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Humans 1, Machines 0 – Bloomberg View

Man vs. MachineThe (IDC) deal underscores the many ways in which bond trading is unlike buying a book or a vacuum cleaner or a 24-pack of toilet paper online. Credit traders rely on the color they get from talking to one another. Without information and some level of trust, it’s hard to lure investors and dealers to the same place to make a deal, regardless of the technology. (Full Article)
Comments
  • Merlin
    MerlinOctober 30, 2015"The issue isn’t ‘humans vs. machines’. It is people no longer willing to share information they way they once did. Things have gotten so bad that the buy side, in surveys, have stated that they break up trades, presumably to hide intentions from the sell side and I have heard first hand from sell side traders that they don’t even want to tell their own salespeople about some of their positions/axes due to concern that information leakage could hurt them. With investor…"
  • Goose
    GooseOctober 30, 2015"Interesting take on the acquisition. I was thinking that as their core futures business matures, ICE was looking more at it as a diversity play with consistent revenue than as a statement around FI trading. Anyway, I completely agree with the point around human interaction in the credit market pricing process. Evaluated pricing is a great business to be in. Financial institutions investing in heterogeneous markets need to have a value on assets, retail statements, etc…"
  • Wolfman
    WolfmanOctober 29, 2015"I summed this up as “putting your money where your mouth is”. Isn’t it interesting that in the same week we learn some of the details surrounding a $25 million investment from Peter Thiel and George Soros for a fully electronic bond platform, one of the most successful industry visionaries in the past decade invests more than 200 times as much in a business which relies on humans to price bonds. What might be more interesting is to see what ICE plans on doing with the…"
  • Chipper
    ChipperOctober 29, 2015"While I don't disagree with the premise that humans are important, I don't think this deal show that. In fact, I think it points more to a disturbing "rise of the machines" than does electronic trading (which is still done bilaterally by humans, one trade at a time. The reality is that the IDC data is an amalgamation of dealer quotes with little discretion paid to the quality of the quotes. As such, it takes the flawed effort of humans and applies a computer's veil of…"

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5 Comments on "Humans 1, Machines 0 – Bloomberg View"

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Hollywood
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The article states: “The deal underscores the many ways in which bond trading is unlike buying a book or a vacuum cleaner or a 24-pack of toilet paper online.” The implication is that certain corporate bonds are not highly liquid and need TRADER (typically dealers – the person willing to buy or sell) interaction for price clarity. However, the article then states: “a 200-person unit that evaluates bonds in the old-fashioned human way — through talking with others, poring over deal documents and assembling information that isn’t readily available through public trade-price systems.” This 200 person team may talk to… Read more »
Stinger
Guest
While I don’t disagree with the premise that humans are important, I don’t think this deal show that. In fact, I think it points more to a disturbing “rise of the machines” than does electronic trading (which is still done bilaterally by humans, one trade at a time. The reality is that the IDC data is an amalgamation of dealer quotes with little discretion paid to the quality of the quotes. As such, it takes the flawed effort of humans and applies a computer’s veil of legitimacy to it, scrubbing the human-produced data of nuance and subtlety (ie who is… Read more »
Wolfman
Guest

I summed this up as “putting your money where your mouth is”. Isn’t it interesting that in the same week we learn some of the details surrounding a $25 million investment from Peter Thiel and George Soros for a fully electronic bond platform, one of the most successful industry visionaries in the past decade invests more than 200 times as much in a business which relies on humans to price bonds. What might be more interesting is to see what ICE plans on doing with the pricing that IDC provides. Perhaps they will create their own swarms…

Goose
Guest
Interesting take on the acquisition. I was thinking that as their core futures business matures, ICE was looking more at it as a diversity play with consistent revenue than as a statement around FI trading. Anyway, I completely agree with the point around human interaction in the credit market pricing process. Evaluated pricing is a great business to be in. Financial institutions investing in heterogeneous markets need to have a value on assets, retail statements, etc. Evaluated pricing will always be needed for a large majority of these securities. Providing a service that is mandated is the good part, receiving… Read more »
Slider
Guest
The issue isn’t ‘humans vs. machines’. It is people no longer willing to share information they way they once did. Things have gotten so bad that the buy side, in surveys, have stated that they break up trades, presumably to hide intentions from the sell side and I have heard first hand from sell side traders that they don’t even want to tell their own salespeople about some of their positions/axes due to concern that information leakage could hurt them. With investors less willing to provide information, market makers are less likely to provide liquidity or at a minimum increase… Read more »
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