A newly released report titled AI in Sell-Side Equity Algorithms: Survival of the Fittest, where researchers interviewed fifty algorithm experts from sell-side, buy-side and Fintech vendors and combined that data with numerous case-studies on many global banks, shows significant insight in to which banks and institutions seem poised to dominate the market AI space over the next five years.
While AI trading algorithms have been a significant market influence for some time, it is only in the recent few years that markets have seen a rapid expansion of banking AI sell-side algorithms, owing to their ever-increasing profitability. The competition between the top sell-side algorithm developers has become quite notable of late, with the incentive to have the smartest, fastest and overall best algorithm becoming a war of attrition between tech houses. Not keeping pace, or indeed not continually striving for fractions of percent more profit than the next-best algorithm sees banks and Fintech companies losing real profit for every month they lag behind the competition.
Highlighted in the report (1) is the notion that more financial institutions need to put more money into transitioning from traditional algorithms to ones that feature AI at their core. AI based sell-side algorithms simply did not exist a decade ago, and the highly-competitive nature of top investment firms and banks is starting to show a large migration to AI-based trading products. It should be noted though, that only a handful of banks even have the budget required to transition their traditional trading algorithms into AI-driven alternatives, and that quite often the difference between a mathematical-based algorithm development house and a development house that uses machine learning can be a very small percent in terms of yield.
In the world of banking, that percentage difference means they are at the top of the field, and can boast the best annualised ROI over their competition. In the world of conventional trading, a few percent difference per year will probably not raise altogether too many eyebrows.