The notion of the ‘ideal trader’ was a key topic across numerous conferences and industry reunions last year, where experts across the buy- and sell-side seemingly agree that the optimum mix is a high performing quant individual with a good grasp of data combined with a sociable attitude. However, coming out on top was the consistent belief that embracing the increasingly technological market is paramount. 

The technical side

“The trader of tomorrow should ideally be able to do coding, data analysis, have the relationship with the sell-side and their own teams internally, as well as be an automation enabler and be able to assess technology,” said Peter Welsby, head of European FICC trading at Manulife Investment Management, speaking at the Fixed Income Leaders Summit Europe in October 2023. 

Where the skillset of traders has continued to evolve, due in large part to an increasingly data-driven market, so too has the notion of subject matter expertise. No longer are traders solely required to arrive, learn and sit still. Constantly educating oneself on ever-evolving processes is paramount. 

“The more modern skills, such as being able to navigate an ever-changing market microstructure or get into the weeds analysing data, are now also essential,” explains Graham Sorrell, managing director and head of EMEA and APAC equity, currency and derivatives trading at State Street Global Advisors. 

“The ideal trader requires a combination of traditional and modern skills. That being said, you cannot underestimate how important it is for a trader to possess some key traits, such as being able to spot that anomaly in a large data set or juggle multiple items at once with an incredibly high degree of accuracy. 

“[…] To run a successful trading team, you require a diverse mix of skills. That blend provides the foundations of an efficient and successful trading team.” 

Heads of desks across the market agree that in this new age, the spectrum, educational backgrounds of candidates has also increasingly widened in order to plug ‘tech’ gaps. 

Historically, the majority of traders have typically been either accounting and finance or economics majors. Today, however, desks are seeking more and more candidates qualified in maths or computer science, as well as a swathe of individuals comfortable coding or learning to code on the job. 

Looking deeper into the empirical skills needed on the desk, Chris Pizzotti, senior managing director, global head of FX voice trading at State Street, says one of the most noticeable differences, compared to 10-15 years ago, is that programming skills are increasingly highly-sought-after – and is something set to be progressively important going forward. 

“As a trader, if you are making markets electronically you need to be able to make adjustments to pricing and spreads as the market adapts to changing conditions. While gaining experience of the macro environment takes time, a junior trader who can program, can make an immediate contribution to the trading desk,” he explains. 

Speaking to The TRADE earlier this year, Dan Burke, managing director and global head of credit e-trading at Standard Chartered, asserted that looking at his trading desk today, every team member is coding in Python, something that he explained “you would not have seen in credit trading even two years ago”. 

“We now have access to so many more data sets and variables that instantly price huge numbers of bonds, so candidates need to be very comfortable with maths and statistics,” he said.  

“Being able to confidently engage with this data and sculpt strategy by writing your own code is now essential, especially now as our competitors are not just traditional banking peers, but newer fintech firms as well. More and more, price formation is happening via smart algos, so our traders are morphing into a combination of programmers and risk managers.” 

Nevertheless, the need for traders to cultivate real-life relationships in order to be successful has not shifted from the fore – although technical skillsets develop, market onlookers agree that being likeable remains something that should be nurtured in tandem. 

“We are a long way from the stage where the only role of the human is to feed the dog that keeps the human from touching the machine,” adds Sorrell. “While so much of what is done today is done electronically, a lot of that is underpinned by broader relationships, which is one of the areas where having good people skills comes to the fore. Navigating through the period of extreme uncertainty and volatility we saw during the Covid pandemic demonstrated that.” 

Thus, despite the clear importance of technological capacity, a successful trader cannot survive on data alone. A plane will fly itself, but there will always be a need for the pilot to land it – especially in times of turbulence. Therefore, market participants agree that a combination of both new skills and the conventional are essential to playing the role of the ‘ideal trader’. 

In other words, what currently equates to a successful trader does not mean the death of the personality hire. Indeed, market volatility has over and over again exacerbated the need for the human side of trading.  

The personal side 

Typically, when hiring someone onto the desk, the easy and go-to answer for decades has boiled down to selecting someone at the top of their game. Central to this concept has been the extrovert and overall ‘people person’ – sociable, likeable and palatable. A winner. However, what being at the top of your game really means empirically has changed. 

While this ability to build external relationships remains an important facet, the market appears to be increasingly valuing what individuals are really like on the inside. 

Self-awareness, emotional health, stability and temperament are all personal aspects to the game also – and it’s when looking inwards that an important, and for a long time overlooked, aspect of being an ‘ideal trader’ comes to the fore. Someone with a strong mental will. 

“You read a lot on people saying some traders need to be unemotional but that’s not the case. Everyone’s got emotions and it’s fine to have emotions, but you need to be aware of them,” says David McAnany, co-head of foreign exchange, EMEA at BNY Mellon. 

“If you’re really, really restricted and you’re feeling negative, that’s fine, but then don’t go putting on a significant amount of risk or putting on a trade. Conversely, if you’re feeling super happy because you’ve made some money maybe it can be easy to be a little bit greedy or a bit bold which could need to be reined in just a little bit.” 

