Part II
For firms leading the way, automation is already a seamless component in their workflows. More commonly though, heads of trading say they still have some distance to go. Most are pushing forward but almost a fifth have stalled.
The rate of adoption of automation varies enormously. A third of heads of trading say their firm is ahead of the rest. A minority are laggards – late to the game but planning to implement soon.
The benefits of automation are people-related but so too are some of the key roadblocks in optimizing automated trading capabilities. Building partnerships with other departments is a challenge for most heads of trading. They require the support of stakeholders beyond the trading desk to effectively deploy automation.
For instance, they need to work with Risk and Compliance to develop robust policies on who can create automation rules and how they can be controlled if there is market volatility. Portfolio Managers (PMs) should be brought into the conversation early as they need confidence that automated traders will handle their orders with the same care and respect to best execution that a human trader will. They might, in some cases, want further control on which orders are being automated and not. Where this is the case, firms need a technology provider who can support this workflow. These human roadblocks can come at a cost in a highly competitive environment. Indeed, most heads of trading are concerned that implementing automation will make them lose momentum for growth, with half seeing this as very challenging. While the broad-brush case for optimizing automation may be clear, demonstrating ROI is another challenge. Doing so can help heads of trading get the key people in other departments on board.
Buy versus build is one of the key decisions firms must make in implementing automation. Most favor some form of buy, with two-thirds planning to use vendors. This is most commonly in combination with some in-house work, although a quarter are planning to bring in stand-alone vendor solutions. Opting for a ready-made automated trading software solution could be the quickest route to implementation but it may not be the most cost effective nor flexible.
Ease of workflow integration is the most important factor in vendor choice, and it trumps cost. This can help firms avoid humps on the road and swerve one of the biggest potential pitfalls of implementation, the loss of growth momentum.
Heads of trading are also looking for proven pre-trade analytics that can be used in automation rules and risk management controls. As we go on to discuss in the next section of this report, these solutions can help firms push the envelope of automation.