The FinTech startup that’s changing the way we view financial markets

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Dr Kimmo Soramӓki is a man on a mission. As Editor-in-chief of the Journal of Financial Risk and Network Theory and the Founder of Financial Network Analytics (FNA), he has taken on the ambitious challenge of revolutionising the way financial professionals perceive markets. His newest software, FNA Correlations, is one of his answers. Utilising network science, FNA Correlations provides an intuitive visualisation of the complex interconnections between elements of financial networks, essentially creating a map that can communicate and help financial experts to understand market dynamics quickly and effectively.

Dr Soramӓki began his foray into network science and the eventual creation of FNA over ten years ago, while working at the New York Fed Research Department. It was during his study of banking networks that he realised there had to be a better way of formalising and understanding the connections that underpinned financial systems.

“Supervisors used to look at individual banks in isolation. Not how they are connected. The understanding of interlinkages is the basis of business and regulation of a lot of industries, but in finance this just hasn’t happened yet,” Dr Kimmo told Follow Innovation.

While pursuing a PhD in the field of network theory, Dr Soramӓki quickly began to see applications for software that could better perceive these connections; much like Google’s pioneering PageRank algorithm at the time. After consulting for the Bank of England and a number of other central banks post the 2007 financial crisis, he decided to strike out with his own company concentrating on developing software to better understand the interconnections in financial systems.

Since FNA’s conception nearly three years ago, Dr Soramӓki and his team have worked closely with banking sector regulators, asset owners, and hedge fund managers. Building upon network theory and data visualisation, the company has developed a truly intuitive system that can rapidly communicate large sets of data while making it quickly accessible to show effects of various shocks to the system.

The FNA Correlation application takes complex data tapped from either public data sources or clients own data and crunches it to visualise in dashboards that amplify intelligence. The map created is displayed from a network perspective, centered around the client’s portfolios providing an overall view of the universe it exists in.

Clients can then access the dashboard to make decisions based on the information provided, whether they are a regulator looking at systemic risk, or an asset manager who need to take action on a portfolio. The client can also perform adaptive stress tests and perceive the overall effects.

To understand things more clearly, a simplified graphic can be seen below. Here we see an aggressive portfolio of a hedge fund manager. Each note displayed is an asset, while the links are the meaningful dependencies between assets. The more correlated they are, the shorter the link. The node size represents the magnitude of the return; the green being positive movements, while red is negative.

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Dr Soramӓki tells us that financial professionals are often initially wary of the visualisation, but he explains that understanding the software is much like learning to read a map.

“When our clients start out they don’t know what they are looking at, but like any map, once you learn the signs used you can get a lot of information very quickly, giving you a more effective and faster way of discovering anomalies, opportunities and correlations without having to look through hundreds of spreadsheets of data.”

As leaders in the field of network science, Dr Soramӓki’s hope is that anyone who is looking to build an application that uses network science would use his service as a basis. FNA’s long term goal is to then continue working on new tools while helping their clients build on top of their platform as a central piece of a new generations of analytics software.

“We really want to make this a language for people to share and talk about as a mass collaboration tool that provides information in a more meaningful way,” says Dr Soramӓki.

FNA are currently writing a new book on financial networks for Incisive Media and also hold yearly conferences to discuss the applications of network theory. If you are heavily involved in the finance sector, we definitely suggest attending and taking a look at this pioneering system. We have no doubt Dr Soramӓki and his team will be shaking up the financial world in the years to come.