Liquidnet CEO: Artificial intelligence is the future direction of finance https://www.scmp.com/print/business/companies/article/3015908/liquidn...

Liquidnet CEO: Artificial intelligence is the

future direction of finance

Chad Bray Published: 9:00am, 26 Jun, 2019Updated: 9:00am, 26 Jun, 2019

Seth Merrin, the chief executive of Liquidnet, is making a big bet that the future of trading
– and the edge that traders and portfolios managers seek – will be driven by artificial
intelligence.

Merrin said one of the main problems that he hears from clients is how to improve
performance, particularly as fund managers are increasingly overwhelmed with the
amount of publicly available data that can influence investment decisions.

But, very few of the privately held firm’s clients have the capability or time to develop their
AI-driven technology to help analyse that data, Merrin said.

“You have an explosion of data and, at the same time, you have a maturity in the use and
the capabilities of artificial intelligence,” Merrin said. “The only way that you can take
advantage of all the data out there and to differentiate, analyse it, process it, is using
artificial intelligence.”

The company, founded in 1999, is an institutional trading network provider for more than
1,000 institutional investors that collectively manage US$33 trillion in assets.

Earlier this month, Liquidnet bought Prattle, an analytics platform that uses natural
language processing and machine learning to measure sentiment, for an undisclosed
amount.

Prattle uses publicly available data to predict the affect on markets of communications
ranging from central bank commentary to corporate announcements.

It is the latest technology-driven acquisition by the fintech company in the past two years
as it seeks to expand its suite of data to institutional investors.

Among recent acquisitions, in May the company acquired RSRCHXchange, an aggregator

of institutional research, and in 2017 it bought OTAS Technologies, an artificial
intelligence-driven analytics platform.

“Our members don't have the time, the bandwidth, the wherewithal, the expertise to be
able to create the technology stack and the quants necessary to train artificial intelligence,”
Merrin said. “They certainly don't have access to all of the data that we do, so this is
addressing the number one need for our members. There is gold in all of that data. Our job
is to help them find it.”

About half of financial professionals in Asia-Pacific believe they will be replaced or their
jobs will change dramatically in the next decade as AI and other emerging technologies
gain further traction, according to a new poll by the CFA Institute. The survey interviewed
more than 3,800 finance professionals globally.

“Routine tasks will increasingly be performed by machines, and the human element of
judgment will become more important,” the CFA Institute said. “The new human-machine
interface requires people and AI to work together, and those that strike a balance will be

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the most innovative and reap the most rewards.”

As trading becomes more automated, Merrin said that traders at fund managers still have
an important role to play – if they have the right tools in front of them.

“Portfolio managers are there to look at long-term alpha, which stocks to pick and manage
performance. Traders have a completely different perspective. We call it ‘trader alpha’,
more short-term alpha,” Merrin said.

“I don't think that in this day and age any active manager can walk past the nickels and
dimes that traders can add to the overall performance of the funds,” he said. “We're talking
about tens or maybe even hundreds of basis points, but an additional 10 basis points is
enough to move an active manager into different quartile of performance.”

Liquidnet is currently in a pilot programme with its combined research and AI offering
with five of the world’s biggest asset managers and plans to expand that to another 10 to 15
companies within the next few weeks, Merrin said.

The cost for a company to access the combined platform would be equivalent to the salary
of a junior analyst, he said.

“The technology will never take a vacation, never get tired, will always improve and can
handle a massive amount of information,” he said.

Merrin said he believes there will still be a role for human traders and fund managers in
the future, even as AI is more prevalent in the financial services industry.

“I do believe that traders and portfolio managers using artificial intelligence will replace
those that do not,” he said. “You have the combination of technology along with the human
element. I think that, at least for the foreseeable future, is the best combination.”

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