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HEC: Inno/digi in finance > High-frequency trading & big data > Flashcards

High-frequency trading & big data Flashcards

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1
Q

What is high frequency trading?

A

With new and increasingly powerful algorithms, financial transactions are now done in only a few milliseconds.

High Frequency Trading in the field of automatic trading is the use of algorithms that decide stock market orders in an automated way and at a very high speed.

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2
Q

How much of global trading is done through algorithm-based trading?

A
  • According to estimates, algorithm-based trading is now used for almost 90% of global trading.
  • According to the French Financial Markets Authority (AMF), HFT is used for around 30% of transactions in Europe and 50-60% in the US.
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3
Q

What is structural arbitrage?

A

Taking advantage of price differences between different stock exchanges. If the price of a share is cheaper in Paris than in London, the robot can buy at the Paris price and sell at the London price.

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4
Q

What is statistical arbitration?

A

More complex, it consists in using two values of which a deep mathematical analysis revealed a positive correlation. If one of the values is affected by an event, it means that logically, the second value should fluctuate in the same way as the first one. Thus, it allows to advance the other actors by operating quickly on the course.

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5
Q

Speed is important in HFT. What are some factors that have caused an increase in speed of execution of orders?

A
  • The market complexity and the development in the number of financial instruments (derivatives)
  • The increase in the amount of information and the speed with which it should be processed.
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6
Q

What is the difference between RPA and AI?

A

Unlike AI, RPA does not seek to replicate human intelligence. Above all, it frees employees up to allow them more in-depth analysis and to allocate more time to strategic activities with strong added value. AI: head work. RPA: hand work. (Can have AI-powered RPA)

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7
Q

What are some different areas/processes of the finance function that RPA can be applied to?

A
  • Transactional: Financial accounting, receivables, payables, provisions, cash, general ledger, VAT, other taxes, PPE…
  • Reconciliation
  • Closing accounts
  • Consolidation, IFRS conversion, reporting
  • Project valuation
  • Compliance and control
  • Company evaluation/Performance management
  • M&A
  • Procure to pay, order to cash
  • Financial modeling/decision making tools
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8
Q

How does RPA (Robotic process automation) work?

A

RPA robots are skilled to reproduce many (if not most) human user actions and activities.

RPA gets and interpret applications for processing a transaction, manipulating data, generating responses and communicating with other digital systems.

With RPA, businesses can automate routine rule-based processes, enabling business users to devote more time to serving customers or other higher-value work.

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9
Q

What are some general areas/use cases of RPA?

A
  • Log into app
  • Connect to IT system
  • Copy & paste data
  • Move files & folders
  • Extract & process contents for document (PDF, Word, Excel, Email, Forms)
  • Read and write to databases
  • Open emails and attachments
  • Get data from internet
  • Compute results and communicate figures
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10
Q

How much of an accountant’s time is represented by suppliers call management?

A

41%

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11
Q

How much of an accountant’s time is represented by payment delays management?

A

31%

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12
Q

What is the difference in average invoice processing time and cost between novices and innovators?

A

Innovators: 5 days, $2.5

Novices: Up to 45 days, $15

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13
Q

Are companies already facing disruptions because of digital transformation?

A

According to Gartner, 90% of companies have already faced forms of disruption of their business models induced by digital transformation

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14
Q

Do many companies experience fraud?

A

Half of companies worldwide experienced a fraud in the past 24 months, resulting is losses of €38 billion

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15
Q

What are some facts about what digital transformation leads to?

A
  • Processing time divided by 5-10
  • 80% less processing costs
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16
Q

Are companies becoming digital and is it important?

A
  • 62% of CEOs said they already started making their business digital
  • ⅔ of business leaders will no longer be competitive if they cannot be significantly more digital
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17
Q

Why should you automate trade payables?

A
  • Manual costs. €9-20 per document. €3.25 archiving costs.
  • Lack of visibility. 3.5% erroneous or double payments.
  • Late payments. 31% of invoices.
  • Complex. 22-35 processing days.
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18
Q

Why do you need the power of RPA software in the finance and accounting department?

A

You need to ensure strategic budget planning with comprehensive fiscal analysis, while also balancing the day-to-day tasks like managing payroll and billing.

Putting software robots to work allows you to more efficiently manage high-volume processes across complex infrastructures.

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19
Q

What will a great RPA solution do?

A

Not only streamline the most boring, repetitive, and manual processes, but also integrate with the mission-critical business applications, centralizing the automation efforts in one spot.

