The problem with finance
Finance isn’t just about developing technology with a few rules and regulations, it’s about the complex interactions between people and systems and the events that have helped shape the global economy over the past decade. It’s also a domain of contradictions. In this talk, Dr. Jamie Allsop will look at the problem of finance, where we are today, how we got here and how we might make sense of it all.
We are in the middle of a “fintech” revolution right now with much interest in the finance domain and how we can use technology to disrupt both incumbents and business models. This is even a conference about developing software in the finance domain. The question begs then, what makes finance special, if anything? And if it is special why do we care and what can we do about it?
Finance isn’t just about developing technology with a few rules and regulations, it’s about the complex interactions between people and systems and the events that have helped shape the global economy over the past decade. It’s also a domain of contradictions. Corporations that drive the industry and help shape the technology are often hugely resilient to failure allowing bad practices to outlive their natural life. Similarly failure, when it does come, can be very costly, even catastrophic, with technology providers directly culpable.
Developing effectively in the domain of finance requires an appreciation of the wider context of the domain, where it is today and where it will lead in the future. Armed with that knowledge, and an understanding of why it’s hard to develop effectively in a domain with hard, ever-changing constraints it becomes possible to explore approaches that can help make sense of it all. One of the biggest problems encountered in finance is the mapping from some regulatory obligation all the way through to lines of code that actually provide that.
This talk will look at the problem of finance, where we are today, how we got here and how we might make sense of it all. Along the way, we’ll ask what things stand out and perhaps a pattern will emerge. Hopefully, it will become clear that finance is challenging, but also rewarding. We get to solve real, hard problems with little room for compromise and get to push our tools and languages to their limits, in some cases driving their evolution.
Dr. Jamie Allsop is currently the Head of Technology at TP ICAP and Director of clearpool.io – https://www.clearpool.io – Jamie is leading the development of a next generation exchange platform targeting MiFID II and emerging economies. Previously at the NYSE he was responsible for their market data platform and next generation projects. Impacted by the Flash Crash in 2010 he acted as a technical witness to the SEC. A member of the BSI C++ ISO Standards Panel and previous co-author of a best seller on C++ he enjoys getting his hands dirty in code. Creator of cuppa, a python Scons-based build framework to simplify building complex C++ systems. Passionate about agile development, and a long time speaker on the topic, he particularly enjoys helping distributed teams embrace agility.
Don’t miss our interview with Dr. Jamie Allsop:
JAXenter: The title of your JAX Finance talk was “The problem with finance“. What’s so special about technology in finance?
Dr. Jamie Allsop: Good question, and not one with a simple answer! In fact, that’s the reason why I thought it would warrant a talk to discuss the idea: bringing not only my perspective but taking the opportunity to see if others concur or perhaps have a different perspective. To at least address the question though, I can say that finance brings with it a variety of constraints, both regulatory and performance, where failure to achieve them can have a broad range of consequences. I think it is that broad range of consequences that can set finance apart to some degree.
JAXenter: In say that finance is a „domain of contradictions“ – what do you mean by that?
Dr. Jamie Allsop: I think this relates to the remark I made with respect to there being a broad range of consequences when things go wrong. Finance covers a wide range of systems with highly variable sets of constraints: from handling terabytes of data, to offering slick modern web experiences, to working with ultra-low latency, to using simple form-based data capture. Basically pretty much from one extreme to another. Equally diverse are the consequences when things go wrong. It is probably fair to say that in most industries a poor customer experience normally correlates with a decrease in revenue and customer-base size. Ultimately this leads to a loss in business and in more extreme cases going out of business.
Certainly, this can happen in finance but we also see cases where large institutions are considered too important to be allowed to fail and that creates the opportunity for poor quality systems to outlive their natural lifetime. In some cases this leads to serious problems where the lack of reasonable consequences can lead to endemic under-performance.
In contrast, failure in other corners of finance are so heavily regulated that failure – perhaps in the same institution – can lead to criminal prosecution, never mind the actual consequences of the failure itself. In other words, on the one hand you have a need for a very high level of professionalism and on the other you can get away with wasting a lot of time and a lot of money.
JAXenter: Speaking of regulations as being one of the most dominant frameworks of finance development in both respects, technology and business – do they limit the possibility to innovate or do they create a new space for innovation, especially in a fragmented market such as Europe?
Dr. Jamie Allsop: The simple answer is that any constraints will initially limit the possibilities that are open to providing solutions. However, those constraints will also act as a catalyst for the development of innovative approaches. Why? Well, when you constrain the solution domain people are forced to innovate to find better or different solutions. There is no choice in the matter.
I believe some of the real opportunities for innovation come not just with constraints (perhaps from existing regulations) but more so when you have evolving constraints. Such evolution forces a re-think of existing practices while still providing boundaries offering scope for solutions. I think large regulatory frameworks like the incoming MiFID II will usher in many innovations in the capital markets space. It’s not just about the changes, but the fact that the regulatory pressure itself will make customers more amenable to trying new and innovative solutions.
JAXenter: Automation is the engine in modern trade systems. What’s the role of (decision-making) humans and how would you describe the changing interactions between systems and humans in finance?
Dr. Jamie Allsop: This is a huge topic, too big and too broad to go into any real depth here, but I will say that one of the constant challenges in modern capital markets revolves around getting the interface right between machine driven aspects to trading, such as algorithms, and humans who ensure that systems don’t run amok. Given the incredibly high speeds at which systems operate we see whole industries focused on automating all aspects of correctness in trading systems. Indeed many regulations exist solely to quantify and parameterize the boundaries within which systems should operate. Additionally much effort has been put into figuring out ways to automate fails-safe mechanisms in the event of extreme market events.
In this example the humans making decisions are concerned primarily about preventing deviations from acceptable limits or conditions (correctness). They typically also reserve coarse-grained controls over the systems allowing them to preform basic tasks like forcing an abort or restarting manually, but otherwise rely of the systems to operate automatically. For example, to ingest and analyze market data to drive trading algorithms.
To come back to your question, how are these interactions changing? I would say that if anything there is a continual move towards defining increasingly sophisticated rules and requirements which can only be effectively delivered with more and more automation. I don’t think there is so much a change in the interactions but more a continual trend of a move to automation that we saw starting with the electronification of markets and increased reporting and compliance requirements that followed.