The ups and downs of a traders’ life is well documented, and so it speaks to reason that the ability to cope with these often incredible highs and lows is vital – with the most successful individuals being those with the ability to be mentally consistent. 

“It’s about your ability to control, you’re going to have emotions but to understand how to be able to control the emotion is the key. If you don’t feel something from trading, you’re not going to enjoy it,” explains Jordan Barnett, managing director and global head of custody FX trading and product at BNY Mellon. 

Elsewhere, skillsets aside, what the market continues to value almost number one is drive – a prevailing trait from the 80s floor trader to the new millennium algo specialist. The importance of hunger and the want to develop further has never waned. 

“[It’s] something which you can’t learn at university. It also knows no boundaries in terms of diversity,” adds McAnany. “It’s very psychological. Sometimes your worst enemy is yourself, something a lot of people don’t really think about. It’s important for traders to strive to be the best possible version of oneself in order to succeed. This includes things inside and outside of the office, like diet, exercise, right mental frame of mind.” 

A good headspace is also closely linked to the ability to multi-task. It is a key and often ignored component to being a good fit for trading, Barnett explains. 

“Studies show that multitasking doesn’t always work well. That idea is very ironic because in trading, you absolutely have to multitask, he says. “It is inherent to the job, it’s fundamental that you are able to do, listen and process multiple things at once.” 

Relatedly, a key talking point across the market in recent times has been on enlisting the most well-rounded traders in order to cope with increasing change and the high stakes game being played. 

Speaking at TradeTech FX 2023, Carolina Trujillo, head of e-FX distribution at SEB, made clear how times may be changing, but proactivity is here to stay. 

“Gone are the days where you would come into a position and have a steep learning curve for a few months and then sit comfortably for five years. The young talent definitely wants to be challenged and wants to grow continuously,” she said. 

“[…] We need great specialists, but we also want them to have many complementary skills. We want those people to learn and grow and be much more adaptable and be able to move across different paths.” 

The best of both worlds 

A one size fits all answer to the ‘perfect trader’ adage is an impossible feat. It is clear that where the two sides come together – both the technical and the personal – is the ability and psychological range to grow, coupled with the proactivity to keep up. Accurate self-reflection, followed by action, is the pervasive trait of the successful trader. 

In the end, it’s not about the technical skills with which an individual arrives, nor the personal factors which makes for good connections. Instead, the market overarchingly believes success comes down to one’s willingness to adapt, learn and develop on all levels. 

Speaking to this, Pizzotti says: “While technologies, as always, help humans improve efficiency and productivity, talent remains an important part of any trading desk.” 

In order to be considered ‘ideal’ as a trader it is no longer enough to have just half of the bases covered, especially amidst times of stress. The ideal trader must put in the effort to plug their own gaps and constantly seek improvement, educating oneself on the technical side which will not magically come, as well as investing in oneself to build resilience. 

“The desired skillset has matured, it’s more well-rounded and that’s how we stack the desks, with well-rounded talent,” explains Barnett. 

The consistent quest to optimise your own processes appears to be the overarching key to success, but importantly, this is true for both newcomers and individuals who have spent years in the job. In a changing environment, open-mindedness is the key to longevity. 

In the fast-paced world of trading, there is a reason not everyone cuts the mustard – in another profession it might be fine to take your foot off the pedal occasionally or fall back ever so slightly as the office technology upgrades, but for a trader keeping up is imperative. 

“If you have a really good year trading, it has no bearing on the fact that your next year might not be as good. As a result, traders have to stay ahead of what’s coming at them,” Barnett concludes. 

Amidst an ever-changing market, what it means to be well rounded in this space has enhanced, and the market agrees that if you fall behind, you will stay behind. 

The post “They’re the perfect trader” appeared first on The TRADE.

We think that the introduction of an anonymised, single-level pre- and post-trade consolidated tape will trigger innovations at trading venues. A key part of these innovations will be how retail orders are executed in Europe, as a consolidated tape becomes a benchmark for retail investors for best execution. We expect to see innovation in dark trading, which has not had a shake-up for a while, as AI is embedded into order matching algorithms, resulting in better execution outcomes.

If the current low-volume environment in Europe continues, tied to GDP and economic growth, we will see renewed effort from policy makers to address some of the structural problems in Europe. They will need to take the Capital Markets Union more seriously and remove the frictional cost of trading between countries. As the focus of regulation shifts from Brexit to competing and reducing fragmentation, we will see more constructive regulatory dialogue between the UK and EU, based on the recently signed Memorandum of Understanding (MoU) on cooperation in financial regulation.

Niels Brab, chief regulatory officer, Deutsche Börse Group

With a new EU legislative period on the horizon, a decisive year lies ahead that will be full of opportunities to advance on key challenges. In light of geopolitical realities, sluggish economic growth, and constraint public finances, it will be particularly critical for the EU to ensure a new vision in regard to the Capital Markets Union. Despite decades of efforts, the EU’s capital markets remain underdeveloped, and their size does not correspond to the magnitude of the EU’s economy.

