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2 © 2007 Bloomberg L.P. All Rights Reserved. The Impact of Computers on the Financial Industry Kai To Bloomberg L.P.

3 Personal background Kai To  Graduated from King’s College London with a BSc. in Mathematics and Computer science  Been with Bloomberg since September 2008  Software developer in the Bloomberg Feeds team © 2007 Bloomberg L.P. All Rights Reserved.

4 Agenda  Current financial markets  History  Use of computers  Software engineering  Questions © 2007 Bloomberg L.P. All Rights Reserved.

5 Players in the market © 2007 Bloomberg L.P. All Rights Reserved. Everyone who wants to stay informed  Investment banks  Brokers  Portfolio managers  Pension funds  Governments  Individual investors

6 Where does Bloomberg fit in? © 2007 Bloomberg L.P. All Rights Reserved. Financial data, news and analytics  Single source for information  Bloomberg TV  Trading systems  Market data provider Primarily a software house  Bloomberg Terminal  Approximately 2800 programmers globally 290 of which are in London Clients  Everyone from the previous slide

7 Securities © 2007 Bloomberg L.P. All Rights Reserved. Stocks and shares, equities  Own a stake, or a share of the company  Voting rights  Dividends Bonds, fixed income  Debt instruments  Issued by governments and corporations Derivatives  Options for the right to buy or sell  Agreed prices for buying in the future

8 History © 2007 Bloomberg L.P. All Rights Reserved. Information  Old boy’s network  Newspapers  Pink sheets Calculations  Manual  Bond sheets Trading  Floor/pit trading  Physical slips of paper

9 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Yield calculations  Lots of variables Valuations of complex securities  Even more variables News  Categorised  Sorted  Intelligent Alerts  Real time

10 © 2007 Bloomberg L.P. All Rights Reserved.

11 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Yield calculations  Lots of variables Valuations of complex securities  Even more variables News  Categorised  Sorted  Intelligent Alerts  Real time

12 © 2007 Bloomberg L.P. All Rights Reserved.

13 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Yield calculations  Lots of variables Valuations of complex securities  Even more variables News  Categorised  Sorted  Intelligent Alerts  Real time

14 © 2007 Bloomberg L.P. All Rights Reserved.

15 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Yield calculations  Lots of variables Valuations of complex securities  Even more variables News  Categorised  Sorted  Intelligent Alerts  Real time

16 Real time alert © 2007 Bloomberg L.P. All Rights Reserved.

17 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Feeds  Streams of information over a network  Trade prices, quotes and statistics  Unformatted text  Multiple sources, all different Low latency  Important  Bandwidth  Efficient algorithms  Length of cable

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19 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Feeds  Streams of information over a network  Trade prices, quotes and statistics  Unformatted text  Multiple sources, all different Low latency  Bandwidth  Efficient parsing algorithms  Length of cable  Very important

20 © 2007 Bloomberg L.P. All Rights Reserved.

21 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Feeds  Streams of information over a network  Trade prices, quotes and statistics  Unformatted text  Multiple sources, all different Low latency  Bandwidth  Efficient parsing algorithms  Length of cable  Very important

22 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Algorithmic trading  Computers are making the decisions  A lot faster than humans  Very complex and extremely secretive We don’t do it  Algorithms are proprietary  We supply the same tools to everyone

23 © 2007 Bloomberg L.P. All Rights Reserved.

24 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Algorithmic trading  Computers are making the decisions  A lot faster than humans  Very complex and extremely secretive We don’t do it  Algorithms are proprietary  We supply the same tools to everyone

25 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Legal implications  How do you know who you’re trading with?  Who’s responsible for computing errors? Failures  Markets stop when computers break  LSE outage, September 2008  KfW mistakenly sends €300 million to Lehman  Mizuho trader sells at 1 yen

26 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Authentication  Who? – Audit trails and logs  Where? – Regional differences Security  Software – Bloomberg impossible to hack  Physical failure – Hardware, networks  Redundancy Integrity  Bogus trades - Jérôme Kerviel  Auditing and reporting - Law

27 Computers in finance © 2007 Bloomberg L.P. All Rights Reserved. Authentication  Who? – Audit trails and logs  Where? – Regional differences Security  Software – Bloomberg impossible very hard to hack  Physical failure – Hardware, networks  Redundancy Integrity  Bogus trades - Jérôme Kerviel  Auditing and reporting - Law

28 Software engineering in finance © 2007 Bloomberg L.P. All Rights Reserved. Short release cycles  Time to market  Clients want to be there first If it works  Push out new software as soon as possible  New enhancements constantly in the pipelines If it goes wrong  Disastrous  Short testing time  Rollbacks can be an epic feat

29 Software engineering in finance © 2007 Bloomberg L.P. All Rights Reserved. Proprietary  In house development  Majority of departments have their own development teams  Very specific software Client sits next to you  Rapid development  Continuous client feedback XP methodology  When things go wrong…

30 Software engineering in finance © 2007 Bloomberg L.P. All Rights Reserved. Proprietary  In house development  Majority of departments have their own development teams  Very specific software Client sits next to you  Rapid development  Continuous client feedback XP methodology  When things go wrong… Client’s sitting next to you

31 Software engineering in finance © 2007 Bloomberg L.P. All Rights Reserved. Iterative development  Market changes quickly  Short term Ban on short-selling  Requirements can change Requirements  Speak to clients  Don’t be generic  Be ready for change  Know the competition Most importantly  Fast is as slow as we go

32 Questions? © 2007 Bloomberg L.P. All Rights Reserved.