New duties as a result of regulation are limiting time sales traders can spend with clients — here’s how technology is changing that.
In an era of increasingly stringent regulation and cost constraints, compliance duties often eat into the time available for sell-side fixed income traders to do the essential work of interacting with clients — a state of affairs which threatens to reduce the overall profitability of desks.
There is hope for a solution on the horizon, however, as trader augmentation tools help traders and the trading desks automate key activities and, consequently, shift back the attention to the client, thus improving client service.
The changing role of the sales trader
Greenwich Associates reports that fixedincome broker-dealers have found their “new normal in doing more with less”. The average sell-side fixedincome trader manages relationships with 20 or more clients in an environment of shrinking profit margins, declining balance sheets and ballooning regulatory costs. The regulatory and compliance workload of head traders has increased exponentially — and the constant regulatory and cost pressures don’t seem to be going away.
All of the respondents in the Greenwich study rely to some extent on technology to ensure they remain in compliance with regulations. Regulatory technology has become big business — the industry spends $15-20 billion annually on regulatory technology but yet only 11% of respondents said they relied completely on technology to ensure compliance.
Regulations require firms to capture data that was not previously collated, and this data is becoming the fuel for new trends such as trader augmentation.
Experienced traders often manage the largest and most complicated accounts for the bank, which represent the most value to the firm. The use of augmentation technology here would seem a foregone conclusion. At the other end of the scale, there has been a notable "juniorization" of sell-side trading desks, with less experienced traders employed. Encouraging these traders to utilize sales trading tools now will likely benefit both the desk’s P&L and those selling these products.
Head traders should be considering how compliance processes can be automated and asking themselves and their colleagues the following:
Deciphering the value in sales technology
Greenwich’s research also found that the clear majority of sell-side traders do see value in the sales technology on their desk. Why? Simply put, these tools can allow them to reach a broader audience even as they maintain or improve service levels.
Trader augmentation tools are not about "automating away" salespeople — they are about providing new datasets that enable salespeople to provide clients with a unique idea.
For example, trades that previously were difficult to execute and may have remained on the blotter in the past can be executed if a sales trader’s ability to find the other side to that trade is improved in the order management system.
The age of big data and technologies such as machine learning can help traders to get much more value out of information, including data related to clients, holdings, trades, and even events that were not traded. All of the queries a client contacts a trader about can be incorporated into the augmentation tool. And the next time an investor says he is interested in something, the trader has all of the information on hand about what that investor did previously. All of this and more can be fed into trader augmentation tools from an OMS and also from other systems such as instant messaging.
Though regulations are often viewed as a burden, the data that now must be captured can provide traders with useful intelligence. So, there’s an upside here — why not take advantage of all of this data you are capturing?
By automating compliance processes and leveraging the data regulators require firms to capture, head traders at fixed income desks can reclaim some of their time and shift their focus back to clients, providing improved information and better execution.