A new vision should be paired with a profound reflection around the open strategic autonomy. We should learn from best practices and centrally embed them into our thinking. Establish an EU equity fund, revitalise our securitisation markets, boost our primary markets and IPO ecosystem, address fragmentation, tackle incentivisation elements like taxation – and ensure that citizens truly endorse our markets by guaranteeing a better participation.

Michael Robertson, head of UK consulting, Delta Capita 

In 2024, the global capital markets landscape looks set for further transformational change. Against the backdrop of an uncertain macro-economic climate, we expect market disruption through convergent regulatory scrutiny, technology advancement and an ongoing focus on sustainability. Markets will be shaped by the impacts of a shortened settlement cycle. Whilst initial focus will be on T+1 in the US, governing authorities must weigh up the cost-benefit of an accelerated cycle whilst maintaining a stable, efficient, and competitive European capital market.    

Technology advancement continues at a pace. Decentralised finance (DeFi) and tokenisation represent a paradigm shift in financial services and there is widespread expectation that AI will bring improved capital efficiency and risk management. Regulation must establish a framework that encourages innovation while protecting consumers and maintaining financial stability. Cyber security will remain a top priority to ensure the industry has defence mechanisms to safeguard sensitive data. ESG considerations will play an increasingly pivotal role. Institutions will integrate sustainability practices into their operations, reflecting a growing awareness of the environmental and social impact of investments.

Navigating this complex web of factors will require collaboration amongst industry practitioners, technologists and policymakers to understand, shape and design innovative solutions to common business problems.

Stephanie Eckermann, chief executive, Clearstream Banking AG

Securities services especially have been largely untouched by disruption in the last few years – partially due to protection of the industry by regulation. But we are seeing changes. We see the entire post-trade space becoming more and more of a platform business. The new digital securities world, and the new digital customer experience afforded by modern technology are driving this trend.

As we move into a world with digitisation, open API and the glue provided by hyperscalers, I envisage an interoperable platform of key market players, delivering a truly seamless global experience to investors. This experience will utilise advanced data tools to offer greater insight and enable better investment choices. To be the winners, platforms will need both the scale to fund the investments needed for change and the right culture to collaborate. Those that continue to operate behind their own protectionist garden walls will ultimately wither.

The post The TRADE predictions series 2024: Market Structure – industry unification appeared first on The TRADE.

Definitely. Russia was around 7% of the emerging markets index, and anyone present in Russia had to reallocate their money to other markets. Initially of course, a lot went to the US, but now many are looking more at other countries, specifically at emerging market countries, so in that sense there’s been a redistribution of money into the emerging market space.

Do emerging technologies have any impact on the way you analyse particular market opportunities? 

Definitely, technology is moving so fast and it’s having such an incredible impact. You just look at the top companies now and what they were say 10, 15, 20 years ago, you’ll see there’s been a key change in these companies, mainly because of the new technology. This is continuing and accelerating in many ways, especially with AI coming into the picture where you’re going to see a lot of impact across the market.

No matter what industry you’re in, you have to pay attention to these technological changes because it’s going to have a big impact on what happens to firms.

In terms of AI’s influence on trading processes, it already is having a big impact because you can now better anticipate what is coming as it speeds up the ability to analyse the different signals in the market. If you follow some of the most successful hedge funds, for example, you will notice that they have been using AI in order to improve their performance for some time, and that’s mainly because they can better anticipate what’s happening in the market.

Some are not embracing technology however because they’re stuck in the past and it’s very difficult to change people’s behaviour, especially when they’re surviving. If they’re surviving in the market, the thought tends to be, ‘well, why should I change, there’s no sense in it because I’m making money,’ but that, of course, is rather short sighted. You’ve got to be able to move with the times and wake up to what’s happening in the market right now. 

In terms of traders managing risk, what are the main considerations to bear in mind in EM? Do traders pay enough attention to the post-trade environment?

The key is being able to get money out. When you invest in any country, you must make sure you get the money out – people who were in Russia learnt that lesson the hard way and got stuck. Aside from geopolitics, in other instances in the past it has been impossible to get money out because of currency restrictions. In that situation, you need to look at the strength of the trade within the country. If you have a country with very little foreign exchange and a very bad trade balance then you’ve got to watch out, that would be a very big risk.

In terms of traders paying enough attention to the post-trade environment, I would say possibly not. Traders are very short term in the way they look at things and probably are not looking towards the post-trade environment unless something is happening, unless there’s a crisis of some kind. An unfortunate side effect of not paying much attention to that aspect is that they may miss what’s coming down the road.

Which emerging jurisdictions are next on the list for traders to move into? How does one pinpoint the global contenders?

Well, the big boy on the block is going to be India for of a range of reasons, they’re developing at an incredible pace, for example their technology which is getting better and better every day. India is definitely number one on the list.

