Emerging technologies continue to drive the evolution of the capital markets, and none more so than the cloud, machine learning and blockchain. These three technologies will be critical to defining the future success of the capital markets, according to Nasdaq President and CEO Adena Friedman.
During a recent virtual event at Hofstra University’s Frank G. Zarb School of Business, Friedman outlined why these technologies are driving markets forward.
The cloud is one of the technologies that Nasdaq has been focused on leveraging because of how it can support market infrastructure as a “super-scaled, high-throughput, low-latency solution,” Friedman noted.
The benefits that the cloud provides are pivotal for keeping markets running smoothly, particularly during black swan events, such as the pandemic. During the height of market volatility this year in mid-March, Nasdaq reached historic peaks of more than 60 billion messages a day—more than twice any previous record—and had to support that volume in a “20-microsecond latency experience” for their clients.
“As we look at the power of the cloud, we can create a more globalized system, more globalized connectivity, so that markets can operate more seamlessly over time,” Friedman said. “If we can leverage the cloud, I think that we’re going to find, more and more, that any new market that we build and deploy today primarily is in the cloud.”
Earlier this summer, Nasdaq Executive Vice Presidents Brad Peterson and Lars Ottersgård acknowledged that the investment trend and innovation in the cloud are here to stay and was accelerated by the pandemic.
“The writing is on the wall. More than ever, the capital markets will need to be dynamic, consistent and future-focused if we want to drive the economy forward. Shifting on-premises operations to the cloud will allow us to leverage evolving industry trends, launch new offerings quickly, improve service, as well as manage costs, risks, and unexpected volume spikes,” Peterson and Ottersgård wrote in an op-ed for Fortune.
- Learn more about Nasdaq’s journey to the cloud
The second major technological trend is machine learning, which has many applications within the financial industry, according to Friedman.
“I would argue that machine learning probably will have the most impact on the industry in the long term. But within the exchange business and certainly within the capital markets, there are three ways that machine learning will evolve the system,” she said.
Friedman believes that machine learning can enhance markets by improving efficiency, defense and offense. Regarding efficiency, machine learning can replace inefficient processes by creating more repeatable methods. On the defense side, machine learning can be leveraged to find and root out nefarious trading behavior, finding new patterns that might negatively impact the markets. Freidman noted that Nasdaq “wants to be on the forefront of the technology on the defensive side,” and has focused many of its efforts around this aspect, offering Nasdaq Market Surveillance, which is used by regulators, exchanges and market systems around the world. Meanwhile, on the offense side, machine learning can be applied to predictive analytics or other aspects of market data to help investors and traders make investment decisions.
“I think that we’re going to find that machine learning has a huge impact,” Friedman said.
Friedman identified the final technological trend as blockchain, but she argued that it’s more of “an evolution than a revolution,” as wide adoption of the technology is critical.
“[Exchanges] have to be on the rear guard making sure the whole industry moves forward,” Friedman said. “While we can implement blockchain technology easily within our infrastructure, the entire ecosystem has to adopt it, and that becomes more complicated. So, I think blockchain will continue to become bigger inside of our industry, but I think it will take longer.”
Beyond these major tech trends, Friedman spoke about how technology is changing the way we work amid the pandemic, the rise of ESG and inclusive capitalism. Watch the full interview below.
Nasdaq and the Cloud
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