Headhunting: the rise of the post-MiFID II trader

As the investment industry continues to grapple ongoing headwinds, Hayley McDowell speaks with senior recruiters and consultants to explore how the talent landscape has changed for buy-side traders in recent years.

An outsider would be forgiven for thinking that the role of the buy-side trader is under threat. As active asset management continues its battle with increasing industry pressures, we know that in many cases it can be the traders that find themselves in the firing line when investment firms are looking to cut costs. While we are yet to see how headcounts and processes will be affected by the coronavirus pandemic, it’s clear that buy-side trading recruitment was already in the midst of substantial change. 

Let’s be real, it’s not all doom and gloom for the buy-side trader. But as the industry has evolved, so has the role itself. When attending conferences aimed at the global buy-side trading community these days, words like ‘Python’ and ‘SQL’ are thrown around much to the bewilderment of some of the buy-side trading veterans listening in the room. Trading is no longer fixated on those once all-important relationships with the sell-side, it has changed dramatically. As such, so has the type of trader that buy-side firms are seeking to install on the trading desk. But are asset managers still hiring or adding traders to the trading desk?

“Considering trading volumes are down around 24% on last year and around 40% from six years ago, why would investment firms be looking to hire more traders when the trading volume doesn’t support that trend? I haven’t seen an influx of new traders hit the market, but equally we haven’t seen an exodus. Of course, some firms have laid off three traders here or five traders there, but elements of the role itself have changed with things like automation,” explains Marcus Newman, head of electronic markets and systematic trading at executive search firm, Sheffield Haworth.

Sheffield Haworth has historically focussed on placing people in roles within the sell-side, but the recruitment specialist has evolved alongside the industry and found increased engagement with buy-side firms on placements for trading. Developments in the investment management space, whether that be regulation, the rise of technology, automation or passive investing, have forced asset managers to take more control of their execution capabilities to improve trading functions.

“Trading has certainly become central to asset management, largely driven by ongoing fee compression, reduced returns, and increased regulatory oversight,” Newman adds. “Execution is no longer deemed an ancillary supportive function to the internal investment community, and it is widely acknowledged now that bettering execution can better investment performance. As such, we’ve begun to see the quality and skills of traders on the buy-side rise and evolve.”

There has been a knock-on effect whereby the hiring process for traders at asset management firms has been reformed, and demand for services like those that Sheffield Haworth provide has increased. It’s no secret that the buy-side community is tight-knit, and historically, that community has thrived on ‘word-of-mouth’ recruitment as everyone knows everyone. At one time, this was indeed considered to be a good hiring practice, but that is the case no longer.


Perhaps the most prominent change in the buy-side trading talent landscape is apparent in senior leadership. The industry has seen the largest movement at the top level for a number of years, and with that, the head of trading role has changed significantly. Heads of trading are expected to do a lot more nowadays, whether that be navigating the nuances of market structure, strategising on technology for the desk or dealing with regulators, it’s no longer just about overseeing the trading. With this, the industry welcomed more new heads of trading to the buy-side than ever before.

Traditionally, as the head of trading at an asset manager prepares to step down or retire, the ‘natural number two’ readies themselves to take over. But, much like the word-of-mouth hiring technique, this is no longer considered to be sufficient or fair, so it happens less nowadays. As requirements for the head trader position have increased, buy-side houses now specify to executive search firms, like Sheffield Haworth, that they require a far broader search be carried out in a bid to hire the best in the market.

“Some in the buy-side trading community will have worked their way up over a 20-year career from back-office operations to front-office and trading,” Newman comments. “The problem with that is there has been limited injection of new DNA to the market, and I would say that’s where the market lagged behind for a number of years. As the buy-side takes more control of execution we’ve seen a new type of individual emerge into those seats post-MiFID II, and with that, the rise of the post-MiFID II trader.”

The post-MiFID II trader that Newman is referring to looks quite different when compared to the pre-MiFID II trader. They are clued up on regulatory developments, emerging technologies, the nuances of market structure, and perhaps most importantly, they are a multi-asset trader. According to Michael Broadbent, principal consultant at Ergo Consultancy, the post-MiFID II trader’s ability is to understand not just trading, but other elements of the trading desk such as programming. As demand for buy-side traders diminishes, Broadbent argues that this will be a key differentiator for those seeking new roles.

“It is difficult for buy-side traders seeking new roles to find that demand. We all know that trading volumes are generally down than in previous years, and as a consequence there are not as many buy-side trading positions out there,” he says. “The growth area is something other than trading, data science and analysis for example.

“Asset managers are looking for that post-MiFID II trader who is clued up on things like Python, and can speak not only the language of business and trading, but also the language of programming. That crossover and being able to relay information from the back-end right up to the portfolio manager is like gold dust. Some veteran pre-MiFID traders still operate with relationship management at the forefront, and that just isn’t acceptable anymore. The post-MiFID II trader is looking at best execution, for best execution’s sake.”

For the many asset managers looking to gain an edge with data science, advanced analytical capabilities and programming in recent years, it has been more practical to train traders already on the desk, rather than building a new internal team dedicated to those functions. In other cases, some buy-side trading desks have looked to hire sell-side analytics professionals to join the team as a trader to gain the analytical experience and statistical knowledge.

The buy-side heavyweights of the world, of course, have the resources to build teams entirely dedicated to data science, analytics and programming, and we have seen the emergence of data scientists that sit directly alongside traders on the desk. But for the majority of investment managers, the more viable scenario is to find a trader that can do both, and that trader may already be on the desk. Although requesting traders that have spent decades developing their execution skillset in buy-side trading to then retrain in something completely new could be a tall order for some.

