HSBC has developed a method for algorithmic bond trading which mixes quantum and classical computing resources to solve “real-world” problems.

The bank says that this is the “world’s first-known” empirical evidence of the potential value of current quantum computers for solving real-world problems in algorithmic bond trading.

Working in partnership with technology firm IBM, HSBC said that the discovery had resulted in a 34 per cent improvement in predicting how likely a trade would be filled at a quoted price compared to common classical techniques used in the industry.

Quantum computing is a branch of computation that uses the laws of quantum mechanics to represent and process information in a space which is exponentially more expansive and dynamic than what classical systems can access.

This allows quantum computers to be able to solve certain problems that are out of reach for even the most powerful classical supercomputers operating independently.

Algorithmic trading in the corporate bond market uses computer models to quickly and automatically price customer inquiries in a competitive bidding process.

Algorithmic strategies incorporate real-time market conditions and risk estimates to automate this process, which HSBC said allows traders to focus their attention on larger and more difficult trades.

The bank added that the highly complex nature of these factors is where the trial results showed an improvement using quantum computing techniques when compared to classical computers working alone using standard approaches.

The trial of the technology explored how current quantum computers could optimise requests for quote in over-the-counter markets, where financial assets such as bonds are traded between two parties without a centralised exchange or broker.

In this process, algorithmic strategies and statistical models estimate how likely a trade is to be filled at a quoted price.

HSBC said that the research teams validated real and production-scale trading data on multiple IBM quantum computers to predict the probability of winning customer inquiries in the European corporate bond market.

The company added that results show the value quantum computers could offer when integrated into the dynamic issues facing the financial services industry and how they could potentially offer superior solutions over standard methods which use classical computers alone.

“This is a ground-breaking world-first in bond trading,” said Philip Intallura, HSBC group head of quantum technologies. “It means we now have a tangible example of how today’s quantum computers could solve a real-world business problem at scale and offer a competitive edge, which will only continue to grow as quantum computers advance.

“We have been relentlessly focused on the near-term application of quantum technology, and given the trial delivered positive results on current quantum computing hardware, 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.”

In February, HSBC was named as one of the top three quantum innovators in a new index along with JP Morgan and Goldman Sachs.

In collaboration with HorizonX Consulting, The Quantum Insider launched what it describes as the world's first comprehensive benchmarking tool designed to track enterprise adoption of quantum technology across industries.

According to the Quantum Innovation Index, the three banks – along with seven other financial services institutions – are demonstrating a "clear commitment" to quantum research and implementation.

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