The Future is Now

August 3, 2017
by Jim Austin

Category: Market Activity

An interesting article was passed around the Vertex offices this week, and we’re left with more questions than answers. The article, titled “JPM Develops A.I. Robot To Execute High Speed Trades, Put Humans Out Of Work” serves as a launch to something we all knew was “the future:” AI for trading. JPMorgan has developed a “robot” they’re calling LOXM, which after successful testing in Europe, will hit US markets in Q4 2017, and the job description is no surprise: “execute client orders with maximum speed at the best price.” While the bank is excited about what this means for their profitability and competitive edge, how this will impact the markets seem, thus far, largely unknown.

The needs of the regulatory and compliance space are evolving as quickly as the markets themselves, as high-speed algos become the norm. This kind of AI, however, adds a new layer of complexity, because while JPMorgan assures regulators and fellow market participants alike that the system has been designed to operate within a “trading risk framework,” what happens when the machine learns new ways to manipulate the market, ways which we do not and could not anticipate?

The answer is, in part, that the trading ecosystem will never be 100% automated. Humans will always be required to evaluate things like risk and intent that are not black and white. We’ve designed V3 with this in mind, and have automated the parts of the regulatory and compliance processes that have traditionally been tedious and labor intensive, and left the analysis of human behavior up to the experts: the regulators and compliance officers. Where it really gets complicated though, is that when it comes to actual determinations of trader behaviors, regulators have it boiled down to a question that is as human as it gets: what was the intent? But how do you measure the intent of a trader’s behavior when the trader isn’t human?

This is a shakeup to the trading ecosystem that we all saw coming, but as the new reality looms, the question is, what does the future look like now?