HSBC Claims Quantum Computing First in Algo Bond Trading

While some question any potential role of quantum computing in trading (at least for five or more years, according to panellists at this year’s Full FX Scandinavian conference), HSBC and IBM have collaborated to test a model that they say provided a 34% improvement in predicting the likelihood of a trade being filled at a certain price.

Observing that this is “the world’s first-known empirical evidence of the potential value of current quantum computers for solving real-world problems in algorithmic bond trading”, HSBC and IBM explored how the technology could optimise RFQs in OTC markets, especially where trading is away from central venues like as an exchange or broker, such as corporate bonds.

Algorithmic trading in the corporate bond market uses models to price customer inquiries in a competitive bidding process. Strategies incorporate real-time market conditions and risk estimates to automate this process, which allows traders to focus their attention on larger and more difficult trades. “However, the highly complex nature of these factors is where the trial results showed an improvement using quantum computing techniques when compared to classical computers working alone using standard approaches,” the firms say.

In the test, algorithmic strategies and statistical models estimated how likely a trade was to be filled at a quoted price. The teams validated real and production-scale trading data on multiple IBM quantum computers to predict the probability of winning customer inquiries in the European corporate bond market, resulting in a 34% improvement over common techniques currently used in the industry.

IBM Heron was able to augment classical computing workflows to better unravel hidden pricing signals in noisy market data than standard, classical-only approaches in use by HSBC, resulting in strong improvements in the bond trading process, the firms observe.

“This is a ground-breaking world-first in bond trading,” claims Philip Intallura, HSBC Group head of quantum technologies. “It means we now have a tangible example of how today’s quantum computers could solve a real-world business problem at scale and offer a competitive edge, which will only continue to grow as quantum computers advance.

“We have been relentlessly focused on the near-term application of quantum technology, and given the trial delivered positive results on current quantum computing hardware,” he continues. “We have great confidence we are on the cusp of a new frontier of computing in financial services, rather than something that is far away in the future.”

Jay Gambetta, vice president IBM Quantum, adds, “This exciting exploration shows what becomes possible when deep domain expertise is integrated with cutting-edge algorithm research, and the strengths of classical approaches are combined with the rich computational space offered by quantum computers. Such work is essential to unlock new algorithms and applications that are poised to transform industries as quantum computers scale, and the future of computing takes shape.”