Co-authored with Steve Krawciw
JP Morgan's announcement last week "to pull the plug" on all of their thousands and thousands of Bloomberg terminals is last week's leading example of the sweeping disruption facing investment managers from innovation (the contract value exceeding tens of million U.S. dollars each month). Many still struggle to wrap their head around the situation with social media platforms like LinkedIn buzzing with discussions about whether pulling the plug on Bloomberg is feasible or advisable. Yet, here is fact: while Bloomberg rested on its laurels and celebrated its founder's New York mayoralty, the competition was not sleeping, but working hard. And now, the competition is so strong that Bloomberg may end up in significant financial peril. Is your company as oblivious to changes in innovation as Bloomberg has been?
Aside from the Shakesperean qualities of the Bloomberg vs. JP Morgan plot, the unfortunate truth is that many established firms are completely unprepared for the fast train of innovation currently passing them by. While many old-school brokerages still rely on brokers' charms to seduce an ever-dwindling pools of clients into paying for the brokers' bloated salaries and overhead expenses, a number of well-established start-ups delivers cutting edge portfolio-management advice to investors right over the Internet, with some charging as little as $9.95 per month. With Barclay's and Credit Suisse both exiting the US wealth management arena while hundreds of millions of venture funding is heading to FinTech startups, it appears that the bet was been wagered that new business models are here to stay. While many finance professionals are still debating market structure and whether a new exchange will help people avoid high-frequency traders, companies like AbleMarkets deliver a streaming map of high-frequency trading activity directly to subscriber's desktops, leaving nothing to chance and helping to significantly improve trading performance across all markets. Similar innovations are going on in insurance, risk management and other aspects of financial services, and firms that are not up to par on what's going on are at a significant risk of failure.
Going back to Bloomberg's story, one of the possible replacements mentioned in the news were Money.net, a digital platform presently run by a former Bloomberg employee. Money.net, however, is hardly alone in this space of companies that have been tacitly growing their market share and gradually replacing Bloomberg and even Reuters terminals with the most sophisticated players in this quadrillion-dollar financial industry. For instance, have you ever heard of Quandl?
I have been in a unique and fortunate position to be immersed in the heart of FinTech innovation and to observe first-hand the extent of what is becoming a true disruption to businesses that have in turn disrupted financial markets in the late 1970s and 1980s. Think of this as Finance 3.0. The possibilities are endless and the new players are already embedded in every facet of traditional financial structure. And the new players are not boiler rooms - most founders have advanced degrees and most recent scientific advances at their fingertips.
What are the old-timers, who want to survive and thrive in the new competitive environment, to do? First, one needs to understand the lay of the new land. The borders have been redrawn, the capitals have moved and Finance 3.0 world is simply not the business it used to be. One of the great places to observe what is new and happening is the Big Data Finance Conference, that will take place for the fourth year in a row this May 19-20 at NYU Courant in New York City. Another thing to do: do not assume business as usual, reach out and learn the hottest trends in the today's markets.
Steve Krawciw [kro:sew] is a CEO of AbleMarkets.com, a leader in market microstructure analytics. Prior to AbleMarkets, Steve was building products for Credit Suisse wealth management, CIBC wealth management and, prior to that, helped Fortune 500 companies through consulting at McKinsey and Monitor Companies. Steve holds an MBA from Wharton and BComm from the University of Calgary. He can be reached at steve@ablemarkets.com.
Irene Aldridge is a quantitative portfolio manager, big data aficionado, and author of High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems (Wiley, 2nd Edition) She can be reached at irene@ablemarkets.com