Look out Wall Street, it seems as though that the robot revolution has begun. Traders are beginning to prepare and adapt as Wall Street is entering into a very new era. Artificial Intelligence (AI) and machines alike have allowed computers to learn by processing data and natural language, in addition to the simpler process automation that allows robots to perform simple, rote tasks. Artificial Intelligence, which is an extension of computer science, aims to saturate these machines with reasoning. The JPMorgan Chase & Co. LOXM program is so good at equity trades that it’s replacing humans who used to do that work. Goldman Sachs is automating the initial public offering process.
There are some analysts who state that there could be up to a 30% reduction in the banking work force. In addition, supportive and back-office roles will be the first occupations to go; in essence the occupations that consist of repetitive and supportive tasks like making calculations based off of data will cease to exist soon. Furthermore, a Bloomberg report states that about 30% of asset management jobs, which is consisted of 90,000 people, will be replaced by more efficient and productive machines. Clients within asset management has continued to pull their wealth out of firms that deal with money by actively trading, meaning a group of people are manually dealing with their money, and placing their wealth within firms that manage with passively by having automation recommend and execute the trades.
Despite these dire numbers, automation is not an entirely destructive force. According to some reports, close to 30,000 new jobs could be added to these banks. But it is seen as though that these positions are geared only to individuals with extensive tech experience. Most of these occupations consists of data scientists and AI engineers. These reports have faced some backlash as clients and individuals alike who work with Wall Street’s traders or asset managers still want to have interactions with humans as human qualities such as trust and empathy are very tough to automate. As a result, some businesses will still want to have human advisors for their customers; so not everything is all doom and gloom for now at least.
With the new use of robots, automation, and AI throughout Wall Street, can bring massive issues; especially with the trading department. High Frequency Trading otherwise known as HTF, has had the ability to generate massive losses for trading funds and has even rocked stock exchanges in the past when they’ve made an error. HTFs typically make their money via market-making which is the strategy of strategy that basically turns the bid-ask spreads into profits by generating daily buy and sell (limit) orders continuously and automatically.
While this strategy becomes much faster and profitable for Wall Street trading firms, it has also led to a higher likelihood of sudden or “flash” crashes to occur; which can result in the loss of millions of dollars. Overall, there are massive pros and cons that come with the rise of automating jobs within Wall Street. While it seems like some jobs will be rendered obsolete due to this technology, not all jobs will be eliminated. People still desire human interaction. Wall Street firms are looking to cut costs in order to become more profitable and competitive so the coming years will bring a massive change with how these firms operate.