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20
Q

How can RPA generally be used in accounting and finance?

A
  • Reconcile general ledger software
  • Validate line items on bank statement
  • Reconcile expenses, wages, or bills
  • Check for duplicate payments
  • Check payments on account
  • Check payments from customers against invoices
  • Reconcile receipts - debit or credit cards
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21
Q

How can RPA be used in invoice processing in accounting?

A
  • Read invoices from a CSV/PDF file
  • Login the accounting software
  • Add invoices in the accounting software
  • Create new profiles for companies and individuals in the accounting software
  • Get information about a company from local fiscal institution website
  • Input data in the accounting software
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22
Q

How can RPA be used in financial review preparation?

A
  • Connect and automate data movement from various core banking applications for easy consolidation for executive reporting
  • Cleanse data for easier formatting between applications (like Adobe or Excel) to create readable reports.
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23
Q

How can RPA be used in account reconciliation?

A
  • Download sub-account balances into pre-approved formats
  • Upload transaction data from various sub-systems and different formats
  • Perform data validation and exception research and handling
  • Create and balance journal entries, noting and solving discrepancies
24
Q

How can RPA be used for standard journal entries?

A
  • Create standard monthly journal entries
  • Enter and manage data into the ERP
  • Perform validation analytics to ensure accurate entries
25
Q

How can RPA be used in bank reconciliation?

A
  • Automate bank statement download workflows for individual accounts
  • Create text files and store them in appropriate folders
  • Reconcile balance and transactions to core finance sub-systems
  • Create balancing journal entries to handle discrepancies
26
Q

How can RPA be used in intracompany reconciliation?

A
  • Check and reconcile balances on intercompany accounts
  • Conduct based research and reporting for any exceptions between accounts
  • Create exception files and email reports for review and approvals
27
Q

How can RPA be used in accounts payable processing?

A
  • Setup and maintain processes for paying different vendors
  • Create workflows for accounts payable approvals
  • Enter data to complete payment preparation and processing
  • Process payments and bulk payment files for sub-system journal entries
28
Q

How can RPA be used in financial planning and analysis?

A
  • Connect pre-population of forecasts using historical and market data
  • Load balances into planning systems to record
  • Create variance reports that show pre-population and actuals
29
Q

How can RPA be used in operational finance and accounting?

A
  • Conduct pricing review approval process to handle multiple variations for customer accounts
  • Calculate and process rebates
  • Download detailed monthly sales data and commission calculations
  • Create files and emails to gain approvals
  • Post necessary information to general ledgers and sub-systems
30
Q

How can RPA be used in regulatory compliance and reporting?

A
  • Pre-populate annual complex reporting and routing
  • Capture and manipulate data to support auto-generated regulatory reports
  • Create an audit trail or reports and get confirmation of receipt
31
Q

How can RPA be used in accounts receivable processing?

A
  • Credit approvals and maintain a customer master file
  • Route and process customer orders
  • Process accounts receivable cash receipts
  • Send late payment notifications
32
Q

How can companies supercharge their automation efforts?

A

By linking RPA with cognitive technologies like ML, speech recognition, and natural language processing, automating higher-order tasks that in the past required the perceptual and judgment capabilities of humans.

33
Q

What are some characteristics and benefits of robots compared to humans?

A
  • The robots are designed to work at the interface level and can interface applications together easily
  • Robots focus on highly repetitive tasks, leaving the employees more time for analysis, or customer facing activities
  • Robots do eliminate human errors, and allow for the data to be available without re-entry
  • Robots can work 365/7/24
  • Robots are significantly faster than even the most experienced operators
  • Robots are able to absorb a higher volume of transactions
  • Robots typically cost less than a human operator
34
Q

Why is RPA an excellent alternative approach in process transformation (instead of outsourcing or IT transformation)?

A
  • Help increase the customer satisfaction
  • Help to improve data quality
  • Help reduce fraud and overall facilitate compliance requirements
  • Benefit the business overall, allowing you to easily absorb peak activities as a fractions of the cost
  • Allow your staff to work higher value-added activities and reduce attrition
  • Bots are typically low-cost and easy to implement, requiring no custom software or deep systems integration
  • The benefits of RPA can be many: through automating a manual process, lead times and costs will decrease, which will enable scaling up especially in markets with skills shortages
  • Automating a boring process contributes to better employee satisfaction and allow staff to focus on more meaningful tasks
  • From risk perspective, RPA will limit human exposure to confidential data and reduce human errors
35
Q

What are the 12 benefits of RPA?

