HSBC says it used quantum computing to improve bond trading — a “world-first”

HSBC on Thursday announced it has successfully used quantum computing in a trial to optimize bond trading, making it the first in the world to prove the value of the powerful emerging technology in the financial services industry.

Working with IBM, the bank used a combination of classical computing and the tech giant’s Heron quantum processor to deliver a 34% improvement in algorithmic bond price predictions, HSBC said in a statement shared Tuesday.

Philip Intallura, HSBC’s group head of quantum technologies, called the trial a “ground-breaking world-first.” He expanded on the technology in a company video included in the announcement, saying the improvement in trade predictions ultimately means “increased margins and greater liquidity.”

The trial was intended to test how quantum computers could optimize requests in over-the-counter markets, where financial assets are traded without a centralized exchange or broker serving as the intermediary. Using IBM’s latest generation of quantum computers, the companies were able to estimate how likely a trade was to be a filled at a quoted price with far more accuracy than standard methods of using classical computers alone, according to the announcement.

“This is something that we do thousands of times a day already and that’s estimating the likelihood of winning a trade,” Josh Freeland, global head of algo credit trading at HSBC, said in the same video.

Marco Pistoia, senior vice president of industry relations at IonQ, an American quantum computing hardware and software company, said the speed and accuracy of quantum computing allows traders to react to the fast-changing market more quickly.

“This is essential for financial institutions, for which time is of the essence,” he told CBS MoneyWatch.

Technology has long been intertwined in Wall Street trading. Automation systems used to assist traders were installed at the New York Stock Exchange in the 1950s. Two decades later came the first rumblings of algorithmic trading — using computers programs to automatically execute trades. About two thirds of all trades were conducted using computers by 2009, Deutsche Bank research shows.

In its trial results, HSBC found that the addition of quantum computing techniques showed an improvement over classical computing alone in responding to the “highly complex nature” of factors involved in algorithmic trades. 

“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,” HSBC said in its announcement.

According to HSBC, the trial represents the first empirical evidence that quantum computers can be used to solve practical problems in the field of algorithmic bond trading.

“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,” Intallura said HSBC’s statement.

What is quantum computing?

Quantum computing, a new field of computer science and engineering, relies on quantum mechanics to solve problems and process information across finance, logistics, cybersecurity and more.

Amazon, Google, IBM, Intel and Microsoft and have all invested in the technology.

According to IBM, while the technology is still developing, it will soon surpass classical supercomputers in terms of speed and its ability to tackle complex problems.

The technology company said what could take classical computers thousands of years, could take quantum computing mere minutes or hours to solve.