Coalface Capital - the trading network launched by former UBS director Declan McEvoy – has partnered with University College Dublin to identify new risk premia from traders' execution patterns.
Coalface has partnered with University College Dublin’s Centre for Applied Data Analytics (CeADAR) to work on the project.
The trading network was established last year and pays traders a percentage of the revenue it receives from partner platforms based on monthly performances.
It is targeting 2,000 traders by the end of 2016, with a view to packaging the performances of the very best traders to sell the alpha-generating techniques within a fund wrapper structure on an investment platform.
Declan McEvoy, chief executive officer of Coalface Capital, said the business has started discussions with fund platforms for the distribution of a new product, but said the disclosure of potential partners at this stage could jeopardise negotiations.
Last month, Coalface Capital applied for its investment management licence from the Financial Conduct Authority via its parent organisation Talbot Capital. It is currently an authorised representative of Talbot.
McEvoy is confident that the business can move into phase two of business development and this is partly the reason for the tie-up with University College Dublin.
He said: “We are trying to apply neuron networks and machine learning. You run millions of models on the data to see if there are any patterns on the trades such as holding patterns, size versus capital, who [which trader] is going to flare out and who is going to remain consistent.
“You build an environment where the models are self-learning and in order to accelerate that process we have had some platforms offer some historical data.”
McEvoy said Coalface’s approach is going one step further than previous risk premia analyses conducted by sell-side institutions.
One issue for the business has been the recruitment of sophisticated traders, which has, so far, been slow. The platform currently has 20 traders live.
McEvoy said this is due to a wariness that exists when new Sign-Ups are told they are going to be ‘paid.’
He explains: “When you tell people they are going to be paid for free, there is always a suspicion around it.”