HSBC quantum computing trial improves bond price prediction by 34%

Harry Wilson

  HSBC Holdings Plc said it’s achieved a world-first breakthrough in deploying quantum computing in financial markets, as a race intensifies among some of Wall Street’s biggest firms to embed the cutting-edge technology in their daily operations. 

 

The London-headquartered bank said Thursday that it used International Business Machines Corp.’s most-advanced Heron quantum processor to attain a 34% improvement in predicting how likely a bond will trade at a given price. HSBC and the US technology giant applied quantum processing to an anonymized set of European bond trading data and found it could significantly enhance the efficiency of the market. 

That marks a meaningful leap as this is the first time any bank has used real trades at scale to demonstrate the edge offered by the emerging technology, which to date has largely been the preserve of academic research and specialist tech firms. It is the next frontier companies ranging from Alphabet Inc. to IBM and Microsoft Corp. are seeking to conquer by plowing billions of dollars, though the road to practical applications appears to be long. 

“Is this a ‘Sputnik moment’ for quantum? My instinct is yes,” said Philip Intallura, group head of quantum technologies at HSBC, referring to the pivotal event that sparked a space race between the US and Soviet Union during the Cold War. “It will create a flurry of activity” as others step up efforts to harness the technology, he added. 

HSBC’s trial involved examining how quantum computing could be used in over-the-counter trading markets where assets are bought and sold between two counterparties without any exchange or a broker in the middle. Intallura said that while their trial wasn’t a live trade, it was a real-world, production-scale demonstration. 

While tech firms have been at the forefront of developing quantum computing, financial services titans including JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc. and HSBC have also been investing in this area, lured by its potential benefits. Consulting firms McKinsey & Co. and KPMG say it could enhance banks’ abilities multifold in managing risks, optimizing portfolios, detecting fraud and predicting asset prices against various market scenarios. 

New research by McKinsey in June said revenue from quantum computing is likely to surge to as much as $72 billion in a decade, from about $4 billion last year, fueled by developments in industries such as chemicals, life sciences and finance. For banks, this technology brings significant gains, like in price prediction where even a percentage point makes a big difference, said Henning Soller, a Frankfurt-based McKinsey partner who leads the firm’s global research on quantum technologies.  

“If one bank is able to start using quantum computing to develop a program, then the others will be developing it the next day and people will not sleep until they have it,” said Miklos Dietz, senior partner and managing partner of McKinsey’s Vancouver office. “When it comes, it will be explosive.” 

Quantum computing is based on principles underpinning the mind-bending mechanics of quantum physics. Just like traditional computers, quantum computers also use tiny circuits to perform calculations, but they do that in parallel, rather than sequentially. That allows for complex problems to be solved at vastly faster speeds than those of classical processors.  

In a major milestone, Alphabet’s Google revealed late last year that its latest quantum processor, Willow, had solved a problem in five minutes that the world’s most powerful supercomputers wouldn’t have been able to solve even if they had been working on it since the universe began.  

‘Around the Clock’ 

Josh Freeland, global head of algo credit trading at HSBC, said that at one point in the trial, a team of 16 physicists, machine learning and artificial intelligence experts were “working around the clock,” trying to replicate what the quantum computer had been able to do. 

“If you could get something like this result everyday, that would be quite something,” said Freeland. “We spend all day looking for single-digit improvements, because when you repeat that thousands of times a day, it can really make a difference.” 

Other banks have also been reporting their own breakthroughs in quantum computing. Take JPMorgan. In March, it said it generated and certified so-called truly random numbers using a quantum computer in a world-first the bank hopes will have applications in encryption, security and trading. Researchers created the sequence with a machine built by Quantinuum, according to a paper published in the scientific journal Nature.  

Last year, KPMG said in a report that the technology still remained in an early prototype phase, but it may be nearing its inflection point. 

“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,” HSBC’s Intallura said.