Our issue with fintech

April 16, 2016 03:00 PM

I have been somewhat bemused by the recent buzz surrounding financial technology or “fintech” as it has become known. It’s not that it is not an important trend in markets and trading technology, but it’s the fact that it is being presenting as something new. 

Fintech is not new, nor is the idea of an issue focused on it. Financial technology has been driving markets for several decades now. However, there is a buzz 
surrounding fintech these days, and it is well-deserved. 

The difference is that fintech is now driving the bus. In the past, financial technology has been seen as a tool for markets: The matching engines created by exchanges, the independent software vendors (ISVs) who built the front ends that wrote to those matching engine and even the underlying algorithms for systematic money managers. Those technologies and technology firms were seen in a somewhat supporting role, and despite their importance, many of those first-mover firms did not realize, financially, the contribution they made to our markets. Much of the financial rewards from the increased trading volume their innovations helped to create went to the brokers and exchanges that were the beneficiaries of those innovations. 

Today, the nerds are coming out of the shadows and taking their just rewards for the value they are adding and the opportunities their disruptive technologies have created. Features Editor Garrett Baldwin surveyed the newest wave of fintech purveyors who tell us what to expect in 2016 and beyond in “The 10 top trends in fintech,” page 22. 

That there are so many, tells us a lot about technology: It creates new opportunities, the breadth of which is not immediately known. The interesting thing about innovation, especially as technology is concerned, is that it takes on a life of its own. It is not necessarily the initial goal that is important but what you learn along the way in achieving it. In our November issue on Bitcoin we pointed out how the blockchain component of Bitcoin may become bigger than the cryptocurrency itself. In “Bankchain & itBit: Settling on the blockchain,” page 16, Contributing Editor Steven Lord discusses how that has played out. He notes that blockchain-like structure can be used without involvement from Bitcoin. 

Lord introduced us to itBit, a former bitcoin exchange that has used its understanding of how the blockchain works to create the settlement system Bankchain. 

Banking has been highly affected by the recent disruptive fintech innovations. The banking sector is our market focus this month as several contributors provide a report card on the sector. 

In “Vertex’s visualizations: Advancing algos & spotting spoofers,” page 30, we show a fintech firm that is helping traders see markets in multi-dimensions to enhance analysis and improve trading results. Vertex provides tools for traders, but not necessarily a user manual. Innovative traders will be free to use the software to create unique applications that its creators may never have envisioned. 

To show that nothing is completely new, James Smithson shares how W.D. Gann’s 100-year trading methods can be applied in today’s markets in “Solving the problems of Gann Analysis,” page 38. 

Speaking of innovations, the modern futures industry has exploded in waves of innovations with the creating of financial futures. In about a decade’s time the financial world expanded with the creation of listed options, interest rate futures and futures on stock indexes. In “UCX: Trading the cloud‘s capacity,” page 66, we introduce what could possibly be a new asset class in trading infrastructure capacity. 

The new world of financial technology has created a lot of data, so much so that an entire new industry has sprung up to store all the data produced by these innovations. It is called “The Cloud,” which allows all sorts of businesses and utilities a secure way to store all of their data without having to build their own data centers. Like any new industry, pricing for the Cloud can be confusing and disparate. We introduce a new exchange, Universal Compute Xchange (UCX), which is providing a platform for buyers and sellers of cloud capacity to meet, offset risk and for discover price. 

Following the model cited above, UCX has not tried to create too specific of a structure but is listening to users in designing contracts and structures. 

How did it all begin? The founders discovered an algorithm able to accurately measure out compute resource power. 

Fintech strikes again.



Daniel P. Collins
Editor-in-Chief, Modern Trader

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.