Automating Wall Street

As Wall Street firms introduce more automation and fintech, it's creating an entirely new trading and investment environment.

Automation, machine learning and artificial intelligence are taking finance to a whole new level, and nowhere is this evolution more pronounced than on Wall Street. Executive leaders who want to know where the future of finance lies need only look to the changes taking place in the heart of America's financial services industry. 

Welcome to Automation Street

Wall Street has long been the epicenter of financial firms, banks and investment companies, with the floor trader serving as the archetypal job on stock exchanges. However, this is changing as automated computer systems continue to replace human workers at a faster rate every year.

Currently there are fewer than 400 floor traders on the New York Stock Exchange, when less than 20 years ago there were more than 5,500 of these individuals, Harvard Business Review reported. And of these 400 people, a significant portion of them only work part-time.

"Currently there are fewer than 400 floor traders on the NYSE."

It's not surprising, since complex algorithms with machine-learning capabilities have a much better chance of reducing a firm's exposure to risk when compared to a human trader.

In fact, MIT Technology Review reported that electronic trading accounts for approximately 45 percent of Goldman Sachs's revenue from cash equities trading. Even currency and credit trading, which are much more complex than equities trading, are increasingly becoming automated to replicate human decision-making.

While people still control many aspects of finance's main functions in executing and settling trades, writing analysis and monitoring risk, even these positions in this so-called "knowledge work" face disruption, according to Bloomberg Markets.

Take State Street, for instance. This 224-year-old custody bank that specializes in institutional investing spent the last five years implementing advanced technological upgrades to its system, only to find out they were still at the beginning of the process. According to State Street President Michael Rogers, by 2020, 20 percent of the firm's 32,356 employees will be lost to automation. 

"We have 20,000 manual interventions on trades every day," explained Rogers. "There's a huge opportunity to digitize that and move it forward electronically."

The transformation from a person-guided trading environment to a fully automated one will still require a massive undertaking, but it's one that every bank and financial firm should be willing to take. In fact, these companies can't afford not to make these upgrades if they wish to remain competitive, relevant and in business.

How financial firms can keep pace

Cloud-based computing, algorithms that can process vast sums of data in a split second, automation, machine learning – these features will become the cornerstone of every bank and financial firm in the near future (if they're not already). This means banks need to become technology centers as much as financial companies. Fintech isn't just some buzzword that's going to come and go like Y2K – it's the only route forward for success.

In light of these changes, the personnel at investment and trading firms will need to fit new roles. For instance, one-third of Goldman Sachs' staff, approximately 9,000 people, are computer engineers, MIT Technology Review reported.

"Everything we do is underpinned by math and a lot of software," Goldman Sachs CEO Marty Chavez told a Harvard audience in January, according to Technology Review.

Beyond just automating floor traders and using advanced algorithms, Wall Street firms are also using new cognitive technologies. Some are utilizing robotic process automation that can delve into several data systems and then apply rules-based decision logic to execute back-office operations. Even regulatory compliance, one of the few areas experiencing growth in recent years, is undergoing significant technological upgrades in everything from automating internal fraud investigations to anti-money laundering reports.

As fintech becomes more entrenched in both Wall Street and the finance and banking sectors at large, executives at these firms need to implement the technology necessary to boost automation and take advantage of the efficiencies afforded with these systems.