From our perspective at Mobius Capital Partners, we have a little bit of investment in China, but not much. However, we are currently present in: Taiwan, South Korea, Turkey, South Africa, Brazil – those are the countries that we’ve been looking at. This has mainly been driven by the companies in those jurisdictions. We’re finding companies that are most profitable and have great growth opportunities – of course depending on the sector.

We are finding a number of good opportunities. In those particular countries a lot of people worry about the currency risk, and it definitely is something you have to consider, but sometimes weak currency can work out well.

Following the recent agreement between India and the UAE to trade in local currencies, is that a development you welcome? Would you like to see others following their lead?

Frankly I don’t know whether it’s a good thing or a bad thing. Generally speaking, we invest in US dollars and when there is a move to another currency is when it becomes more complicated for us as investors. 

One of the positive aspects of this however is that both countries will have to be more careful about their currencies and try to make sure that their currency remains stable. If you look at the UAE Dirham it’s pretty steady against the dollar and recently the Indian rupee has also become very steady against the dollar, so in that sense it’s probably a good thing that these countries will then need to lend more attention to the strength of their currencies.

In terms of currency affecting trading, there are examples like BRICs currency, with the countries meeting [this week] in South Africa to discuss. That would be denominated in gold and of course that gives a big challenge, but again, investors will probably convert that currency into dollars. In terms of trading, to the fact that a common currency, a new currency like that, forces more trade to a degree means it’s probably a good thing.

What are the main things traders should bear in mind when looking at emerging markets?

The principal thing that you must bear in mind is do the very best for their clients. In other words, really keep their clients in mind when executing the trades and trying to get the best deal. At the end of the day, keeping clients informed is the most important thing and by communicating what is happening in the market you’ll win the confidence of the clients, they’ll appreciate it and that is beneficial for the traders. Once you get the trust of the client then you can do a lot of business, they are the key ingredient – without clients, there is no business.

The TRADE once called you the “Indiana Jones” of emerging market investing. Is Mobius Capital Partners imbued with the same spirit?

Definitely, we keep up with the idea that you’ve got to try new things, go into new markets. In fact, in our funds we have put in a rule where we will focus on companies that are not in the index, in other words medium-sized companies. Usually, we focus on companies that a lot of people probably don’t know about, and we continue to follow an Indiana Jones-style of moving into new territories. It is somewhat risky perhaps, but so far it’s really paid off for us if you look at our performance. 

In terms of how we trade, it’s a very important question because our actual trading turnover is very low and any trading we do is done by our custodial bank. 

We place orders and they put the orders in and of course try to do the best trade possible and therefore we’re not very affected by what’s happening on the trading floor day by day. In terms of electing these custodial banks, for us, the first criteria is safety. We want a custodial bank that’s big and has a strong financial position because they’re holding our assets of course. But second most important is that we need a custodial bank that is willing to go into new areas.

When I was looking at emerging markets back in 1987, many banks refuse to hold any assets in places like Brazil, South Africa, Malaysia, Singapore etc. because they were simply not set up for that. So that’s a very important point for us. We need banks that are willing and have a network of partner banks to hold the assets on their behalf. 

Back then it was very difficult and luckily for us we had the backing of a big organisation at Templeton – Franklin Resources, which came in with billions of assets, so we could sort of twist the arm of these banks we were already using, to go into these countries, but it’s not easy. You have to really do a lot of arm twisting to get them to do it, but in the end it paid off for both sides. What’s important to say is that it helped industry generally because a lot of other people came into emerging markets and they were able to benefit from the fact that these banks already had a custodial relationship. 

[This interview was conducted on 24 August 2023].

The post Fireside Friday with… Mobius Capital Partners’ Mark Mobius appeared first on The TRADE.

Of course, time difference is the first thing that comes to mind when you are a European or a US market participant. The second element is more related to the access to local markets, bonds, and equities, than FX itself. Even if local authorities have made strong efforts to develop their local markets, foreign investors still need to get the appropriate approval, not an easy task, for example, in China or India. Fortunately, exposure to FX markets is eased by the use of derivatives like non-deliverable forwards.

What might traders overlook?

Asian markets are different from other markets as they do not always react only to macro or technical factors. Authorities, especially in China, can influence the markets; they can’t reverse the trend but can limit the move.

A good understanding of the authorities’ willingness is necessary to trade these markets.

How can risks be mitigated when looking at trading in Asia specifically?

I would differentiate settlement risk from market risk. Settlement risk can be managed with a good knowledge of the counterparties, or the use of derivatives like NDFs to take exposure or to hedge, an instrument that limits the amount to be settled.

Market risk needs a proper calculation of risks in terms of statistics: VAR, stress tests etc. However, a very good knowledge of market positioning is required. The latter is certainly the most difficult to get as it needs in-depth experience of the market.

What is the outlook for future trading opportunities in East Asia?

