What has your journey to the trading desk been like?
I’ve always worked in the asset management industry, starting my first job at 18 with Scottish Amicable Investment Management in Glasgow. I joined the banking services team and within that team sat the Treasury function consisting of a money market and FX trader. There was always a real buzz of excitement around the trader, and from those early days I had trading in my sights!
From the banking team at Scot Asset Management, I moved firms in 1999 to take up a role in trade settlements. I then moved internally from settlements to IT for a role as front-office support, mainly looking after anything related to the order management system.
Through my IT role I formed close working relationships with the trading team which ultimately led to the head of trading offering me a job as a desk assistant. I, of course, jumped at the chance to make the move from operations to the front-office.
Sitting on the desk as an assistant was exciting, listening to the different styles used by the traders and hearing how they interacted with the sell-side. It further cemented my desire to become a trader. An opportunity arose on the desk when one of the international equity traders left so I grabbed it with both hands. I received on-the-desk training from other members of the team, studied for the Investment Management Certificate (IMC) and on passing that was signed off to trade. As a junior trader, the sell-side also really took me under their wing and passed on huge amounts of invaluable knowledge and expertise and the relationships I formed then are still going strong today.
I made the move to London in 2014 to join Nikko Asset Management (Nikko AM), fulfilling a role as senior trader for global markets. Although I had been trading for a long time my background had been mainly in equities so moving to multi-asset was quite a shock to the system and a steep learning curve. Fortunately, the head of desk had over 20 years of experience in fixed income and foreign exchange, so with his training and support I was very quickly brought up to speed on both asset classes.
What drew you to multi-asset trading?
One of the main things that excited me about joining Nikko AM was the opportunity to expand my skillset from predominantly equity trading to trading a variety of other asset classes. In addition to still being fully immersed in equity trading, joining Nikko AM has given me exposure to trading a wide range of fixed income solutions, such as investment grade and high yield credit, emerging markets, mortgages, municipal bonds, collateralised loan obligations (CLOs), collateralised mortgage obligation (CMOs) and fixed income derivatives.
I think it’s always good to challenge yourself and learn new skills and moving to multi-asset has allowed me to do that. No one day is the same and that keeps things interesting. I am always learning. The industry is ever changing and each day presents a new challenge and opportunity.
How is the skillset different for trading multi-asset to trading one asset class?
Although there are clear differences in asset classes, I think trading fundamentals are consistent across products, so multi-asset traders and specialists really require a lot of the same skills. To trade any asset class, you firstly need to understand the portfolio manager’s investment philosophy, what their time horizon is, how passive or aggressive you need to be to achieve their objective. You also need to understand liquidity dynamics. This applies whether trading high yield or emerging markets in fixed income to a UK small cap stock in equities, you need to know which counterparties, trading platforms or strategies to use to get the best outcome. Now more than ever, traders need to be plugged into news events, both stock specific and macroeconomic news and need to have a strong understanding of the read across between markets, for example single name credit default swaps spreads versus the stock or corporate bond spread. For all asset classes, another key skill that a trader needs is the ability to negotiate – most often on price, but frequently on many other issues too from agreeing commission rates on equities to resolving issues that can arise post-trade.
One skill you do need as a multi-asset trader is adaptability. New products are regularly introduced, and it often falls to the trading team to establish the processes and workflows for any new instruments. This typically involves finding the relevant sell-side contacts, ensuring the IT infrastructure can handle the new instruments and that the flow from front- to-back-office is seamless and robust. At the same time, there is a need to ensure you become an expert in the trading of that particular instrument.
Do you expect all institutions to expand into multi-asset eventually?
I think the structure of the trading desk really depends on the company, assets under management and size of the trading team. We’re a modestly sized team of three traders in London, so for us, it’s crucial that everyone on the team can trade all products. For larger companies that have significant daily volume in each individual asset class it can make sense to have specialist traders in each asset class. There can be days where there is low activity in fixed income but we are extremely busy in equities (or vice versa) so the multi-asset trader model works well for us as it allows us to distribute trades evenly across the desk.
The role of a trader has continued to evolve over time. I tend to get involved in working groups to prepare for the launch of new funds, both in equities and fixed income and meeting with counterparties to continually improve the working relationship between our company and theirs. This often requires time off the desk – so being able to handover ongoing trades in all asset classes to the other traders in the team is a must.
How can the multi-asset trading process be improved to become more efficient?
Efficiencies on any desk, be it multi-asset or specialist, can be greatly improved through technology. The level of flow we see across our desk allows us to still be very much high touch and hands on for every trade. However, we are continuously looking at ways we can improve and streamline processes through the use of technology.
We tend to look at what works well in one asset class and explore if the same logic/process can be applied to another asset class. For example, whilst we’ve been using portfolio trading in equities for many years, this is now something we’re looking at in fixed income and exploring that offering with our trading platforms and counterparties. Similarly, in the equity space, we’ve used algo trading for a long time but it’s something we can now make use of in the FX market.
What has evolved the trading experience the most during your time working within the markets?
Electronification of the fixed income markets has been by far the biggest change. Coming from an equity background, it really was a shock to the system how antiquated fixed income trading felt when I started trading in these markets in 2014. Even small trades were sometimes executed by voice. Things have moved on immensely. We can now RFQ dual currency bonds, with both price and FX rates streamed electronically. We have all-to-all trading which greatly increases liquidity channels. Even price discovery is helped now, with broker runs and axes being streamed into our OMS. Of course, not everything has moved to electronic trading. Larger trades are still predominantly executed by voice and some markets like municipal bonds haven’t fully moved to electronic trading, although there is some progress happening there. Also, in primary markets, we now have platforms where we can enter new issue orders that go straight to the syndicate desks and where we can see real time book updates and allocations consolidated in one place. Hopefully soon it will be possible for those allocations to electronically flow back into the OMS making the workflow fully STP [straight through processed].