By Michael Horan, Head of Trading, EMEA, at BNY Mellon’s Pershing.
Today, buy-side firms have to grapple with the most complex trading environment in the sector’s history, mainly due to heightened volatility, increasing regulatory obligations and the need to follow, understand and trade a diverse range of asset classes on behalf of clients. Adding into the mix a hugely uncertain Covid-19 economic backdrop which has reshaped firms operationally, 2020 has been a year that many traders will recall, and hopefully take lessons from, for the rest of their careers.
Trying to ensure their own operations remain resilient during a downturn in markets is far from being the only challenge facing buyside firms today. The reality is it has become harder and harder for firms to make money on behalf of clients over recent years as competition intensifies and crippling fee pressures are well documented, particularly for small to mid-sized asset managers. The trading desk has so far been somewhat sheltered from cost savings but in the battle against the clock, it is next in line.
In some ways this year has been pivotal for buy-side desks and their approach to, and appetite for, external support. The remote working environment has forced fund managers to get comfortable with not being across an office from those executing trades, removing the prior concerns around proximity to traders and one of the key differentiators between in-house and external support. It is increasingly understood that seeking external trading support does not mean compromising on, or losing control of, an investment strategy, and a permanent attitude shift towards enhancing efficiencies without sharing physical trading floors is under way.
In addition to the challenges facing the buy-side firms, 2021 will bring further evolution to the role and expertise required of the traders themselves. They must have a much wider skillset to remain relevant in today’s evolving market, and to better meet the needs of their stakeholders or clients. The capabilities needed include an expertise across asset classes due to the increasing need for multi-asset services; an ability to build and maintain strong client relationships – volatile periods this year showed the value of human relationships still exists; strong understanding of evolving regulation, with the regulatory burden continuing to grow; as well as tech savviness and an ability to effectively use the latest trading systems. On top of that, they cannot afford to operate in isolation – trading desks need to work closely with the middle and back office functions to make sure revenues generated on the front desk are not wiped out by operational inefficiencies.
With such challenges at hand it is becoming more palatable and acceptable for firms to look for trading support from third parties in the same way they have done so for clearing and settlement. This changing mindset will only enhance the role of the buyside trader as more time is spent on client service instead of execution.
©The DESK 2020
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