Bright! Trading in East Asia can only grow in the future. First, because trading volume for most EM currencies is still well below the level of developed countries when compared in terms of ratio to GDP. Singapore and Hong Kong dollar are some exceptions as their trading volume is much larger than their associated GDP, but IDR, INR, KRW, MYR, PHP, THB and TWD have still a long way to go. CNY which is now ranked fifth in terms of trading volume and close to the median ratio trading volume/GDP, remains well behind JPY in terms of percentage of global trading – 7 % versus 17 % -. But it is three times more than ten years ago and is expected to grow much further.

Secondly, trading is becoming more and internationalised, meaning that more and more trades involve a counterparty outside the country that has issued the currency. East Asia is seeing more foreign investments. The middle class is growing, hence domestic savings, pension funds, local markets are deepening. This trend can only continue.

Why are traders increasingly looking to Asia as a means for diversification?

The first rationale is the attractiveness of continuously growing economies. GDP has increased considerably in Asia in recent years and is still expected to contribute to almost two-thirds of global growth in 2023. Economic liberalisation is going on in most countries: local markets are growing, getting better regulated and they are opening to foreign investments.

The second rationale is the orthodoxy of most central banks especially when compared to some of their LATAM or EMEA counterparts. Asian countries were able to appropriately reduce their external deficit since the financial crisis to successfully replenish their FX reserves and were among the first to hike interest rates to fight inflation in the last two years. All of this led to attractive carry (at least before the Fed hikes) with low volatility: exactly what investors are looking for!

The third rationale is, of course, the growing internationalisation of trade in these countries that can only lead to a surge in the weight of Asian currencies in central bank reserves. As an example, the Chinese Yuan now represents only 2.50 % of the allocated central bank reserves, a figure that can only grow.

Asian markets are getting more and more attention from investors. We at Ostrum Asset Management are so confident with this trend that we are strengthening our presence in Asia, while recruiting new credit analysts and fund managers. The objective is to manage Asian portfolios from Singapore but also to improve and develop our relationship with existing and new Asian clients.

The post Trading in Asia: A future outlook appeared first on The TRADE.

During the TradeTech FX Europe panel, the ever-present build versus buy topic arose. Rick Lodder, algorithmic execution specialist at MN Investments, explained how the firm had opted to develop its own algorithms and the key benefits of this build approach.

“We were using a lot of the banks’ algorithms and we had to pay fees for them and we thought we’ve got the capabilities and smart people why not do it ourselves. We now have that platform [and] we’re retrieving loads of data points and storing them in databases and this allows us to do TCA by ourselves as well instead of solely relying on best ex or another third party for data […] It’s a simple cost equation.”

He added that the firm does not solely use its own TCA and banks are still employed and compared in order to get recommendations and develop continually.

John Stead, head of presales at smartTrade Technologies highlighted that the discussion is hinged on context: “If we’re talking to global banks, Tier 2 banks, regional banks, small buy side, etc. What is build and buy is going to change for small providers, they’re going to want to buy a lot and obviously other people want to build themselves.” 

He went on to express the importance of modular solutions, stressing that pain points are different one entity to another. For the sell-side specifically, Stead highlighted that pricing and distribution is something they many may want to do themselves, whereas on the buy-side it could be more about connectivity.

Delving into how far automation could go, the panel were asked whether analytics could eventually make decisions as to how to execute, as opposed to merely facilitating human decisions. 

Lodder stated that he did not see this eventuality for the time being, instead suggesting that technology would remain a facilitator, as opposed to an agenda-setter.

“Making decisions on when to trade it is possible to for chatGPT to provide you with a lot of good analysis but I still think that a trader has to be involved for making good decisions […] having good traders is still very important for a company to have, so solely relying on ChatGPT or AI, maybe in like 10 or 15 years yes, but in the near future, no.

“[…] In the long term who knows I think that the role of the trader will definitely change, like the traditional traders just pressing buttons and using algos that’s definitely going to change.

“The trader needs to adapt to be able to do all the analysing themselves, be able to code their own algos is going to change in the next couple of years and the traditional role of the trader is going to be extinct maybe.”

Stead added that from his perspective creating a feedback loop was an important factor, where analytics can suggest what market impact may be and adjust parameters to analyse potential outcomes. In terms of going one step further and electronifying the decision to execute, he explained that technology could go as far as recommending decisions, though agreed with Lodder that getting rid of traders was not on the cards for the time being.

“It can give you another level of protection I would say because it can say historically doing this kind of trade produced a large market impact, are you sure you want to do that, so that’s in effect what we’re doing here is simply querying the analytics within your trade parameters.

“[…] it’s not getting rid of the trader, but it’s augmenting their abilities. It’s giving them more safety behind the scenes, so not necessarily replacing a trader.”

Another aspect to this, panellists suggested, was that having a platform involved in trades and a tangible link between empirical evidence, and the choice ultimately made, would make justifying decisions to regulators easier. The checks and balances are an increasingly important aspect of trading and could serve as an additional motivation to embracing technology.

“Even the best trader in the world cannot recognise all these patterns in the market,” said Stead who reiterated that doing things ‘with evidence’ is valuable. 

