Even before COVID-19 hit, some capital markets firms were struggling to adapt to rapid changes in their trading businesses. As the pandemic has progressed, we’ve seen an acceleration in existing challenges and the rapid onset of new ones. Both demanded a solution—yesterday.

As a result, many capital markets firms find themselves completely re-thinking the trading business, from digitizing trade execution and trader collaboration, to the technologies needed to compete effectively, to the kind of experience that clients want inside and outside of a pandemic.

Adopting to this new shift requires a new and nimble framework blending hard applications (as a technology-driven efficiency play) with softer tools (designed to provide for the employee experience).

Based on discussions with our clients, and what we’ve been hearing in the market, we’ve identified five key challenges affecting the future of trading:

1. Managing volatility and uncertainty

Ongoing volatility increases the risk of unexpected losses, cushioned to some degree by high trading volumes.

2. Facing commoditization

Decreasing brand differentiation via an echo chamber and increasing automation reduce margin opportunities.

3. Cutting costs

An ever-increasing regulatory burden, along with longstanding front- and back-office inefficiencies, is further increasing costs.

4. Responding to evolving client demands

Clients demand more data, services, regionalization and more from the firms they work with—thereby creating new layers of complexity.

5. Delivering innovation

The rapid pace of technology adoption is expected to further separate the leaders and laggards.

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Challenge 1: Managing volatility and uncertainty: business as usual while working remotely

At the start of the pandemic, trading organizations found themselves handling high volumes with teams that had been pushed—with little preparation—into remote locations, often working "virtually" from home. Players responded well[1]:

11 OUT OF 13

tracked banks booked a year-over-year increase in total trading revenues

8 OUT OF 13

recorded higher revenues in the second quarter than in the first quarter

Firms, rightly so, were pleased with their ability to operate in this manner; however, cracks emerged between results and the very nature of trading itself.

Our conversations with traders at major banks indicate some of the stresses of working remotely. Concerns remain around the ability to protect sensitive information in a remote world, the difficulty of maintaining client relationships in the absence of face-to-face contact, decreased productivity due to technical issues, and, most significantly, the absence of camaraderie, shared culture and shared information fostered by the trading floor environment.

We see three new technology offerings emerging, uniquely aligned to the trader of the future’s unique needs:

  • Connection technology: Tools that keep conversations flowing naturally and easily, mirroring background trade floor chatter and workplace experience.
  • Compliance technology: Offerings that provide the related regulation of communications and physical compliance aspects like mobile device distancing from the trader’s workspace or phone calls made on unmonitored lines.
  • Collaboration technology: Products that allow traders to replicate the experience of strategizing in the same room and at the same time.

Listen to Laurie McGraw on Bloomberg Money Minute discuss returning workers to the office:

© 2015 Bloomberg L.P. All rights reserved. Used with permission.
View Transcript

Challenge 2: Facing commoditization: increasing complexity in light of lower revenues

Firms find themselves in an arms race, acquiring technology that might influence alpha and provide a point of differentiation. They compete with, but also collaborate with, fintech companies that regularly disrupt established businesses and drain previously lucrative profit pools.

Similarly, firms are awash in data, but there is little consensus as to how that data should be used. Data capabilities are often used as point solutions rather than as core elements for providing strategic direction to management and, ultimately, for creating value. Solving this requires a fresh approach, one outside of Wall Street.

We believe that designing the successful trading organization of the future calls for a new vision, one based on lessons learned by big technology companies as they out-innovated, out-marketed and generally outflanked their competitors.

Firms find themselves in an arms race, acquiring technology that might influence alpha and provide a point of differentiation.

Challenge 3: Cutting costs: effectively, efficiently and necessarily

The pandemic caused many organizations to take a hard look at their fixed cost base, assessing the structure in light of new ways of working. As these reviews continue, it’s critical that firms maintain their unique culture and fabric.

