INNOVATION – A LOOK INTO THE CONTENT LAB

“We are not under any obligation to justify each and every one of our steps along the way. The Lab is not about any specific product – we are looking at concepts which will be attractive for the next 10 to 20 years. It’s a true privilege within the company,” says Sippel, a trained mathematician who holds an MBA of Fuqua School of Business at Duke University. “This degree of freedom means a huge challenge to our team.” Nonetheless, Sippel is certain that this is the only way to invoke true innovation. The Content Lab’s “think tank” concept is thus a perfect match for Deutsche Börse Group’s growth strategy: a small, agile team that has the ability to swiftly try out things, being able to think outside the box.

“We also have the opportunity to work with data – in an encrypted, aggregated and anonymised form, of course – that would never make it into specific products, such as trading data on a participant level.” Sippel emphasises that as a matter of principle, ideas (or data products) must never put individual customers at a disadvantage. “But from a research perspective, it’s a thrill to be working with ‘real’ data – or with what we call big data: data packages which are so big that they cannot be processed in a regular way. It enables us to prepare very attractive new offers.”

In fact, the Lab just succeeded in creating a new product in cooperation with their colleagues at foreign-exchange (FX) trading platform 360T^®: “360T has many points generating interesting data. The Content Lab has analysed some of these data points, creating a new data feed which highlights FX market movements much faster than a simple aggregation of all data would do,” Sippel explains. This is what he calls a “low-latency product” – a solution involving minimum delay in market data transmission. Developing the new product was only possible through full access to 360T trading data. At present, the new feed is being tested with a few select customers and enhanced where possible. “This is right in line with our company’s new vision of closely cooperating with customers, making intelligent use of technological opportunities, and of recognising – and exploiting – new contexts.” Sounds abstract? “Well, you need to think in abstract and networked ways in order to come up with truly original solutions,” Sippel states with certainty.

At the end of the day, customers are set to benefit – as are the markets as a whole. “In the shape of various products, our ideas and concepts are designed to help clients make better investment decisions. At the same time, they are set to further enhance market transparency – for us, as developers and providers of market infrastructure, this is the rationale of sustainable products.”

At 360T, the potential inherent in the data paved the way towards development of the product. At the Eurex derivatives exchange, the Content Lab team chose a different path: “from paper to practice” is how Sippel summarises the team’s approach taken for developing a model predicting credit default probabilities, based on option premiums traded at Eurex. The starting point was a complex scientific model that colleagues at Eurex Product Development had discovered (and had already patented) for application in options markets. “It then became clear to us – as well as to our colleagues at Eurex – that we are not only right at the source of the necessary data, but that we also have the right tools and skills in order to compute the model based on empirical evidence, to validate it, and to optimise it for application in practice.” At the moment, the model is being validated and fleshed out further where necessary. “At the end of this process, we will have a new, highly viable tool which will have been developed across divisions, and which will have a plethora of applications – from being a pure data product to serving as an underlying instrument for new futures and options contracts.”

A further approach concerns predicting transaction costs – another development where the Lab team closely cooperates with customers of Deutsche Börse Group. “We are interested in gaining insights into customers’ internal decision-making processes – which we would not obtain in the course of our everyday business. We are delighted that within the framework of the Lab, we can achieve at least selective intelligence in this respect. This provides us with exactly those parameters which subsequently help us optimise the effectiveness of our offering for our customers.” An offering which – provided it can be realised – will enhance markets. “This is quite an essential aspect when we’re talking about the value of data, Sippel says, “Data improves markets! All you need to do is to compile and process it in a smart way. That sounds much easier than it is – but we are working on it.”

Personally, Sippel is particularly interested in the long-term prospects: “Experience tells us that resources for more long-term – and consequently riskier – research and development projects are more difficult to obtain, especially if normal, everyday business is already challenging. I’m sure this is something employees in the modern business world are facing every day.” In fact, this is the precise notion based on which the Content Lab was founded. “Deutsche Börse has been a pioneer in the digitisation of markets, and we are determined to maintain our ground-breaking role in developing and deploying new technologies in the financial markets,” Sippel points out.

What are the scenarios for new products over the long term? “How about an automated, self-learning asset allocation function for pension funds and insurance companies, to support and supplement portfolio specialists?” Sippel asks. For him, this is an artificial intelligence (AI) issue. “Such a tool would not only know all products and trading venues – it would also be able to determine the impact of any potential orders in advance, just prior to execution, enabling the specialist to adapt his strategy on a short-term basis.” In conjunction with the tool, he would be superhuman: “He would perform better than a human being, in precisely this aspect, given the vast amount of underlying data and ultra-fast strategy adjustments.” Of course, Sippel is well aware of the reservations against the so-called robo advisors. “But combining big data and AI is a fascinating concept – right now for our Content Lab, and also for our customers, over a medium- to long-term horizon.”