On the topic of future-proofing your trading desk, @Simon Steward mentions, “I would say that data is key. Traders have access to vast amounts of data that both validate and challenge outcomes. By acknowledging and utilising data, traders can always continue to improve and evolve.” Harnessing data properly from multiple unique sources is the critical step before deriving insights from it. Overbond’s data aggregation protocol maps data from over 10 different sources to a Reference Master, and then applies machine learning algorithms to obtain insights such as Issuer Propensity.
Source: Markets Media
‘Future-Proofing’ the Trading Desk
With Simon Steward, Head of European Equity Trading, Capital Group
What skills/expertise/characteristics are most important for institutional buy-side traders today?
The institutional trading desk of today needs diversity of composition and skills. I would separate these skills into two sets of technical skills; firstly, a broad interest in markets and companies, and secondly, an understanding of market microstructure, tech savviness and regulatory awareness. Beyond that, there is another set of skills that is more personal in nature, for example strong communication, ability to establish and maintain relationships, adaptability and remaining calm under pressure.
It is rare that a single trader encompasses all these skills, but your trading desk is in a strong position if your desk has them overall. I would also single out technology as an extremely important area for the trading group to be involved with. Using technology to identify inefficiencies ensures that trading desks can evolve and incorporate changing market requirements to succeed in the future.
How has the desired skill set for traders evolved over the course of your career?
Throughout my career the demands on the trader have changed drastically. The biggest changes in the trading landscape over the past 20 years have been driven by greater electronification of trading, regulatory changes, increasing fragmentation and the ability to interpret and implement data.
Traders have had to become experts in algorithms. Not only do they need to understand the algorithms, but they also need to know their usage and how they interact with the market. Now traders must navigate a more complex regulatory trading environment that can impact individual stocks or markets. Fragmentation brings challenges around the nuances of venues; a strong understanding here can be the difference between a successful trading outcome or a poor one. Traders need to understand trading data points and outcomes in today’s data focused world and take these data points for future trading decisions. This is critical for the best execution process.
What is the right blend of human and machine on a trading desk? Is there a risk of over-automating?
Establishing a balance between human and machine on a trading desk is paramount. Especially when technology plays a significant role on most trading desks. The exact balance will differ between organisations due to different investment styles and investment tools.
Automation of subsets of flow certainly appears to be the optimal strategy but I am a strong believer that it cannot replace the approach of a human with strong communication skills, who can build relationships, adapt to changing environments and remain calm under pressure. The human connection and expertise that helps explain and negotiate a difficult trade or complex backdrop to ensure a satisfactory outcome is invaluable and most noticeably valuable in times of stress.
Have the extraordinary circumstances/market of the past few months offered any lessons about a trading desk being future-proofed, i.e. prepared for any eventuality?
The last few months have clearly been unprecedented. I would divide the extraordinary circumstances over the past few months into two categories. Firstly, I would highlight the work environment itself. Ensuring you already have in place a concise, well-thought out, and detailed business continuity plan has been imperative, and in addition to this, ensuring you have well-supported infrastructure in place to make it a reality. For our trading desk to move to a fully work-from-home setup quickly, effectively and in a sustainable manner was no easy task. Without strong leadership, excellent technical support and operational resilience this would have been incredibly difficult.
Secondly, I would point to the trading approach to incredibly volatile markets. Having adaptability and experience was key here. The trading group were subject to significantly higher volumes and market challenges in the form of wider spreads, smaller touch sizes and less market depth. But, due to the experienced nature of the team at Capital Group and the combined trading experience of the desk, most of the traders had experienced market conditions like this before.
When this experience was supported by strong counterparties with either a similar experience base or a robust algorithmic platform, we were in a very strong position to navigate the challenging period. Strong communication abilities have also been the other key factor over the recent period, both internal and externally. Traders using a variety of communication tools to pass and receive accurate trading instructions internally across the organisation and externally to our counterparts was critical and a key contributing factor to our success.
How can a firm ‘future-proof’ its trading desk?
I would say there are several things you can do to ‘future proof’ the trading desk. Firstly, diversity is imperative. This can take many forms be it gender, race, generational or economic, however, establishing a diverse team will enable you to ensure you can evolve with a changing trading environment.
Secondly, everyone has a role to play in future proofing your trading desk. Every voice is important and ensuring open dialogue on topics like technology enhancements, idea generation or culture will encourage future success. Thirdly, my advice to firms would be to not fear technology or view it as a replacement for humans. Technology should be a complementary tool to aid a successful trader and facilitate further improvements.
Finally, I would say that data is key. Traders have access to vast amounts of data that both validate and challenge outcomes. By acknowledging and utilising data, traders can always continue to improve and evolve.
How is a future-proofed trading desk a competitive advantage for a buy-side firm?
The trading desk’s role within the investment process has evolved so much over my career that I can only see that continuing in the future. As data sets continue to grow and markets continue to remain structurally complex, demands on traders to implement investment strategies will only become more varied and important. By having a diverse, experienced and adaptable trading team you are positioning your organisation to be prepared for all eventualities. This also enables your investment decision makers to focus on stock selection, safe in the knowledge that optimal execution strategies are in place and in capable hands. Using technology in a complementary manner alongside your trading desk enhances efficiencies. It also means you can identify functions that are distracting for the human trader and add value elsewhere.