The polar vortex that gripped Chicago from the latter half of December through the New Year briefly relented last week, just in time for the Security Traders Association of Chicago to hold their annual Mid-Winter Conference. Attendance was strong, with over 600 registered for the event, and a program that combined the old (e.g. market data) with the new (e.g. emerging technologies) provided a number of interesting insights.
Emerging Technologies and Trading Signals
The conference began on an interesting note as Catherine Clay from Cboe Global Markets led a panel on emerging technologies with Sam McIngvale from Apex Clearing, Feargal OSullivan from USAM Group, and Erik Schlesinger of Alpha Consulting. Touching on the topics of AI, big data, cryptocurrencies, blockchain, cloud, and others, the panel cut through the hype and gave a clear eyed view of the shape of technology in the markets. On the subject of AI, for instance, Clay began with an analogy from the 70s about a computer that can make a perfect chess move in a burning room while McIngvale posited that AI hasnt been fully manifested on the retail side yet because there is so much long-hanging fruit (e.g. UX and design) that can be harvested first. OSullivan touched on the big data challenges that precede AI insight and Schlesinger discussed the interesting opportunities in human assisted AI, particularly in trade research.
Asked by Clay to note a technology blindspot or an unusual prediction, Schlesinger said that bitcoin will lose its prominence while cryptocurrencies continue to gain in prominence (he said it feels like 1997 in retail equities). OSullivan thinks that HFT will come back to the fore as volatility returns to the market and McIngvale mentioned a rise in direct index investing. Lets check back next year to see how they all did with their predictions, shall we?
The Trading Signals panel was headed by Jerry Hanweck of Hanweck Associates and featured Jared Broad of QuantConnect, Don Dale from Equity Risk Control Group, and Mike Wisnefski from MaterialsXchange, and for once I wished the panelists had talked more about their products and companies rather than in general terms. Broad, for example, is part of the potentially revolutionary trend to democratize big data and complex analytical tools for algorithmic trading and Wisnefski is bringing electronic trading capabilities to heretofore opaque markets like lumber and other materials. However, neither spent time discussing the disruption that their respective companies are creating. In the end, interesting comments included:
- Broad describing the use of gray, not black, boxes for trading.
- Dale discussing the unexpected fact that utilities were one of the most volatile sectors in 2017.
- Wisnefski elaborating on trading opportunities that occur when algos hesitate or exit from trading.
- Hanweck talking about how the markets have only begun to scratch the surface when it comes to alternative data.
More than Meets the Eye: ETFs, Market Data, and CAT
With the remainder of the sessions, three panels in particular were examples that there is nuance and detail that is worth examining in even seemingly mundane topics. In short:
- On the ETF panel, Steve Givot from CHX highlighted the importance of understanding market dynamics because time of day can have a big impact on execution performance. David LaVelle of SSGA discussed market research that they have conducted that addresses the concern that ETFs might exacerbate a negative market move if they all rush to get of markets at the same time (their research says they wont).
- The Market Data panel presented a thin veneer of civility that masks profound differences in opinion, particularly between Michael Blaugrand from NYSE and John Ramsay of IEX. As a start, Blaugrand spun that $90 million in proprietary data revenue is reasonable while Ramsay hammered that greater SEC scrutiny is needed for new data products. At the end of the day, it seems unquestionable that the unrelenting rise in market data fees has been a burden but the issues are complex and will likely only be resolved over time and not by some sweeping action or reform.
- CAT is one of the next contentious issues to face markets and its not likely to be resolved in a way that makes anyone completely happy. Shane Swanson of Thesys CAT, LLC presented a reasonable and accommodating posture but big issues, particularly who pays and getting clarity from regulators, will need to be addressed. It should be interesting – and perhaps a little loud.
A few odds and ends from the conference:
- Hot topics from the 2017 meeting – the tick size pilot and Dodd-Frank reform – didnt even get a mention at this years show. The former appears to be an afterthought even before it is officially concluded while the latter has succumbed to the reality that a frontal assault on regulation rarely, if ever, works in Washington and the fact that the Trump administrations indirect yet hostile attitude toward regulation amounts to a backdoor repudiation of Dodd Frank. Oh yeah: and MiFID II has imposed indirect changes from afar as the arrival of this European regulatory nightmare has occupied a lot of everyones time and energy.
- Lest you think that STAC ignored the 800 pound gorilla known as cryptocurrency, do not despair: a client obligation kept me from the crypto session. Not to worry: any financial conference that you attend this year is bound to have a cryptocurrency panel and the field is so formative that youre not likely to miss out on the revelation to end all revelations on the specific cryptocurrency that is going to change everything. Then again, you never know!
STAC, like most conferences, is an opportunity for market participants to meet and mingle with their peers, customers, and service providers and the structure of the conference acknowledges that fact by leaving long, 2-3 hour gaps for offsite meetings. Still, at the end of the day, the strong attendance at the conference and the dynamic and interesting lineup of topics and speakers point to a vibrant and vital securities ecosystem. Thats a good thing.