Firms should establish effective communications between remote and in-office employees. The trading floor itself needs not only the technology but as well the physical design to support a safe, positive experience for workers—mentally and physically. We see two cost levers emerging. For example, as the real estate footprint cost may decrease, there’s an inverse increase in other real estate costs like partitions, cleaning and spacing mandates to keep employees safe and healthy.

There is also the gradual electronification of markets to manage. For example, as fixed income trading becomes much more digital—and changes the $100 trillion-plus world of sovereign and corporate debt—we expect a similar democratization across the trading value chain and infrastructure—one that’s cloud-based and accessible in real-time.[2] Firms could try to secure a competitive edge by fully automating and digitizing corresponding functions.

Challenge 4: Responding to evolving client demands: introducing the Trading Squad

A key element of our vision of the Future of Trading is what we call the Trading Squad. This is a client-focused group that emulates some Big Tech practices, such as:

  • Client obsession: A commitment to delivering the best experiences to high value clients, in line with their needs.
  • Human + machine: Technology-based trading with cutting-edge capabilities and services at all points of the client lifecycle.
  • One team, one experience: Continuous innovation, from front- to back-office, driven by an owner/operator mindset.
  • Endless trading floor: Seamless trading services conducted from central, remote and virtual environments.
  • Operational signals: Operational data cultivated and used to develop an edge in trading along with a better client experience.

The Trading Squad is designed to manage the client experience autonomously, selecting the right services for the right moment. The Squad conducts constant experimentation and innovation to reflect client needs but embraces ways of working and an employee experience grounded in an ownership culture.

In the Trading Squad model, individual teams have incentives to manage risks and costs. While business teams take responsibility for compliance and technology concerns, they are freed from non-core functions through technology or by arbitraging the skills of partner organizations.

Trading Squads identify and prioritize the needs of high-value clients, then define the tools, products and services needed to manage the customer experience to build loyalty and accelerate growth.

Data and technology services are selected on-demand to support the desired experience.

Squads use a robust, flexible technology toolkit to create new services. Where there are gaps, they use partner capabilities as needed. And Squads are connected to a virtual internal experience to provide consistency and collaboration, engaging the right support functions at the right moment.

Challenge 5: Delivering innovation: defining the client experience of the future

The building blocks of the new client experience include:

  • True client partner: Firms should commit to providing best-in-class investment management as a service, helping clients build capabilities.
  • Everything is tradeable: Firms should offer innovative financial products from alternative asset classes for greater choice and portfolio diversity.
  • Democratization of finance: Traders can broaden access to markets by delivering more transparency, lower costs and outcome-focused strategies.
  • Platform business plays: Digital products, channels and marketplaces can aggregate data, service providers and consumers to create network effects.
  • Electronic market-making: Electronic trading and data exchange can serve as the basis for new digital marketplaces and value chains.
  • Data-driven trading: Firms can create services that unlock the value trapped in data, including external and other new sources, to identify previously hidden opportunities.

What to do next

Moving forward requires an honest look at the current cost base, client feedback, revenues and the competition. Part of such a strategic assessment calls for a thorough review of which operating changes have added value, which have created risk and which have diluted value. Successful initiatives should be made permanent, if possible, and trading organizations should analyze these inputs to learn from gains, minimize waste and build resilience.

But this is also a time to be bold, to set ambitious targets for the future, to solve inefficiencies and open new paths for growth. In difficult economic conditions, traders will need to imaginatively manage their own costs as well as their clients’ costs. Volumes will be unpredictable and competition for trade flow will be fierce. A slight edge in operational efficiency and effectiveness will likely weigh disproportionately in this environment, making it essential to plan now to design the trading organization of the future.

1 Goldman Sachs, Morgan Stanley, JPMorgan top gainers in strong Q2 i-bank trading

2 Pandemic propels old-school bond traders towards an electronic future

Laurie McGraw

Managing Director – Capital Markets, North America Lead

Fergal Madigan

Senior Manager – Capital Markets


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