Stead asserted: “I would say you’re always going to need someone to control this. Trust with verification […] there’s a role for a trader here to oversee things.” 

The post TradeTech FX Europe 2023: To build or to buy… how far should predictive analytics go? appeared first on The TRADE.

The buy-side panellists discussed the different schools of thought employed by their institutions in terms of how their desks were organised, highlighting the key considerations from each standpoint.

While APG Asset Management is currently in transition from multiple EMS towards a single EMS – one asset at a time, futures having already been shifted, equities in the pipeline for this year, and moving onto other OTC products in 2024, Manulife Investment Management has retained a multiple EMS for each asset class set up, using all the same EMS systems for each asset class and the same OMS across all their trading centres. 

Delving into the reasonings behind each approach – whether that be a multi or single approach – how decisions were reached, and the pros and cons of both sides were discussed. 

Speaking to the reasoning behind APG Asset Management’s move to a single EMS, senior trader Sunil Patil asserted that a single EMS simply makes sense when it comes to multiple asset trading.

He highlighted several complications which arise from multiple EMS’s, chief among them the complexity which arises from multiple data sources: “As you move onto more and more data analysis – using that data to enhance trade – you have multiple data structures and ways to analyse data which is complex to assimilate.”

Patil further addressed the empirical side of things when it came to reaching the decision to shift, specifically the difficulty of having three separate screens in practice, as well as the opportunities presented by technological advancement.

“There is new technology which the new EMS have which makes it very easy to trade two asset classes in parallel. If you have for example bonds and FX, it’s very easy to trade that in a single EMS, and the same with equity and FX also.”

James Barnett, multi-asset trader at Manulife Investment Management, addressed the fact that there are currently no plans to move in that direction.

Barnett agreed that there were drawbacks to a multiple EMS approach in terms of efficiency, however he stressed the fact that liquidity is of the upmost importance.

“You have trade-offs where you have some execution platforms that offer a genuinely differentiated point of liquidity and so if you strip that away and move to a single EMS platform you then lose that.

“So then it’s a question of deciding where that inflexion point of your traders’ time and operational efficiency offsets that liquidity gap that you need to meet.” 

Although Barnett confirmed that though it was a question the business had looked at but chosen not to focus on for the time being, the idea that there is a potential point of critical mass which could be reached could mean that this would perhaps need a re-evaluation.

Andy Mahoney, managing director EMEA at FlexTrade highlighted that there were other paths to consider when looking at desktop real estate aside from large migration projects.

Mahoney agreed with Patil in terms of data being at the forefront of people’s minds, and the key driver for those looking at multi-asset systems, explaining: “If you can get one consistent data set that’s cleaned in one way in one database, normalised […] you save a lot of time and issues with data ownership as well.”

In terms of the functionality of individual EMS’, he suggested that where to draw the line between a trading venue and an EMS was a key discussion point, asserting that fundamentally an EMS can exist without a trading venue and vice versa.

“ESMA and the FCA have both created consultation papers around what constitutes an EMS and what constitutes a trading venue. From a fundamental perspective, many of the trading venues have their own EMS and decoupling those two has proved challenging for the whole marketplace.”

Elsewhere, panellists addressed transition management, looking at the realities of ensuring optimum performance – including ‘seamless’ connectivity with OMS – and what is most important to bear in mind when working with external parties.

“It’s challenging […] at the end of the day it’s making sure communication when you’re onboarding a platform is crystal clear in terms of what expectations are of what you’re trying to feedback,” said Barnett, who also highlighted the importance of the beta-testing phase.

Speaking from FexTrade’s perspective, Mahoney made clear the importance for OMS and EMS providers to talk and work with each other: “It’s common these days to have extensive partnerships with system you work alongside […] which just means that the communication layer firms shouldn’t need to worry about,” asserting that the responsibility of defining the key aspects and working with OMS’s is on their shoulders.

The post TradeTech FX Europe 2023: Data and liquidity are key considerations when it comes to merging asset classes, panellists find appeared first on The TRADE.

Putting the topic into context, John Rothstein, chief executive of Optiver UK highlighted the core differences in options as compared to spot, explaining that there are three key areas.

Firstly, the fact that options are very highly regulated as compared to spot was highlighted, with a second consideration being the fact that connectivity is still very high touch for things like expirations and negotiating prices.

The third point linked to data: “[…] the last thing is that the data that comes out of the options market is very light, sparse for everybody – which makes things like TCA and knowing where the market is and knowing who the liquidity providers are very difficult to come by.”

Elke Wenzler, head of trading at MEAG, agreed with Rothstein, asserting that having access to liquidity on the options side is very different and that the main consideration for swaps is to have access to the right liquidity.

Sana Horrich, senior FX trader at Banque de France, shared that from her perspective the next step is for FX swaps to move to a higher electronification.

In terms of the challenges facing FX swaps, she pointed to the risk of signalling for large amounts, further highlighting: “Today what we expect from the market is to have new tools, such as price streaming and algos for FX swaps to help us enhance our trading outcome.”

