How can technology stacks, operational processes and trader skills be adapted to help future proof trading desks?
As trading technology further advances along with the increase in availability of datasets, it has become even more essential for trading desks to leverage these capabilities to improve execution decisions, maximise efficiency and reduce risks. Traders will need to be able to develop skills that will allow us to use these tools to solve for trading challenges. This can range from improving programming skills (python, SQL, etc.) data visualisation (Tableau/Power BI) and understanding electronic communication protocols (FIX connectivity, FDC3). In the future, there will be an increased focus on the use of data science to improve performance in our industry.
What opportunities do you think DLT can provide to enhance trading and settlement efficiencies?
DLT has the potential to significantly enhance trading and settlement capabilities, removing friction and asynchronous data from the current ecosystem. We should see a reduction in numerous participants maintaining individual datasets across disconnected platforms, eliminating the need for reconciliation. Self-executing smart contracts embedded in assets could perform servicing functions such as settlement, confirmation and payments. We are monitoring developments related to atomic settlement, or near-simultaneous settlement, and think the upcoming moves of markets to T+1 will highlight key challenges to be explored. These include the protocols on how different DLT networks connect with each other, the regulation governing trading and settlement of DLT assets and the liquidity profile of these assets.
How can execution styles be adjusted to access efficient liquidity in high volatility environments?
The key skill set of a trader is to adapt their execution style to changes in liquidity and volatility regime with a view to obtaining best outcomes for clients. It is important for us to understand which strategies work best in each liquidity regime and react accordingly. The key for us is having systems available that signals regime changes, allowing us to switch to proposed strategies on demand without the need for excessive manual intervention. We continue to partner with our EMS partners and bank counterparts to improve capabilities on trading platforms and algorithms to achieve this.
Do you see a shift to more multi-asset trading hubs? What more needs to be done to facilitate this?
We are certainly seeing a trend develop over recent years of desks moving to a more multi-asset trading model. Asset class experts will continue to be a vital part of any trading desk but there is certainly room for multi-asset traders who can move seamlessly between asset classes as required. To achieve this, more commonalities should be found across asset classes so that the technology and processes can be streamlined and increase scalability. This allows for more capacity to focus on the more niche areas in each asset class that cannot be normalised.
With respect to data and electronic execution capabilities, which FX products need the greatest focus and improvement?
On the data front, the swaps market continues to remain opaque with forward pricing not as visible as the spot market. Pricing across banks vary materially in the swap space. While the majority of FX products are tradable in the electronic space, work still needs to be done on communicating market order types and limit price restrictions, protocols widely available in the equity space. Option pricing is the one area where we need to see movements in the electronic space as it is still a manual execution process for many market participants.