Trends: Big Data Finance is now Deployed across Financial Institutions

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Interview with Prof. Marco Avellaneda of NYU Courant, world-recognized expert in Financial Mathematics, Big Data, and Volatility, Quant of the Year, Chair of Big Data Finance Conference (May 19, 2017, NYU Center for Data Science, 60 5th Ave., New York, NY).

In discussion with Irene Aldridge (IA),

IA: What is new in data, and Big Data in particular, in comparison with last year?

MA: This year, Big Data Finance is becoming very serious. More and more financial institutions are applying Big Data Analytics and Blockchain technology in the real world of finance. The three key trends pertaining to Blockchain that we observe are:

1) the use of Distributed Ledger Technology (DLT) underlying Blockchain methodology in contracts and derivatives

2) Blockchain in retail payment systems, such as money transfers

3) ETFs based on Blockchain for cash, Bitcoin.

These trends are so prominent, that we selected them to be represented as their own stream in the upcoming Big Data Finance Conference 2017 to take place on May 19, 2017, at the New York University’s brand-new Center for Data Science.

IA: Why is Blockchain important? Will it entail major changes to clearing? How do these changes involve data? As an expert close to the regulators, where is the regulation moving on this subject?

MA: Blockchain’s importance cannot be underestimated. It is really taking hold in the U.S. financial markets. Take, for example, the U.S. Depository Trust and Clearing Corporation (DTCC), one of the major entities in the financial markets in the U.S. DTCC is the primary clearing organization for securities in the United States, and is linked to equity derivatives CCPs like the Options Clearing Corporation through cross margin and stock loan agreements. DTCC handles petabytes of data daily.

Recently, DTCC announced their interest in blockchain and distributed ledger technology, and has created joint ventures with two New York Tech firms, one on the blockchain side and one on the finance side. The explicit intention of the joint ventures is to introduce the Blockchain’s Distributed Ledger Technology (DLT) into the clearing process of DTCC. The changes in the DTCC’s process are likely to reverberate immediately through the rest of the market. Ultimately, DLT is poised to have a big impact on central clearing, which I think of as the ``market's back office''.

Regulators are also open-minded toward Blockchain. Their main concern is to protect the US consumer of financial products and to prevent another 1927 or 2008. After the current hype of de-regulation passes -- and there are indications that Central Counterparties CCPs will stay the way they are -- we will continue to focus on technical innovation, like DLT, in market infrastructures, which is definitely the way to go. All of these Central Counterparty-related issues will be discussed at a workshop on Central Clearing that I am giving with Prof. Rama Cont from Imperial College on April 19, 2017. We will discuss some of the most pressing issues on this topic. Needless to say, smart Wall Street firms broadly adopted the Dodd-Frank CCP rules as did Europeans, and adapted to the brave new world of safe derivatives trading. But one never knows what the future might bring, right?

Professor Marco Avellaneda (PhD Univ. of Minnesota, 1985) is a world-recognized expert in Big Data applied to finance. He specializes in applied mathematics, probability and statistics. Most of his research of the last 15-20 years involves applications of mathematics and statistics to financial markets, derivatives, portfolio management and risk management. His work gets published in specialized journals such as Quantitative Finance , Risk Magazine, International Journal of Theoretical and Applied Finance, and other publications read by practitioners as well as theoreticians. He was named *Quant of the Year 2010* by Risk Magazine, for an article on hard-to-borrow stocks and their effect on equity options pricing. Marco is associated with the consulting firm Finance Concepts, which he founded in 2003. His current interests are in internet-delivered financial risk-management systems for buy-side firms.