Paul Lambert, chief executive of New Change FX, suggested that when it comes to the electronification of the swaps market, you have to break it down into its parts: “Foreign exchange is a market where the price that you pay depends on where you are and who you ask.”

“With swaps this is even more true because of the credit element so you need to break it down into its elements for that market to really truly move forwards – what’s the neutral rate and what’s the credit element.”

Read more: FX swaps algorithms not currently a priority for buy and sell-side due to workflow preferences

Wenzler made clear that from her perspective, automating huge amounts of the swaps market is not the way forward, while Lambert asserted: “The worst thing you can do is automate a bad process – it’s like making a wonky wheel.” 

Importantly, Rothstein made sure to highlight that the issue of automation of vanilla FX options has already been solved by some exchanges, further adding that this is something for OTC players to keep in mind.

When asked to compare the tools which are used in spot and derivatives, panellists agreed that there were key differences and as a result bases that still need to be hit in order to facilitate use.

“We want to use the same tools but it’s a different set up you need to have the axes the same on the spot side, which needs a lot of involvement from other teams. A lot of problems you have to solve,” said Wenzler.

Rothstein highlighted the role that platforms and those with the tools can play, suggesting that the priority lies with these entities trying to connect as many dots as they can.

“They can’t necessarily solve all of the underlying problems in getting that access to credit, but they can at least allow some pass through of the requesting of price and the giving of price – which makes it so at least one or two of the steps for users accessing liquidity.”

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Desks are always seeking the best talent, and panellists agreed that more and more candidates are arriving well-equipped and ready to take on challenges, more aware than ever of the importance of coming prepared.

They are now demanding more and having a greater say in what they want to learn and how they want to grow, said Carolina Trujillo, head of e-FX distribution at SEB.

“Gone are the days where you would come into a position and have a steep learning curve for a few months and then sit comfortably for five years. The young talent definitely want to be challenged and wants to grow continuously.

“Which is great because the demand from employers are quite high as well. We need great specialists, but we also want them to have many complementary skills. We want those people to learn and grow and be much more adaptable and be able to move across different paths.”

David Turner, head of EMEA FX trading at Blackrock highlighted that from a managerial perspective, understanding what these candidates want and where they want to go is important when it comes to helping them get there and what the next steps are.

Turner added: “Through internships you really get a feel for the people and the way they work and the way they learn – it’s a way of going deeper into that recruitment process.”

When asked what, aside from firm reputation and career development, are the main focus areas for incoming professions looking at market opportunities, panellists agreed that it came down to “meaningful roles”.

Expanding on this, trading and innovation expert, Liakos Papapoulous, explained that increasingly candidates are looking for jobs that matter and are having a societal impact: “It’s a trend that you see more and more […] SRI, personal development, career development and being challenged are the most important topics for candidates in my experience”.

Turner added that this factor can lead to difficulties in terms of retention as individuals move rapidly in search of this angle.

The panel also highlighted the importance of incoming traders being flexible in terms of their growth opportunities and approach when it comes to developing their skills, agreeing that the optimum mix is a high performing quant individual with a good grasp of data, combined with a sociable attitude.

Read more: Amidst the transformation of trading, technology and talent, where does the balance between versatility and specialised expertise lie?

Speakers agreed this is hard to find, but that mindset is key. One must want to develop skills, and managers must want to foster this.

In terms of flexibility, the panel also addressed this in the scope of work-life balance, as well as career-wise, highlighting the importance of allowing employees to have a say in their day-to-day set ups.

Papapoulous suggested that the buy-side was better placed to empirically follow this through: “The buy-side actually has a better proposition here than a lot of the sell-side because from what I’ve understood, especially in the US, on the sell-side everyone’s being pulled back into the office five days a week again but if you can have a proposition with some freedom to work one or two days from home […] giving them the option is something that you should definitely have on the table.”

On the other hand, Turner explained that what works very much depends on individuals, asserting that in his experience juniors are not moving towards remote working. 

“That’s where they’re learning most quickly, and when we talk about them wanting to be challenged and move on, team members want to be in the office.” 

Elsewhere, all panellists agreed that diversity and inclusion was an important aspect of building a successful team, with the diversity of experience highlighted as key in reaching successful outcomes and ensuring a complete overview of the market.

Trujillo made clear that from her perspective, tokenisation needs to be avoided at all costs and that the optimal percentage of representation – whether that be gender, race, or any background factor – needs to be at 30%, as research suggests.

“You need to make sure you have role models all the way up […] really it’s hard work because 30% is a lot when you start from zero. It’s about structure at each level in order to really have an impact, to ensure that that group of people can feel comfortable and get included and finally get a sense of belonging and therefore have an impact on your organisation.”

Panellists agreed that this aspect was something that should not be overlooked by firms, or else risk being left behind. Papapoulous suggested that a desk with completely identical backgrounds will only serve to limit outcomes.

Trujillo further warned that firms must be wary of not being too naive in believing that hiring junior individuals with diversity in mind will directly result in diversity at the top levels.

