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© 2007 Bloomberg L.P. All Rights Reserved.
The Impact of Computers on the Financial Industry
Kai ToBloomberg L.P.
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Personal background
Kai To
Graduated from King’s College London with a BSc. in Mathematics and Computer science
Been with Bloomberg since September 2008
Software developer in the Bloomberg Feeds team
© 2007 Bloomberg L.P. All Rights Reserved.
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Agenda
Current financial markets
History
Use of computers
Software engineering
Questions
© 2007 Bloomberg L.P. All Rights Reserved.
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Players in the market
© 2007 Bloomberg L.P. All Rights Reserved.
Everyone who wants to stay informed
Investment banks
Brokers
Portfolio managers
Pension funds
Governments
Individual investors
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Where does Bloomberg fit in?
© 2007 Bloomberg L.P. All Rights Reserved.
Financial data, news and analytics
Single source for information Bloomberg TV Trading systems Market data provider
Primarily a software house
Bloomberg Terminal Approximately 2800 programmers globally
290 of which are in London
Clients
Everyone from the previous slide
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Securities
© 2007 Bloomberg L.P. All Rights Reserved.
Stocks and shares, equities
Own a stake, or a share of the company Voting rights Dividends
Bonds, fixed income
Debt instruments Issued by governments and corporations
Derivatives
Options for the right to buy or sell Agreed prices for buying in the future
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History
© 2007 Bloomberg L.P. All Rights Reserved.
Information
Old boy’s network Newspapers Pink sheets
Calculations
Manual Bond sheets
Trading
Floor/pit trading Physical slips of paper
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Yield calculations
Lots of variables
Valuations of complex securities
Even more variables
News
Categorised Sorted Intelligent
Alerts
Real time
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© 2007 Bloomberg L.P. All Rights Reserved.
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Yield calculations
Lots of variables
Valuations of complex securities
Even more variables
News
Categorised Sorted Intelligent
Alerts
Real time
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© 2007 Bloomberg L.P. All Rights Reserved.
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Yield calculations
Lots of variables
Valuations of complex securities
Even more variables
News
Categorised Sorted Intelligent
Alerts
Real time
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© 2007 Bloomberg L.P. All Rights Reserved.
15
Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Yield calculations
Lots of variables
Valuations of complex securities
Even more variables
News
Categorised Sorted Intelligent
Alerts
Real time
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Real time alert
© 2007 Bloomberg L.P. All Rights Reserved.
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Feeds
Streams of information over a network Trade prices, quotes and statistics Unformatted text Multiple sources, all different
Low latency
Important Bandwidth Efficient algorithms Length of cable
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Feeds
Streams of information over a network Trade prices, quotes and statistics Unformatted text Multiple sources, all different
Low latency
Bandwidth Efficient parsing algorithms Length of cable Very important
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© 2007 Bloomberg L.P. All Rights Reserved.
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Feeds
Streams of information over a network Trade prices, quotes and statistics Unformatted text Multiple sources, all different
Low latency
Bandwidth Efficient parsing algorithms Length of cable Very important
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Algorithmic trading
Computers are making the decisions A lot faster than humans Very complex and extremely secretive
We don’t do it
Algorithms are proprietary We supply the same tools to everyone
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© 2007 Bloomberg L.P. All Rights Reserved.
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Algorithmic trading
Computers are making the decisions A lot faster than humans Very complex and extremely secretive
We don’t do it
Algorithms are proprietary We supply the same tools to everyone
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Legal implications
How do you know who you’re trading with? Who’s responsible for computing errors?
Failures
Markets stop when computers break LSE outage, September 2008 KfW mistakenly sends €300 million to Lehman Mizuho trader sells 600000 at 1 yen
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Authentication
Who? – Audit trails and logs Where? – Regional differences
Security
Software – Bloomberg impossible to hack Physical failure – Hardware, networks Redundancy
Integrity
Bogus trades - Jérôme Kerviel Auditing and reporting - Law
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Computers in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Authentication
Who? – Audit trails and logs Where? – Regional differences
Security
Software – Bloomberg impossible very hard to hack Physical failure – Hardware, networks Redundancy
Integrity
Bogus trades - Jérôme Kerviel Auditing and reporting - Law
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Software engineering in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Short release cycles
Time to market Clients want to be there first
If it works
Push out new software as soon as possible New enhancements constantly in the pipelines
If it goes wrong
Disastrous Short testing time Rollbacks can be an epic feat
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Software engineering in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Proprietary
In house development Majority of departments have their own
development teams Very specific software
Client sits next to you
Rapid development Continuous client feedback
XP methodology When things go wrong…
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Software engineering in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Proprietary
In house development Majority of departments have their own
development teams Very specific software
Client sits next to you
Rapid development Continuous client feedback
XP methodology When things go wrong…
Client’s sitting next to you
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Software engineering in finance
© 2007 Bloomberg L.P. All Rights Reserved.
Iterative development
Market changes quickly Short term
Ban on short-selling Requirements can change
Requirements
Speak to clients Don’t be generic Be ready for change Know the competition
Most importantly
Fast is as slow as we go
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Questions?
© 2007 Bloomberg L.P. All Rights Reserved.