“From a long-only perspective, I have not seen many data scientists and such move onto the trading desk,” says Newman. “It can be difficult to justify the cost of hiring an analytics specialist for example, particularly for smaller firms. Instead they are looking to the traders to expand their technical skillset so that they can run their own TCA reports and similar activities. I spoke with someone quite recently who told me they had sent their entire trading team to complete courses in Python and SQL. But it can be a difficult conversation to have with someone who has been doing their job for 25 years and explain that they now have to retrain in other areas.”

Trojan horse and opportunities

One particular trend gripping the world of buy-side trading at the moment is outsourced trading. While the move to outsource part of, or the entire execution function, to an outsourced trading provider makes sense to some asset managers, in terms of reducing internal costs and increasing access to markets, it’s understandable that many buy-side traders see this as a threat to their jobs.

Traders at some investment firms have already been displaced by the shift towards outsourced trading, and the global coronavirus pandemic has seemingly accelerated this movement. Several major custodian banks that offer the service, alongside independent providers, told The TRADE that outsourced trading was one of the most in-demand services at the height of the coronavirus pandemic market volatility in March.

“Where we’ve seen a surge of interest – which has accelerated during the pandemic – is clients trending towards different ways of outsourcing their trading,” said Nadine Chakar, executive vice president and head of State Street Global Markets.  “This could be from moving into new asset classes or trading strategies. Outsourcing their trading gives them access to new markets, asset classes, network of brokers. You get 24/7 coverage, every single asset class under the sun. Over the past year we’ve seen trading that originally was held by fund houses who thought they could make a difference trading – as that was their secret sauce – slowly but surely, with the markets becoming more efficient and transparent, they finding that’s not the case.”

Similarly, Northern Trust launched its outsourcing service for asset managers in 2018, as the bank signalled its intentions to expand into the front-office. Of the more than 50 clients outsourced trading clients it has, almost 20% came in the first quarter of this year, Pete Cherecwich, president of corporate and institutional services at Northern Trust, explained to The TRADE.

Outsourced trading is like a trojan horse for buy-side traders. Once a European-based asset manager opens the door to an outsourced trading provider for trading and coverage in Asia, or even to supplement the internal trading desk with more support, what’s to stop that firm opting to remove internal trading processes completely if the supposed benefits of outsourced trading are realised? Sheffield Haworth’s Newman believes there are opportunities for traders that could be impacted by the acceleration in this trend.

“For buy-side traders that may be displaced by trends like outsourced trading it can be challenging,” he said. “The market isn’t awash with trading opportunities. At the same time, there are firms opening up in the UK, some are looking to centralise dealing functions and may not have done so before, so there are positives noises.”

Ergo Consultancy echoes this, reiterating that it is more important than ever for traders to adapt their skills to the new world of buy-side trading. With skills such as programming and the ability to handle multi-asset transactions, traders have the opportunity to become a valuable and core part of the trading desk that asset managers may not be so quick to replace with an outsourced dealing desk or service.

“The advice I would give is have one or two other strings in your bow,” says David Berney, founding partner at Ergo Consultancy. “Be a trader by all means, it’s still a great and exciting role. But look at the Python or quant route. Perhaps consider being a quasi-portfolio manager by running the book with the fund manager. That makes you invaluable because as the portfolio manager comes up with fresh ideas, you can manage his previous ideas and inform if a stock is overbought, and that kind of thing is a massive value-add for the buy-side.”

Alongside the shift to outsourced trading is the fight for diversity, which still has some way to go in asset management, particularly in trading. There’s no doubt that there are more women in trading now, mainly in senior positions, and the industry is currently fighting hard to convince exchanges in Europe to reduce market hours to spur recruitment of more diverse trading talent, while easing the strain that traders bear when working such long hours.

Newman says that his clients more often now require a diverse shortlist of potential candidates for trading roles. His firm recently completed an exercise to map and profile every woman across the industry globally for equities in both sales and trading, underlining how seriously Sheffield Haworth considers diversity, but more importantly reflecting the demand for more varied candidates to be considered for trading roles. Enticing women to submit applications to work in an industry traditionally seen as male-dominated remains a key challenge though.

“Not long ago, I spoke with someone who had a junior trading role out in the market and they received 250 applications, only two of those were submitted by women,” Newman says. “That gives you some indication of the challenge there, but it’s very encouraging to see more diverse talent at the senior end of the buy-side. It’s common now that asset managers will specify that they want to see more diverse candidates and that’s certainly a very positive note.”

But regardless of gender, traders face an uncertain future. That’s not to say that the future won’t be ripe with opportunities for buy-side traders to reinvent themselves, so to speak, with increased technological know-how and skillsets once considered not to be relevant to trading.

The coronavirus pandemic could also spur movement in the buy-side trading talent landscape.  While it is difficult to predict what impact the coronavirus pandemic and subsequent lockdowns globally will have on buy-side headcount and the wider market, there is little doubt among recruitment executives and consultants that the event will spark some sort of changes. Whether that be in headcount or processes, the shift to remote working may serve to highlight people in teams that perhaps offer more value to a company.

“It’s difficult to predict what the long-term impact of the pandemic and lockdown will be on the trading talent landscape, however there are certainly pockets where firms are still hiring critical headcount, as well as hiring opportunistically, which is a positive,” says Newman. “Interestingly, it has been increasingly clear to senior management the people who have shown themselves to be proactive and self-starters since having to work remotely. What has been apparent is that trading from home is entirely possible, and firms will likely look more closely at their headcount, operations and processes moving forward.”