Nasdaq Embraces Generative AI: Cloud Adoption Fuels Innovation in Capital Markets
The use of generative AI is rapidly transforming the capital markets, and Nasdaq, a leading global provider of trading and technology solutions, is leading the charge. During the recent AWS Summit New York, Nasdaq’s Chief Technology and Chief Information Officer, Brad Peterson, highlighted the exchange group’s journey in embracing cloud computing and AI, outlining how these technologies are fuelling innovation and driving its vision of becoming "the trusted fabric of the financial system.”
Key Takeaways
- Nasdaq’s cloud journey: From initial data analysis tools in 2008 to full-fledged market migrations in 2022 and 2023, Nasdaq has progressively embraced cloud computing, including AWS services.
- AI-powered advancements: The exchange group now leverages generative AI across both customer-facing products and internal operations, resulting in significant improvements in areas like market surveillance, order execution, and risk management.
- Regulation as a driver: Dr. Matt Wood, VP for AI Products at Amazon Web Services, observed that regulated industries, like financial services, are leading the adoption of generative AI due to their established data strategies and robust data governance practices.
- The future of Gen AI: Both Peterson and Wood emphasize the transformative potential of generative AI across various sectors, with Nasdaq’s CTO calling it a “once-in-a-lifetime accelerator for business.”
A Journey Towards Cloud-Based Innovation
Nasdaq’s journey in the cloud began in 2008 with the launch of Market Replay, a data analysis tool built on AWS cloud computing services. This marked a pivotal moment in Nasdaq’s understanding of the potential of cloud technology, inspiring them to further explore its capabilities.
Between 2009 and 2021, Nasdaq gradually migrated various functions, such as data distribution, revenue management, regulatory reporting, and market operations to the cloud. This led to the pivotal question: "Could we move a market to the cloud?" The answer, as Nasdaq proved, was a resounding yes.
In partnership with AWS, Nasdaq migrated its MRX options exchange to the cloud in 2022, followed by the Nasdaq Bond Exchange and GEMX options exchange in 2023. This cloud-enabled market infrastructure has yielded a 10% performance improvement for market participants, highlighting the tangible benefits of this transformative shift.
The Dual Role of AI in Nasdaq’s Operations
Peterson emphasizes that Nasdaq leverages cloud and AI applications in two key ways:
1. Empowering Customers:
- AI-powered surveillance: Nasdaq has developed a generative AI-powered surveillance tool, which has reduced the time required to investigate potential market abuse by a remarkable 33%. This demonstrates the practical application of AI in bolstering market integrity and efficiency.
- Dynamic M-ELO: Nasdaq’s Dynamic Midpoint Extended Life Order (M-ELO), the first exchange AI-powered order type, has been instrumental in improving fill rates for equity trade orders, showcasing the potential for AI to enhance market efficiency and profitability.
- Entity Research Copilot: This AI-powered tool, developed by Nasdaq Verafin, empowers financial institutions to conduct in-depth research on entities, enabling quicker and more effective risk assessment.
2. Driving Internal Innovation:
Peterson acknowledges that every part of Nasdaq can benefit from generative AI, leading to an ongoing effort to develop and deploy tools that leverage this technology for internal efficiency and innovation. This proactive approach emphasizes Nasdaq’s commitment to harnessing the full potential of AI across its operations.
The Rise of Generative AI in Regulated Industries
Wood’s observations at the AWS Summit New York highlight a fascinating trend – regulated industries, including financial services, are proving to be early adopters of generative AI.
This counterintuitive trend stems from the fact that these industries are already acutely attuned to regulatory compliance. Navigating complex regulatory frameworks has fostered robust data strategies, an understanding of data quality, and strong data governance practices – all crucial prerequisites for effective generative AI implementation.
The Future: A Generative AI-Powered Capital Markets Landscape
Peterson concluded his remarks with an optimistic outlook on the future of generative AI in capital markets. He emphasizes its transformative potential as a "once-in-a-lifetime accelerator for business," urging companies to actively explore ways to leverage this technology for growth and improvement.
Nasdaq’s journey in the cloud and its exploration of generative AI provides a powerful example of how these technologies can reshape the landscape of financial services. This evolution, marked by a focus on regulatory compliance and technological innovation, points towards a future where generative AI plays a pivotal role in driving efficiency, enhancing customer experience, and shaping the future of capital markets.
