Electronic trading
Higher speeds, greater volumes, just not so many humans required
The rise of electronic trading over the last
decade has had a profound effect on the
structure of equity markets.
In a nutshell, the emergence of automation
transformed the market from one where a great
deal of human intermediation was required into
one where computers largely do the work in
executing and processing trades.
There are many benefits to this. Firstly, it allows
a greater volume of trades, improving market
liquidity; the US average daily reported trading
volume increased from 3 billion shares in
2003 to nearly 10 billion in 2009. It also means
trade execution speeds fell dramatically, along
with the cost of transactions, while increasing
transparency in the markets. The use of
algorithms - computer systems that decide on
price, timing and quantity of an order - also
meant that the average trade size fell, reducing
the market impact of trades and limiting adverse
costs of trading large positions.
But one downside is that greater automation
means less human intervention and therefore
less manpower. One bulge bracket bank tells
us it currently employs 30% fewer traders
dealing with three times the flow than in 2005.
Roles and career paths
Quantitative analysts: Quants are maths
geniuses key to gaining an edge in e-trading.
They design, develop and implement execution
algorithms using a mathematical approach to
identify investment opportunities and strategies.
Consultants: Consultants are all
about keeping clients happy. They run
statistical reports such as transaction
cost analysis and trade reports to
ensure clients are using trading tools
in the most effective way.
Sales trader: It's the sales trader's
role to facilitate the execution of trades
for clients, while also offering a menu
of the bank's e-trading products and facilitating
a customer's decision on which is the best
one to suit their needs. It's a combination of
marketing and client relationship management.
Banks also hire for pure sales roles.
Market structure: This is a research-led
role; market structure professionals analyse
upcoming regulatory changes and macro
trends and their potential effect on the trading
environment. There are also, of course, a wide
range of technology positions around the
development of e-trading platforms, which we
cover in our IT in finance section.
Skills sought
Most quants come armed with PhDs in a highly
mathematical subject and will also possess a
good knowledge of financial instruments and
technical computing software, such as MATLAB.
"Electronic sales staff aim to engage existing or
new clients in some form of electronic trading
with the bank, predominantly via multi or single
bank platforms," says Roger Hawes, head of
spot FX at Royal Bank of Scotland.
"This creates efficiency, invariably full straight
through processing (STP), and is often
complementary to voice business. It requires
an understanding of the whole process, from
infrastructure and connectivity to more technical
issues such as application programme
interfaces and price mechanics."
"It's a rapidly expanding area, compared to
traditional areas of investment banking, and
the opportunities for advancement are great,"
says Brian Schwieger, head of EMEA
algorithmic execution for Bank of America
Merrill Lynch. "The traditional sales team will
be focused on details of individual stocks or
sectors, whereas electronic sales will be more
focused on the macro trends in market structure
and trading technology," he adds.
