From cloud to AI to open-source tools, when it comes to innovation, banks and asset managers tend to take a more cautious approach—the various financial services regulators tend to frown upon the motto “move fast and break things” when it comes to managing ma and pa’s retirement funds. So these technologies tend to first prove themselves in the realm of consumer goods before trickling down into the capital markets.

What many don’t realize is that many of the revolutionary consumer goods and services that everyday people rely upon were first developed to help space agencies navigate the cosmos. Everything from technology used for eye surgery to water purification to camera phones to memory foam to artificial limbs either uses technology directly created for, or advanced by, space exploration.

Despite significant regulatory roadblocks and bureaucratic frustrations that hold back financial technology, the European Space Agency hopes that banks and asset managers can use machine-learning algorithms that were initially designed to monitor instruments aboard deep-space satellites to manage risk better and find previously unforeseen trading signals more efficiently.

The ESA is an intergovernmental organization run by 22 member states that include the United Kingdom, Spain, Germany, and France, where it is headquartered. In addition to its main objective of space flight and science, the ESA also has a program called Space Solutions, which aims to promote innovation in other sectors through space technology. By 2015, the unit had already broken through to markets like transportation but saw potential in applying space technology to financial technology.

It wasn’t an easy sell at first, says Gonzalo Martin de Mercado, business development officer at the organization, because the word “space” typically evokes the idea of astronauts and rockets.

“We had to present the narrative that space these days is all about data as well as rockets, satellites, and going to the Moon and Mars,” he says. “A lot of space companies these days are data companies. They are getting data from Earth observation satellites and processing it.”

During a trip to London, the ESA ended up in talks with the JP Morgan In-Residency program, which presented them with companies it thought fit the requirements of a partner for Space Solutions. One of those companies was Mosaic Smart Data, a real-time data analytics firm that focuses on fixed income, currencies, and commodities trading.

Space Solutions wasn’t convinced at first. Mosaic’s pitch was to use some of the ESA’s intellectual property to develop new algorithms for data in financial services. It seemed like a long shot for the team, but in 2018, Space Solutions took the chance.

The odd couple has turned into a multi-year partnership that is slowly yielding results.

Tech to protect

The vendor started with two sets of machine-learning algorithms that were used to analyze trading behavior. The ESA uses these algorithms to stop problems on board spacecraft before they occur, and Mosaic hoped to use this same methodology to prevent compliance breaches before they occur. Mosaic has since signed on to the ESA’s Aspire program, which targets small- to mid-sized enterprises looking to build innovative tools for various other industries, including finance.

Mosaic aimed to solve for the so-called fat-finger error, where the wrong key is mistakenly pressed on a computer to input data. While some of these errors can be harmless, some can have massive repercussions. In August 2020, Citibank, acting as the loan agent for cosmetic company Revlon, sent almost $900 million to the company’s lenders, effectively paying off a loan that was not due until 2023. The bank had meant only to pay a 7.8% interest payment and cited human error as the reason the large sum was wired. Some lenders did return the money, but 10 asset managers refused to return the approximate $501 million they were sent. A US judge ruled in February 2021 that Citi couldn’t recoup the money because it matched “to the penny” the amount the lenders were owed. Citi has since appealed the ruling.

To help develop a tool to prevent these mistakes, Space Solutions provided Mosaic with an algorithm called “Dr Must”, which stands for Mission Utility & Support Tools. The “doctor” portion of the name was chosen because it assesses as a doctor would, says Felipe Villalobos, a data analytics engineer at the ESA. In the space technology utilization case, it supports flight control engineers in investigating anomalies through data mining by performing two tasks. The first is pattern matching through a dynamic time warping model to find times in the past when the same anomaly occurred. The second task is correlation analysis and involves systematically finding parameters involved in a certain anomaly.

The ESG factor

Mosaic is also looking to develop models that can identify anomalies in market data and client data. The models will ingest market data and try to use that information to find anomalies in client data to be used by those with limited amounts of market data, especially in developing countries, says Matthew Hodgson, chief executive officer and founder of Mosaic.

“If we think about it, not everyone has a deluge of market data. Because we are doing it this way, we’re going to be allowing emerging clients to leverage the same technology,” Hodgson says. “This is all a part of sustainable development. Technology is democratizing and we believe that it shouldn’t only be for the biggest but should be used for the broadest use cases we can find.”

Hodgson says the development of models using the ESA’s IP has been done in close collaboration with clients to understand their needs in the current market. 

Sustainability is at the core of the ESA’s Aspire program. The program typically runs a nine-month engagement with the companies using their intellectual property. Villalobos says one of the key things that the ESA looks for in companies joining the program is that they are targeting and analyzing their impact with one of the 17 UN Sustainable Development Goals. “It’s one thing to talk about it and say I’m targeting them, but it’s another to say we can measure our impact and have a plan to reduce and improve that measure,” he says.

Mosaic has looked to target Goal 8, decent work, and economic growth during their participation in Aspire. The vendor is now looking to reduce market manipulation through the use of ESA IP with research and development around this ongoing.