settlement process.
For the trader, electronic trading initially allowed a shift to less expensive trading. Secondly, customization of low touch strategies helped drive performance. There have also been steps taken in pre-trade trading strategies analyzing a range of factors including momentum, average bid/ask spread, block size, average dark liquidity available, etc.
And changes to pre-trade and post-trade execution analysis has allowed for process improvement and shortened feedback loop from trading desk back to portfolio manager.
Further developments have been made in commission aggregation, software designed at corporate access, securities lending, risk management and operations to name a few.
I am always amazed at the resources within our grasp. The presenters at the conference are building algorithmically designed services and products with the intent of identifying, classifying, and determining significance of real-time information to deliver alpha to the investment process. These signals are designed as a compliment to existing research process not a replacement by saving time and focusing on discovering actionable insights. Overall, I was very impressed with the structure and content of the conference.
Orbital Insight was the best presentation and carried a “wow” factor due to utilisation of satellite images as a compliment to the investment process. The visualisation of idiosyncratic factors is compelling. They spun out of Oxford University in 2011, and were intellectually compelling and thought provoking, and I look forward to following them more in depth.
For us a key target is to identify areas within our firm where technology can enhance functional domains such as trading, risk management, compliance, and overall investment process. We also need to examine each vendor within each domain for interoperability and concordance with current systems capacity, and then create an implementation schedule, and evaluate effectiveness.
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