Non-financial industries should look to the capital markets for proven technology
This April, I was honored to deliver a TED Talk at the annual TED conference in Vancouver. Today, I’m pleased to share my talk with you.
On stage in Vancouver, I walked the audience through what we in the financial industry call “price discovery” – the process at the core of our financial markets that brings millions of buyers and sellers together in a massive digital marketplace to determine a fair price for a stock, bond or other financial instrument. I explained how price discovery is a great equalizer – a democratic way to give all investors, large and small, a constant voice in establishing the price where supply meets demand. Markets with active price discovery, coupled with strong regulatory oversight, give everyone a fair environment to invest in and benefit from great companies and great innovations.
Then, I posed the question: if price discovery works in our financial markets, why don’t we build this concept into other transactions in our lives? What if you, the buyer, actually had an active role in setting the price for everyday goods and services at the very moment you want or need them?
This is a big part of how Nasdaq thinks about the future: capturing the sum of our experience and technology running financial markets and applying them to entirely new markets, to bring better transparency and fairness to the global economy.
This evolution of the economy is already taking hold. Consider the birth of new marketplaces in the trading of digital assets, crowdfunding, and auction platforms for specialty goods. As long as supply and demand exists for buyers and sellers, almost anything is possible.
Therefore, we want to use the latest in technology innovation to bring price discovery and market mechanics across the economy — to partner with great innovators to create markets everywhere.
The key to this is leveraging our deep understanding of current capital market structure and applying it in new and innovative ways. There’s a good reason why many of the emerging non-financial marketplaces we see today are building their infrastructure with technologies that are typically found in the capital markets industry (such as trading, clearing, risk management, market surveillance platforms). These technologies have evolved and have been scrutinized for decades, so we begin with best practices and a framework for strong regulatory oversight built-in.
Then the question is how we adapt these structures for new markets. Whether it is real estate, gaming, healthcare, logistics, or even personal data, there are ways to apply modern market mechanics and monitoring tools to those areas to increase participation and create a fairer system.
For instance, the systems we use for our markets and to monitor financial markets for manipulative events can perform the same function for gaming at staggering scale. Our trading and market surveillance technology, for example, can handle more than 55 billion events per day and our underlying database enables storage and recovery of a multitude of data parameters. This means we can transact and monitor bets alongside live feeds of events – a critical capability both to create new opportunities for bets, and also to detect possible manipulation.
A true innovator that we are supporting with our latest trading technology in the gaming sector is the UK-based Football Index. It is a platform that offers people the chance to bet on the future success of European football players, rather than gambling on the short-lived outcome of specific matches. For Football Index, we are providing a completely cloud-optimized matching engine – essentially a rapid-deployment SaaS trading platform, allowing for real-time software upgrades and improved operating efficiencies and lower infrastructure costs. The new engine will replicate their current setup but also add functionality for bids with incentives, enabling traders to take positions, and then offers for the full suite of market type functionality.
Or take the world of global shipping and logistics. We could easily envision a digital marketplace where all major carriers participate and can trade with each other, leading to efficient space utilization, more flexibility and automation, less overbooking and reduced cost. And this could be addressed by leveraging unique market models available in our matching engine technology that we already use and provide to our capital markets clients.
As we build markets—our own and as a technology partner to marketplace clients worldwide—we have to stay ahead of the curve by experimenting and adopting emerging technologies, especially as we move into more consumer-based marketplaces. For example, we were an early adopter of cloud in the financial industry, beginning our efforts nine years ago. Nasdaq has already moved internal workloads into the cloud, built a cloud-based an investor relations platform, established an entire infrastructure supporting our data sandbox in the cloud, and recently deployed a cloud-based trade matching service. When we began building the Nasdaq Financial Framework (NFF) in 2016, we architected the platform to accelerate the ability of our traditional marketplaces to move to a cloud-based environment. Additionally, NFF is specifically designed to leverage other emerging technologies, including blockchain and machine intelligence, to allow our clients launch markets and operate them in a more agile way.
All of these technological advances that we have worked to perfect in the capital markets, arguably one of the most demanding and data-centric sectors in the economy, will position us to support our Markets Everywhere clients. We will be able to help them realize their marketplace visions without a heavy reliance on on-premise technologies or market infrastructure experts.
Having spent my entire career studying market structure and participating in our capital markets, this is an incredibly exciting moment. For decades, Nasdaq has innovated within a fairly well-established range of possibilities. Today, driven by technology, we no longer need to draw within the lines. Price discovery can become the norm across our economy. If a customer can imagine it, we can probably build it. And the things we’re doing today are just the beginning.
The article first appeared on LinkedIn.