Banks and asset managers are still working through the damage caused by COVID-19. The shock of the crisis in the spring has been replaced by a wary caution about how to move forward in a world that will remain permanently scarred by the virus.
Capital-markets trading desks are the most electronically sophisticated parts of global financial institutions. But in the heat of the crisis in March and April, the biggest concern was how to communicate with staff and clients as everyone began to work from home.
The outbreak led first to a scramble for hardware. Traders found themselves bereft of their towers of screens and competing for wi-fi with the kids at home. There was panic over “a lack of toilet paper and a lack of screen real estate,” joked one sell-side trading head during the annual FIX Asia Pacific Trading Summit, held recently in Hong Kong.
Some found themselves working cheek by jowl with spouses who also work in capital markets, exposing them to potential conflicts of interest.
Solving the immediate communication issues for remote working led to the next crisis: compliance. Trading floors are designed to surveille people; mobile phones are usually banned; communications even through messaging apps are monitored.
Remote work blows all that up.
The new workplace
Regulators offered some forbearance and firms, perhaps thinking the crisis would abate, decided that rogue traders gonna be rogue traders.
Today banks and regulators are looking at this more seriously, with the understanding that remote work arrangements are here to stay. “The industry is coming to terms with that now,” said Raj Mathur, co-head of Credit Suisse’s Advanced Execution Services for Asia Pacific.
There have been glitches. For example, in OTC markets, asset managers and their brokers must be able to show a regulator that they seek best execution. In OTC markets, particularly fixed income and foreign exchange, requests for quotes had to be printed out, to provide a record, says Francis So, head of trading for Asia Pacific at BNP Paribas Asset Management.
This is an odd case of automated processes regressing. It’s also an exception.
COVID-19 has pushed firms to automate even more as they seek to become ever more efficient. But it has also led to the need for a human touch.
It is a testament to the industry that it has weathered 2020 without any notable failures. Some of this is because technology has evolved to the point where remote working can succeed. But the human elements have also required teams to engage in non-stop communication with colleagues and clients.
“A good outcome of the crisis was the abnormal level of communication, which is why everything worked well,” said Stephane Loiseau, managing director of prime sales and execution, APAC, at Société Générale.
High touch’s high point
Another human factor that came into play was trading itself. The sales trader and “high touch” service made a comeback.
Capital markets in March and April were marked by poor liquidity amid skyrocketing volatility. Many market participants were de-risking their books, or struggling to meet sudden index-rebalancing demands. Although markets have continued to go electronic, the sudden lack of blocks to trade and the need for advice led to a revival of the sales trader who could work an order.
Demand for high-touch service continued into the summer with the wave of IPOs, particularly among many Chinese companies leaving U.S. stock markets for venues like Hong Kong.
While the crisis was a useful reminder of the need for human traders to fulfil complex orders, it is unlikely to change the trend, which is still to further automate. After all, it was electronic tools that allowed traders to process such high volumes.
As the crisis ground on into summer, trading desks faced a new problem: isolation and mental health problems. “We haven’t seen a lot of our colleagues for seven, eight, nine months, with no sign of their return. That impacts people,” said Mathur at AES.
Normally, professionals leave their personal problems at home. But now they’re working amid elderly parents or struggling kids, and they’re stressed about going outside and risking infection. Head traders have had to respond by trying to stay in touch.
“It’s easy to say something in a Bloomberg chat, but we have to pick up the phone and lock in time to catch up with people,” said Tristan Baldwin, head APAC equities at Liquidnet.
The industry recognizes however that work-from-home arrangements are difficult for many people, especially those cooped up with families. Banks are implementing hotlines for troubled employees, but so long as gregarious humans are kept in isolation, these challenges won’t disappear.
Upside in the new normal
As executives survey the landscape, however, they are finding some silver linings from the pandemic. Top of the list is lack of travel. Although traders are eager to resume in-person relations with clients, they also realize they have been able to accomplish a lot with time not sucked up by airports, trains and taxis, and the paperwork that goes with it.
They have learned that Zoom is an effective way to communicate, especially with people they already know. It’s often more efficient for presentations than face-to-face. This is part of an overall drive to digitize more.
The time saved from travel has gone into the kind of work that traders have said was important, but often got ignored. “We’re spending time on analyzing trades, working through the data, and doing transaction-cost analysis…This frees up other possibilities to use technology,” said Loiseau, such as delivering TCA or microstructure backtests in real time.
A final silver lining is, surprisingly, also about people: in this case, winning and keeping talent. The traditional junior trader faces 12 hours or more non-stop on the trading floor, five days a week. The environment puts off a lot of people. But now banks have an idea of what “work-life balance” might mean.
Nor is this going to return to old habits. “I think this is the new normal,” said So at BNP Paribas Asset Management.
Firms will have to grapple with questions such as how to train new people and work with regulators to work out solutions to ongoing problems raised by working from home. But flexible hours, remote working, and Zoom calls in lieu of traveling are permanent changes to the trading floor.