Looking from a top-down perspective, she brought another notion to the table, the idea that taking care of existing resources – i.e., older, established team members – should not be overlooked.

“Age diversity is important […] be mindful not to discriminate based on age, respect knowledge as even at the end of their careers, individuals can give so much by involving them in their own succession plans – it brings out new engagement and energy from them.”

Speaking to the recent changes to work set-up, including home working, Trujillo advised that when managing a team, the key is to find solutions that work for as many as possible, recommending an approach which is as creative as possible.

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“When we talk about automation, it’s a process, it’s not a binary thing. One size rarely fits all,” explained Tod Van Name, global head of foreign exchange electronic trading at Bloomberg.

Van Name further highlighted the desire for a seamless aspect to interoperability as firms look at how to handle small orders, which are less sensitive to market movements for example, and return the focus on larger transactions.

When speaking to the most pressing issues regarding workflow automation, the panel addressed various factors. Benjamin Mahe, head of electronic trading and data at AXA Investment Managers, suggested that automation should enable traders to be more efficient and spend as little time as possible on the simplest orders.

Alex Scarsini, president of Edgewater added that giving tier 2 and 3 institutions the same level of access available to tier 1 is also a gap that is looking to be addressed in their universe.

The main focus according to Ed Mount, founder and chief executive of Elysium, is the enhancement of how quickly market opportunity can be taken advantage of, explaining that this is a key area of interest for the buy side. “Understanding business specifics […] and being nimble is key as a provider,” he said.

The panellists also addressed the automation of execution in the space, highlighting the relevance of counterparties and the importance of ensuring they are appropriate when trading FX derivatives.

Mahe asserted: “Platforms need to have the same goals as us,” as Van Name added that the selection of this counterparty should be solved before going out to market.

From a vendor perspective, Mount explained that from where they sit in the post-trade world, which he called less high profile, is where they’re finding that the business success is coming.

“We’ve seen it as a trend in the foreign exchange market that the largest banks are not the largest providers of liquidity, that just kind of happened [and] it has to do to with technology issues at the largest institutions and the inability to adapt quick enough.”

Elsewhere, the panel touched on the reasons why no-touch had not yet happened. Scarsini explained that it is in process and highlighted that at the end of the day, FX market is an OTC and a very fragmented space.

He added: “There’s also the reticence from some of the bigger providers over the last few decades to automate the space […] We’ve seen a lot of brokerage businesses and FX trying to hold onto higher margins and eventually closing shop because the tech does then have an impact and does disrupt the space. Today we keep automating and electronifying the space, there’s no going back.” 

He continued that the market is seeing a strong willingness from participants in terms of moving at speed and embracing the fact that they can automate their workflows and make them more efficient “with the right risk management tools or the right credit modules”.

“Our clients want the tech, but they certainly need more education on it,” he concluded.

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One speaker explained that the ideal situation would combine experience over the long-term and a knowledge of different market conditions with the technical skills which have become increasingly prevalent across emerging traders.

Another added that the ability to react and scale the market was an essential aspect, the ability to make informed decisions, quickly, in a variety of situations.

A popular take suggested that the narrative surrounding talent on trading desks and the impact of technological advancement could be explained through the analogy of landing an aircraft, whereby despite the fact the plane is flying thanks to machines, there remains an important degree of human intervention (‘pilots’) in order to supervise and control this.

Another expanded on this analogy, highlighting the fact that many trading desks have undergone a reduction in size in recent times, meaning the tolerance for ‘passengers’ is very low.

“Covid proved the value of an experienced trader and brought it back into focus. You don’t need a pilot to fly a plane, you need the pilot to land it [and in times of turbulence],” said a speaker.

One panellist delved into the importance of bringing together the two worlds, of technical knowledge and the people skills traders have traditionally relied on, in the current market.

Panellists agreed that the conversation has moved on from automation being the turnkey solution as market volatility continues to prove the importance of experience and adaptation on the desk, with the focus now being on enlisting the most well-rounded traders.

“The human element of trading will always remain, but it’s getting the right people to do what’s left having relied on automation so much,” said one panellist. 

This remains true of individuals who have spent years in the job, the speakers went on to agree. Those who are open to changing, learning and developing at any stage are the most successful in this changing environment.

It is in times of stress in particular when the well-rounded trader thrives, asserted one panellist, explaining that pre-emptive training and development should be a focus for firms – traders must be sufficiently equipped to react in these situations.

One speaker stated: “In the end if you are not able to have people there to react to the right moment when there’s a crisis coming […] you will lose a lot of money.”

Another take on the relevance of experience, highlighted by one panellist, linked to the importance of diversity in terms of experience. Aside from a diverse background, the need to pull from different skills and knowledge cleaned from different corners of the market was underscored.

“The key is to leverage this diversity,” said a panellist, adding: “Sometimes it’s harder to manage a diverse team, but it’s always worth it”. 

Another panellist added: “You need everything covered across the desk but it’s a case-by-case issue. When it’s a diverse team it’s a very different conversation for every single person on the team.”

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