As spring turns to summer, there is a flurry of activity as industry trade shows take advantage of the nice weather before calendars become cluttered with vacation time and business winds down to the languid pace of the warm weather months. In Chicago, Terrapinn’s “The Trading Show” and FOW’s “Trading Chicago” took very different approaches to a similar topic and both offered some very interesting insights into the state of trading, technology, regulation, and financial markets in general.
Terrapinn at the Pier
The Trading Show from Terrapinn has grown in recent years to be a tent-pole event for the Chicago financial community. Both attendance and the number of vendors were higher this year over 2016 and topics such as data, risk, and blockchain were front and center in discussions.
As noted in comments from last years Trading Show, the main topic at the Trading Show isn’t so much trading as it is technology and the makeup of the vendors at the show reflected this reality. There were 54 vendors at the event with 20% offering connectivity, 20% in the hardware business (e.g. overclocked CPUs, NICs, and GPUs), 16% dealing strictly with FPGAs1, and a further 14% offering advanced data solutions. Technology rules.
Industry leaders in connectivity, Anova Technologies and McKay Brothers, have both delivered keynotes at the show in recent years and the change in substance this year from last was illuminating. Last year’s presentations were an indication that the “race to zero” was still on, with Anova calculating the value of a microsecond and McKay describing how they were mere micros from the speed of light. In comparison, the 2017 comments were markedly different. In the case of McKay, the discussion centered on where the next speed races will be as the trading network expands beyond existing centers and the answer, in a nutshell, is that satellite connectivity is likely to win against fiber. Anova described how they have transformed from a low-latency provider to an IP/patent house with an emphasis on internal engineering, R&D, and custom innovation. In short, the race to zero is both over and continues at the same time: diminishing returns have set in for the highly travelled routes but innovation continues apace for the rest of the world.
Other interesting topics of discussion included:
- Bob Litterman of Kepos Capital gave an interesting talk on pricing carbon that included his assertion that Exxonmobil is an especially bad actor in the debate, the Saudis are selling a stake in Aramco because they see the top in oil, and the market is responding to change with innovations such as a World Wildlife Fund stranded assets total returns swap that is long the S&P 500 and short coal, tar sands, etc.
- Brian Peterson from DV Trading emphatically declared that they are out of the sub-mic speed game and instead focus on making better predictions, figuring out how to make fewer bad trades, and be proactive rather than reactive in hedging. He also said that much of the discussion around machine learning in “pixie dust” and overlooks the simple truth that it’s more important to figure out where your processes are bound than to simply apply a new and exciting technology.
- Machine learning and AI were hot topics with, for instance, Howard Getson of Capitalogix Trading describing how they use adaptive AI to better identify what is working for them and AJ DeRosa from Orbital Insight described how they are using geospatial APIs to their advantage, particularly in emerging and frontier markets.
- Technologies that got multiple mentions included NVMe over Fabrics, TensorFlow, Intel Skylake, GPUs in general, and Python.
FOW Returns to Chicago
It’s been over a decade since FOW produced an industry trade show in Chicago and they teamed with John Lothian News to bring Trading Chicago to town in the last week of June. Talk of regulation dominated the day but a lively format that included TED-like talks and an Oxford style debate kept things interesting.2
The day began with a full-throated assault on Dodd Frank from University of Houston professor Craig Pirrong and continued with an Oxford-style debate between Gary DeWaal of Katten Muchin and Leslie Sutphen from Financial Markets Consulting on repealing both Title VII and the Volcker Rule from Dodd Frank. Using an app, audience members were given the chance to vote on the question prior to the debate and 58.3% supported the “yes” proposition that argued for repeal.
DeWaal went first and came out swinging against both Title VII, which covers regulation of the swaps market, and the Volcker Rule, which constricts the ability of banks to trade. He argued that Title VII is fundamentally flawed in its cookie cutter approach to making nearly all swaps clearable and this has led to an unwelcome concentration of risk as 6 firms hold 90% of all cleared swaps risk. Sutphen, in reply, was equally as strong in her defense of the elements of Dodd Frank, saying that a lack of supervision and transparency were key factors in the 2008 meltdown and the whole system is moresafe due to these provisions of the act.
Following questions posed by the audience, rebuttals, and closing arguments, the audience was polled once again and this time only 37.1% favored repeal. At the end of the day, it seemed clear that the audience bought the argument that Dodd Frank had indeed made markets safer and, just as importantly, it’s not practical to expect that Congress will be able to manage the will and cohesion to make repeal a realistic outcome.
The TED-talk style presentations came from Chris Anderson of Itiviti on the ETF markets and Brian Peterson from DV Trading on machine learning in trading markets3. Of the two, Peterson’s presentation was the most compelling as it provided a solid primer on the basics of machine learning along with real-world examples of how the principles are being applied in trading as well as the pitfalls that need to be avoided.
The day ended as it began, with a look at regulation. This time the topic was MiFID II, the European regulatory regime that is hanging over the markets like a dark cloud. Stacie Hartman from Schiff Hardin moderated as Jennifer Tveitman-Rifman of Gelber Group, Vedder Price’s Juan Arciniegas, and Thom Thompson from TGT Consulting scared the heck out of everyone in the audience as they described the tidal wave of bad ideas that is scheduled to hit the marketplace come January 2018. Simply put, if you expect to actively trade in European markets and haven’t yet taken steps to address the impending changes then you are out of luck: no European trading for you next year!
Miscellaneous comments and presentations of note included:
- A panel on the U.S. options market that was led by Chip Dempsey from The OCC and included Euan Sinclair of Talton Markets, Paul Jiganti from IMC, Dash Financial Technologies’ Peter Maragos, and Steve Crutchfield from CTC. The discussion provided some interesting insights, but was lacking diversity as no exchanges or regulators were there to defend such topics as venue proliferation that is funded by an options regulatory fee (on the part of exchanges) and collateral rules that are nonsensical (brought to you by, who else, regulators).
- The Customizable Technology panel, led by Robert Kallay from Andrie Trading and featuring Rob D’Arco of Rival Systems, Jesper Alfredsson from Itiviti, Fidessa’s Chris Monnery, and Stuart Farr of Deltix, provided countless examples of how the debate is clearly over and “build vs. buy” has evolved to “build & buy”.
- And finally, Gary DeWaal, in an aside during his Dodd Frank rebuttal, brought up the little mentioned possibility that Republicans may well pick up additional seats in the Senate in the 2018 election. That has nothing to do with trading but it certainly is food for thought!
At the End of the Day
Both the Trading Show and Trading Chicago highlighted that trading is alive and well in Chicago but change continues to come from all angles. For example, the speed race to zero is likely all but over but the race for speed in other areas continues apace. Further, the impact of the continued ascendancy of the cloud is being felt in many areas, including emerging areas like machine learning and blockchain, in a way that surely indicates that more change is on the horizon. Stay tuned to see how it all works out.