How has Legal & General Investment Management (LGIM) adapted itself to remote trading and do you expect to implement a working from home hybrid form of desk?
We coped very well throughout 2020. If I look back on the full year across all asset classes, we were able to support an increase in volume across our global trading desks of 20%. The ability to support that level of growth of activity with remote working conditions was a real testament to the strength of the processes we put in place.
It is pretty clear that some level of flexibility for our traders will remain. We are currently going through the process of surveying our staff and trying to build a picture of how they want to work in the future. Once we have collected that information we will make a plan of action. We have proven that we can trade safely, efficiently and effectively from home. There are different jobs on trading desks. For example, at LGIM the team comprises both traders and quantitative analysts, and clearly the role will to some extent dictate how flexible the working pattern might be.
One of the things we are looking at is how we continue to fit out our offices with the appropriate technology, it sounds obvious, but you can’t go into a meeting room if you’ve got half of the staff working remotely and half working in the office. You need to have appropriate technology and AV equipment in place to make that experience as seamless as possible.
What new technologies do you expect could disrupt institutional equities trading in the next few years?
Improvements are long overdue in the initial public offering (IPO) and secondary workflows. This topic is gaining traction on the buy-side at the moment and I’m confident in the next few years we will have better solutions in place to enable us to have a much more STP environment for new issues across both equities and bonds.
The area is ripe for further development and any technology in that space would be welcomed by the buy-side. My own trading desk, and also those of my peers at other large buy-side firms, are managing more automated workflows through order management systems (OMS) and execution management systems (EMS), and subsequently more analytics and advanced data sets will be required for enhanced decision support and for monitoring purposes.
What market structure changes have most impacted trader workflows in the past year?
Changes to trading obligations that came into force post-Brexit at the beginning of this year were significant. Both the share trading obligation and the derivatives trading obligation. The derivative trading obligation had a meaningful impact on trading workflows, even taking into account the FCA’s use of temporary transitional power.
You could say quite logically that the bigger changes to market structure are actually ahead of us. We have heard recently the initial proposals from the Chancellor in the UK on the removal of the share trading obligation, and we are looking forward to the upcoming consultations over the summer. The more interesting changes are on the horizon.
Do automation and better execution performance always go hand in hand on the buy-side trading desk?
It depends on what you are automating and why are you are automating it. From my experience, the automated workflows that we support at LGIM are aimed at improving both efficiency, as well as, trading outcomes. We support various automated workflows across rates, FX and equities.
One thing that often gets lost, perhaps, because it is not so interesting, but nonetheless is an important point to make, is automating post-trade activities. This is also a viable activity for trading desks to engage in, booking out executions and partial executions at the end of the day for example can be really time-consuming and inefficient if done manually.
Where do you see the future of outsourced trading?
With any outsourced arrangements, firms need to assess both the scale and complexity of their business in order to determine whether it is appropriate for them. The global trading function at LGIM is a fundamental part of the investment process. Our traders play a key role in the investment performance of the firm. We have desks in Hong Kong, London and Chicago and we execute millions of orders on an annual basis across all asset classes.
We believe that that scale brings a huge number of benefits to our firm and naturally therefore to our clients. If you are operating at scale in a large firm with resources and adding value to the investment process and crucially if you’re an integral part of that investment process then you are a fundamental part of that investment proposition. It might suit some but not all by any stretch.
Which panels are you most looking forward to tuning into at TradeTech?
I’m interested in all the data and analytics and FinTech sessions that are being run. I joined the diversity and inclusion virtual boardroom earlier this month which was open to buy-side heads of trading. Cognitive diversity achieved through a diverse team is very important. People look at problem solving in different ways.
Trading desks have done a reasonable job in promoting and encouraging cultural diversity. It’s no surprise to hear me say that trading desks have been less successful in trying to meet the challenges of gender diversity. I am interested to see how the debate plays out at TradeTech. However, I don’t think we can just talk about diversity and inclusion in general terms. It is helpful to be clearer about what it is we’re talking about and trying to frame the debate in a more granular fashion. There are some aspects that we have done very well at and others where we have done less well.