A
  1. Non-invasive
  2. Increased productivity
  3. Cross industry
  4. Accurate
  5. Increased availability
  6. Fast ROI
  7. Consistent
  8. Scalable
  9. Potential savings
  10. Auditable
  11. Digital shoring
  12. Increased speed
36
Q

In what way is RPA non-invasive?

A
  • RPA is positioned at the user interface level
  • It can easily connect to various systems, webpages, and files
  • RPA can also connect to ML or AI
37
Q

In what way can RPA lead to increased productivity?

A

The robot will perform a repetitive task and free the staff’s time and attention for higher value added activities

38
Q

Why does RPA have cross industry benefits?

A
  • Repetitive and low value added activities can be found in any company across all industries
  • RPA allows any company to build the robots to respond to their very specific process requirements
39
Q

Why is RPA accurate?

A
  • The robot will obtain the right results the first time
  • The robot will not make manual errors (copy/paste, etc)
40
Q

In what way does RPA lead to increased availability?

A

Robots are available 24/7/365

41
Q

What does fast ROI imply for RPA?

A

RPA projects have a typical return on investment in less than 1 year.

42
Q

In what way is RPA consistent?

A
  • The robot will standardize the outputs
  • The robots will not make mistakes in how they handle the process
43
Q

In what way is RPA scalable?

A

Robots can absorb a peak in activity - each robot can perform every automated process

44
Q

How can RPA lead to potential savings?

A

Robots typically cost only 35% of the cost of an employee

45
Q

How is RPA auditable?

A

All the activities of the robot are logged, traceable and available for review

46
Q

How does RPA enable digital shoring?

A

Robots will allow you to be independent geographically, enabling better management of sensitive data

47
Q

How does RPA increase speed?

A

Robots are much faster than employees in interacting with the various systems used by a process

48
Q

What are the finance processes where RPA can be most effectively utilised?

A
  • Operational accounting (billing and collections, accounts receivable)
  • General accounting (allocations and adjustments, journal entry processing, reconciliations, intercompany transactions, and close)
  • Financial and external reporting
  • Planning, budgeting and forecasting
  • Treasury processes
49
Q

How can RPA be used in banking and insurance?

A

Can do a lot, already are given the pace at which these industries are growing.

  • Banking: RPA can be applied to most processes that do not need critical decision making.
  • Processes like validating data, transferring data from one application to another, managing customer accounts, sending out reminder emails and reports to stakeholders and customers, managing customer loans data, filing claims, managing teller receipts.
  • Insurance, similarly, involves repetitive processes like managing customer data bases, filing, reviewing and remitting claims, and even CRM.
50
Q

What are the five steps of RPA implementation?

A
  1. Initial value proposition
  2. Risk identification
  3. The pilot
  4. Execution
  5. Maintenance
51
Q

What happens in RPA implementation stage “initial value proposition”?

A
  • The processes selected to be automated should be stable, repetitive in nature, and must be structured in a comprehensive manner to be considered for automation.
  • While processes cannot be automated completely, selecting those that are ideal and fit the guidelines ensure a greater chance of success.
52
Q

What happens in RPA implementation stage “risk identification”?

A
  • Once the process and tools have been identified, the risks associated with the development and implementation of this process need to be identified.
  • A thorough plan that includes exact costs involved in purchasing the tool licenses, the software and hardware required for the setup, the complexity of the setup and the ease of implementation, need to be assessed, and any discrepancies that pop up must be addressed immediately so that it doesn’t affect the process later down the line.
53
Q

What happens in RPA implementation stage “the pilot”?

A
  • Once the risks are assessed and the project is given the go ahead, a test run needs to be done to assess how smoothly the bots run and how consistent and accurate the RPA is.
  • Several rounds of test runs need to be conducted to determine the readiness for deployment. This enables you to see first-hand the effectiveness of your automation plan in real time.
54
Q

What happens in RPA implementation stage “execution”?

A

Final stage of implementation, where the bot is deployed for production. Business processes are dynamic in nature and changes will be continuously made to better suit business needs.

55
Q

What happens in RPA implementation stage “maintenance”?

A

Periodic maintenance of the processes will ensure a smooth run of the automation and will reap greater rewards for the business.

HEC: Inno/digi in finance (3 decks)

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