Budgets Spur AI in Back Office05.15.2017
Between stricter market regulations and growing IT budget constraints, AI-based automation is no longer a choice that firms can bypass.
Financial firms now spend approximately a quarter to a third of their discretionary IT budgets on regulatory and compliance projects rather than on projects that would provide a competitive advantage, according to Peter Farley, senior marketing strategist, capital markets at Misys.
Upcoming European Markets Infrastructure Regulation and the Fundamental Review of the Trading Book with their respective trade-confirmation and daily reporting mandates will put even further stress on the middle- and back-office, which will not be relieved by adding head count, he added.
To address these growing trends, Misys has launched its AI-based FusionCapital Detect offering that identifies errors within trade capture and validation systems, such as booking errors, anomalies, and fat-fingered mistakes.
“This particular exercise is us dipping our toes into this particular water for the first time,” said Farley. “We work on the premise that traders generally are quite predictable. They tend to work in the same asset classes with the same kind of customers and similar types of transactions. The algos can learn all of that and see when a deviation from the norm occurs and then start looking things up.”
Two un-banks have been beta-testing the new capabilities. “One is a tier-1 bank, and the other is a small-to-mid-sized European bank,” he said.
Farley was unsure in which asset classes the clients have been using FusionCapital Detect but expected that it would be the ones most prone to human errors. “It works better with the more complex structured products that are more prone to human error during the trade capture process,” he added.
With some of the banks with which he spoke, they experience error rates of 20% or more with certain trade capture processes. “That gets expensive to correct at later stages or even reverse the transaction if it gets too complicated to correct,” said Farley.
AI can optimize algorithms to better recognize and adapt to real-time market conditions.
Alliance will enable joint customers to gain more valuable and actionable insights.
Technology has enhanced capabilities of surveilling larger and more disparate data sets.
With Eugene Kanevsky, James Redbourn, and Joanna Wong, CLSA
AI/ML on the buy-side trading desk is a long-term program with short- and mid-term deliverables.