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August 18, 2006 7:13 pm
The story looks fairly routine. “Earnings for American Eagle Outfitters’ July second quarter beat the Thomson Financial mean estimate and were at the upper end of the range expected by Wall Street. . . ”
It tells a trader or investor in the streetwear group exactly what he or she needs to know.
Yet anyone wanting to speak to the author – or perhaps hire them for their ability to write clearly and accurately – would face a problem. The story, which ran on Thomson Financial’s news service on August 15, was written not by a person, but by a machine. The computers that generate the stories work so fast an earnings story can be turned around within 0.3 seconds of a company making results public.
A newcomer to the financial news game relative to better-established rivals such as Reuters and Bloomberg, Thomson Financial has tried to make the most of its extensive databases of information to give its news an edge – automatically.
Building on demands from its many financial customers, especially hedge funds and big institutional investors, US-based Thomson Financial, part of business information group Thomson Corp, is in the process of automating as much of its financial news as possible.
“The question we asked is how we can deliver information fast enough for our clients to make an immediate decision to buy or sell,” says Matthew Burkley, senior vice-president of strategy at Thomson Financial.
Reuters is also developing this area, although Bloomberg says it is not.
In an effort to tap into the huge boom in automated trading, based on financial algorithms which set rules that determine whether shares, bonds, currencies, derivatives and commodities should be bought or sold, Thomson and Reuters are also trying to help their customers’ computers read the news.
Computerised trading re-duces the need to buy information screens and terminals, especially if they replace actual traders. Companies would instead pay for feeds of information to the computers. Thomson will soon offer a feed of automated reports that can be traded on within a second of earnings releases, and is trying to develop a range of sophisticated automated feeds for its hedge funds.
Reuters is creating “machine readable news”, on which computers can automatically trade. Tom Glocer, Reuters chief executive, said this was “one of my favourite new projects”.
Already, a third of all US equity trading is driven by so-called “algorithmic trading”, according to latest estimates, as traditional fund managers follow the lead of hedge funds and embrace complex automated trading strategies in an effort to improve efficiency.
The figure is set to rise much further in the coming years as fund managers, along with brokers and exchanges, strive for ever-greater speed and control over the trading cycle amid heightened market competition and consolidation.
Algorithmic trading uses mathematical models, which are being developed by PhD-armed staff at a growing number of investment banks and specialist trading firms, as a means of trading large blocks of shares as quickly as possible.
Yet once the computers have written the news, plugged it into their trading programmes and, with any luck, made some money on the trades, there still remains one function that human beings should be better at: going out to celebrate.
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