2013 Will Bring Algorithmic “Hall Monitors” and More Capital Markets Firms to London - The Next Cayman Islands
Progress Software Corporation (NASDAQ: PRGS), a global software company that simplifies and enables the development and deployment of business applications, predicts that, in an effort to prevent substantial market losses, algorithms that chase and tame trading algorithms will be given new monitoring powers. Progress Software's 2013 outlook further forecasts that the European transaction tax and stricter regulations globally will force financial services firms to move to London’s lighter regulatory climate.
Progress Software's Capital Markets Predictions for 2013:
1. Algorithmic Hall Monitor: A new generation of monitoring software will stop the bullies in the algorithmic trading playground. Demand for algorithmic policing software will surpass interest in trading technology next year.
2. Taxation Emigration: The financial transactions tax in Europe and tighter regulations in the US and Asia will drive capital markets firms to London, which will become the European equivalent of the Cayman Islands.
3. Whistleblower Lotto: The next massive whistleblower payment will be a Powerball-sized $200 million, when a capital markets ‘supergrass’ brings down a would-be financial markets criminal.
4. HFTs: Presumption of Guilt: High frequency trading shops will “up the ante” to prove to the world that they are not guilty, create positive PR and heavyweight lobby groups. Although the UK’s Foresight Committee found them innocent of distorting markets, the world still believes they are to blame and will continue to believe this until policing measures and punishments for transgressors reach a satisfactory level.
5. Bond. Russian Bond. The newest participants in free markets will make their presence known in a big way, having joined the pan-Europe bond settlement and clearing system Euroclear. Russian Bonds may be the next big thing since Daniel Craig, and investors will be clamoring for electronic trading systems.
Last year’s predictions included one that was painfully prescient: that a trading firm would lose a billion dollars with an algorithm going wild. In August, Knight Capital launched an algorithm that went rogue - buying when it should sell and selling when it should buy. The immediate damage of $440 million in market losses grew to nearly a billion dollars by the end (in losses through trading and market cap) -- and almost cost the brokerage its firm.
Dr. John Bates, Chief Technology Officer, Progress Software and Founder of Apama, said: “Like a Hall Monitor at school, algorithms will lurk and jump on troublemakers. They will take the virtual bullies to the principal’s office and punish them.”
Dr. Bates on his ‘taxation emigration’ prediction: "London will become the new Cayman Islands, attracting trading firms and hedge funds from more restrictive regimes. With no transaction tax and its lighter-touch regulation, London will grow its pole position as the financial services capital of the world.”
Dr. Bates concluded: “Financial fraudsters and algorithmic rogues are getting more and more bad press. The financial services world is under immense pressure to catch and eliminate them, in order to win back investor confidence. Maybe then, the presumption of innocence – rather than guilt - will be the order of the day in financial markets.”