Source: Greenwich Associates
A new breed of Wall Street sales trader is using increasingly sophisticated technology to preserve fixed income trading revenues and profits in a market defined by capital requirements and other regulations that squeeze margins, depressed trading volumes and historically low interest rates.
A report released today by Greenwich Associates entitled, The Big Sales Trading Upgrade, analyzes how sell-side trading desks are adapting to the rapid evolution of global markets and their own trading businesses. The primary answer: By equipping smart and tech-savvy sales traders with new tools that allow them to meet client needs efficiently and profitably.
Capital requirements, regulatory reforms and other changes to market structure have made profitability a top priority for the sell side. Some banks have decided that certain FICC businesses no longer offer enough margin potential to justify entailed risk. Even dealers that remain committed to maintaining robust trading franchises universally cut costs through headcount reductions and other measures. At the same time, institutional investors around the world are looking for brokers to provide more value add, including advice on investment strategies, liquidity, and assistance with market structure changes.
Such developments have placed taxing new demands on sell-side sales traders who must contend with all these and other changes—while also being asked to handle a broader cross-section of products and cover a larger number of clients.
“Their success in adapting to these changes will play a big role in determining the financial performance of individual bank trading operations,” says Kevin McPartland, Head of Market Structure and Technology Research at Greenwich Associates and author of the report. “Our research among institutional investors and broker/dealers in both the United States and Europe shows that sales trader capability remains a key driver of trading and commission flows in fixed income and equity markets.”
Technology Empowers Trading Desks
Meeting these challenges will require a capable, more educated sales trader armed with powerful technology that supports the collection, analysis and application of data. Even as they take out costs in other areas, banks are making strategic investments in technology that will allow them to service clients while maintaining profit margins in trading. These investments go beyond order management systems and other standard trading desk technology to include big data management platforms and predictive analytics that can allow banks to provide high-value analysis and ideas to clients.
“As markets around the world become more transparent and electronic, allowing clients to do more trading on their own, the skillset and technology tools required to maintain those relationships will fundamentally change,” says Kevin McPartland.