AI adoption in capital markets is gaining momentum, with firms incorporating AI into trading and securities management. While rule-based systems and neural networks have been prevalent in these domains, the emergence of natural language-based transformer systems is making headlines. Among them, OpenAI‘s ChatGPT stands out as a game-changer.It has the potential to transform buy-side firms such as hedge funds and asset managers.
Released in March 2023, GPT-4 represents a significant leap in human-computer conversation capabilities. ChatGPT generates text and code, processes data, and tackles mathematical operations. It is one of the fastest-growing consumer applications, with over 100 million users and expanding integration into everyday tools.
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Buy-side firms have several avenues to leverage ChatGPT and generative AI, such as adopting a ChatGPT-based Software-as-a-Service (SaaS) offering. Recent GPT-based SaaS launches include Bloomberg’s 50-billion parameter Large Language Model (LLM) called BloombergGPT, and Broadridge Financial’s BondGPT, which incorporates corporate bond information and real-time liquidity data to simplify bond selection and streamline associated workflows. The trend of using private instances of ChatGPT to build SaaS offerings will lead to more options for buy-side firms.
Access to quality data and training resources is critical for successfully implementing ChatGPT and other LLMs. These systems rely on comprehensive datasets to compensate for data ambiguity or to fill in data gaps. Companies like Bloomberg and Broadridge have access to such data, giving them a significant advantage.
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For buy-side firms that have amassed significant data of their own, they can develop LLM extensions with their own data. While the tooling to enable this is not yet widely available, organizations can prepare by assessing the state of their data warehouse environment. Is the data clean and in a central place? Is there enough quality data to support training an internal model. It is also crucial for firms to invest in training their users on writing effective prompts to maximize the system’s potential.
ChatGPT and other LLMs have the potential to revolutionize human-computer interaction in capital markets. Buy-side firms can reap benefits by integrating this technology into their operations, either through SaaS offerings or by developing their own LLM extensions. As the AI landscape continues to evolve, considerations such as data quality, effective prompts, and user training will be vital in unlocking the transformative power of ChatGPT in the financial domain.
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