Banks are unlikely to spare their Asian equities trading and execution desks from the slash in global headcount, although the spike in volumes in recent days may prompt firms to hold off from wielding the axe a while longer.
“Clearly with dwindling volumes, the reality is that people are going to re-examine their business models and some of those models aren’t going to work,” says Russell Kopp, managing director, financial services at Correlate Search, a headhunting firm in Hong Kong. “It was pretty apparent as we went into the second quarter results that they weren’t going to be pretty and given the volatility we’ve seen over the last couple of days, its not the signal of comfort we would ideally like to see from the market.”
Disappointing volumes in the crowded Asian equities space means many brokers are finding it hard to justify overcapacity. Kopp, who handles top-level recruitment for equity positions, including heads of sales trading, points out that, “Hong Kong as a whole has seen brokers build out their execution capacity pretty dramatically over the last five-to-six years. There were 15 inter-dealer brokers who built new cash platforms and at least as many second-tier full-service firms that all had to build capacity, so there’s been lots of hiring.”
“Once you build out the execution platform, it really plays on economies of scale so you can let go some people and still run it, especially when volumes are down,” comments Damian Babis, director, Capital People, a financial services recruitment firm in Hong Kong. “The technology is getting better and more competitive and we’re seeing competition causing consolidation and that will affect recruitment.”
Markets and volumes were relatively flat in the first half, except for a brief spike of activity in March caused by the earthquake in Japan. Trading has been frantic in the past week following the US credit rating downgrade by Standard & Poor’s, but unless there is a sustained pick-up of flows to the region, the market is in for tough times and mass layoffs at bulge bracket firms will continue.
Among the banks that have made headlines with announcements of mass layoffs is HSBC, which is slated to shed 30,000 jobs in total before 2013. Credit Suisse, Morgan Stanley and Goldman Sachs have also started laying off staff. Meanwhile, US-based market making firm Knight Capital has announced that it will cut jobs and close its equities trading desk in Hong Kong due to the continuing deterioration of market conditions.
“Volatility has gone through the roof and that’s making it very challenging for any one in the trading environment right now,” suggests Lee Porter, head of Liquidnet Asia Pacific. “The competition is pretty fierce in both the low-touch and high-touch spaces and the commission pool has been shrinking over time so it’s a very competitive space.”
While agency brokers are also vulnerable to worsening market conditions, the pressure on them to shed staff is considerably lower due to their lower cost bases. Jesse Lentchner, Asia-Pacific CEO at BTIG, notes that, “With the very large footprint of the full-service firms, when the market pulls back they go from being very profitable to being unprofitable very quickly.”
BTIG is among the few firms that are still looking to grow headcount this year. “We have been able to grow even in the slower environment, and we’re up around 25% year-on-year over the flow from last year,” Lentchner notes. “When things like this happen, it’s usually the best chance for us to expand. The optimism is also shared by US-based investment bank Jefferies, which recently added four new members to its equities team in Asia.
In Asia where the talent pool of execution specialists is extremely small, job prospects are on the whole better than in the US and Europe. “At the moment, firing hasn’t really started in a big way,” Babis observes. “In North America and Europe, the firing will start if it hasn’t already started. In Asia, the banks are holding off on letting people go, but it will be crunch time soon.”
For traders worried about losing their job, Babis has this word of advice: “Regardless of where you are in the finance industry, when it comes to trading, it is impossible to think, let alone say, that you can trade without the help of technology. The markets and their participants have invested a great deal into their infrastructure, be it trading platforms or connectivity and front-end systems. Knowing and operating these systems is now an important part of any candidate’s CV. Platforms offered by the brokerage community will aggregate a variety of modes of executions, such as DMA, program and algorithmic. It’s knowing how these functions work that will differentiate one trader from another.”
Author: Jill Wong