In a panel discussion at the Fixed Income & FX Leaders Summit APAC, speakers were asked what the future of the trading desk looks like and where it is expected to evolve by 2030.
Panellists gave insights into how disrupting technology, new regulation as well as data and analytics will help shape the changing face of the trading desk.
Speaking on things that need to be focused on to improve the trading desk in the near future, Archit Soni, portfolio manager at Dimensional Fund Advisors, highlighted the need to follow the lines that regulation provides.
“I think for us it’s actually navigating regulation because as the world is evolving very quickly, information is also passing through quickly, with people’s ability to pick up knowledge from other countries speeding up quite a bit. I think Asia’s in a really good spot because they’ve seen some regulation in fixed income markets in Europe in the last five years and they’ve seen how they navigated through Covid and market distress events,” said Soni.
“Because of that, they can actually take some of the good and bad from both Europe as well as what’s happening in the US. The regulatory framework over the next three to five years is something we’re really going to focus on. That’s going to be what really shapes the way our trading desks operate.”
Martin Viseux, head of fixed income trading Asia, HSBC Global Asset Management (Hong Kong), discussed the new focus to create tools that will enable traders to make the right decisions quickly.
“Our job has changed drastically in the last few years, as we discover new markets and new products. As a result, taking the right combination of decision becomes very hard because in the past, the traditional way of trading involved sending requests for quotes electronically or voice trades. Today we have so many different decision options and the pre-trade is somewhere where we invest a lot. Dynamic real data is important to obtain in an organised manner to allow us to make the right decision quickly. In addition, we follow our internal best execution policy, making sure that the combination is justified and at the right price point,” said Viseux.
Speaking on the role data will have in transforming the trading desk, Laurent Ischi, director, AiEX and workflow solutions (APAC) at Tradeweb, noted that “In the past we saw a lot of people always talking about gathering the data. But what I think is very interesting here is, there’s actual use cases that are being applied and being shared, and I think that makes it more interesting at the end of the day.”
“Getting the data is one thing, but then actually doing something with it is a complex step and I think people are definitely making that step now and then applying it. Finding the right protocol, whether to trade on the list, whether to automate or to trade manually – that’s all the stuff that now is being fed by the data that has been gathered and actually can be used and recycled for these purposes,” added Ischi.
Moderator of the panel, Brett Elvish, director at Financial Viewpoint, shifted the focus to where panellists expect to see trading desk evolve by 2030. Archit Soni, portfolio manager at Dimensional Fund Advisors, noted that post-2008, the role market makers play has changed fundamentally.
“Because of that we’ve seen alternative market makers or liquidity providers come in. The actual progression from that was, well at the end of the day, where do the bonds end up going? They end up going and sitting with the buy-side. If you think about it, naturally the buy-side are the real risk takers. I think, a world where you’ve got buy-side to buy-side, buy-side to sell-side, essentially all markets that’s trading in a range of different protocols, we understand that the bond market isn’t exactly like some of the other asset classes, so we can’t expect to have just an RFQ or a dark pool or an auction system, but multitude of different protocols,” said Soni.
“Instead, a place where using global connectivity will allow us to have a much more rich market in the sense that we can actually trade with different market participants. In the bond market, I think going forward, the more transparency that we can get and the more electronification we can get, on average, will lead to lower transaction costs.”
Tradeweb’s Laurent Ischi, director, AiEX and workflow solutions APAC, highlighted two things that he expects to see changing in the coming years. “Firstly, we’re going to see a continued increase of electronic training protocols tailored to trade particular markets. If we’re looking at the automation in particular as well, what we’re going to see is a lot more change of how trading desks operate a lot more towards exception handling – very much what we’ve seen on equity trading desks over the last 20 years, essentially,” said Ischi.
“I also expect trading desks and trading styles across multiple asset classes to converge, and people are going to have the ability to actually benefit from different ideas that are present in different asset classes.”
HSBC Global Asset Management’s Viseux, highlighted that with new market participants in the market and new capabilities and products that they are using, transaction costs are likely to decrease.
“I definitely think transaction costs will go down and the way we trade as well. We’ve seen a big change in market structure with high volatility where the traditional banks have backed off and do not provide liquidity as intended. Fortunately, I think that growing the number of market participants will help us find greater liquidity. We are doing a lot of work to connect new market participants into our trading platform so that we can access liquidity at a cheaper price overall,” said Viseux.
Elsewhere, Ravi Sawhney, head of trading automation and analytics at Bloomberg, said he believes “an environment where things like automation, data science and AI are sort of like woven into the fabric of the trading desk. I also think you’ll see things that we might not expect as well, such as virtual reality as a different way for traders to analyse their trading data. We’re not really sure where it’s going to go, but it has definitely open up a lot of minds and planted seeds in people’s heads.”
Concluding the panel, as well as predictions on how the trading space is likely to evolve by 2030, Martin David, head of trading APAC at UBS Asset Management, noted: “I think eventually it’s very possible that the whole trading procedure will be a bit more like a kind of big black box on both sides and for all counterparties and then the job of the trader is to oversee the entire framework. Instead of analysing trade by trade, it will likely be more about analysing the flow and the result and seeing the relationships they have.”