What matters to buy-side traders? Simplicity in technology, responsiveness from service providers and, yes, relationships, which, on a scale of one to 10, still rank a 10. Advanced Trading's inaugural Buy-Side Trading Summit gathered buy-side traders and technology execs to candidly discuss these issues, as well as critical trends impacting the industry.
Escaping the busy trading desk for a three-day summit at Amelia Island, Fla.'s Ritz-Carlton sounds like a great trade. And it was for the 80 buy-side traders, technology chiefs and exchange execs, and sell-side managers that attended Advanced Trading's inaugural Buy-Side Trading Summit in September. However, considering the challenging topics debated, it certainly was no vacation. The three-day executive summit - themed "The Changing Role of the Buy-Side Trader" - tackled many of the critical issues facing traders today, including navigating dark pools, the impact of exchange mergers, the transformation of the execution management system (EMS), multi-asset trading and, of course, the evolution of algorithms. A few of the important outtakes from the event are highlighted below.
Keep It Simple
In "Tooling Up the Trading Desk," one of the event's opening sessions, several buy-side traders sketched out the trials, tribulations and desires of running a high-tech trading desk. The resounding themes among the three panel speakers were that simplicity often wins out over bells and whistles, responsiveness is as important as speed when it comes to both in-person and technology-driven service, and technology is changing job descriptions on both sides of the Street.
Like a group of soldiers comparing war wounds, each trader tallied the number of screens he had to manage on his desktop. Floyd Coleman, cohead trader at AXA Rosenberg, said that he has hit his limit with 12 screens. "I need to look at a lot of things - I need to watch cash, my OMS, DMA, market data and IOIs," Coleman said. "You need some type of dashboard that tells you how it is all coming together, to show you where you stand at any moment in time."
AXA's solution, according to Coleman, was to build an in-house integration platform that allows its traders to manage their multiple screens. Coleman said he still is adding new applications to the mix, but he is determined to use the software to keep the number of screens from expanding. He also said he appreciates the efforts of vendors to incorporate features of other vendors' products in their own, citing the example of FlexTrade, his EMS, which manages all of his algorithms, including those from other providers.
At Bear Stearns Asset Management, where Manny Villar - three screens, going on five - is a credit derivatives trader, the firm uses a vendor platform, Imagine, to integrate trading in all of his products. "The more streamlined it is, the better," Villar said of the trading desk.
There is increasing resistance to saturating trading desks with vendor products that require an extra investment of time to learn, said AXA's Coleman, who noted that his trial period for major software installations has decreased from two years to six months. Coleman referenced the failed multimarket trading venture Optimark. It "was too complicated for the traders," he contended. "They want something that can fit on their desks, has an easy interface and gets the job done. People don't have the time to learn all the bells and whistles."
In some ways, the buy siders' desire for simplicity when it comes to technology also extends to their personal relationships with brokers. In a trading world moving increasingly toward simultaneous, multi-asset trading, some brokerage houses have reconfigured their sales desks to better suit this trend.
"There are a couple of firms that cover us for everything," Bear Stearns' Villar noted. "Goldman is very good at that. They have set up their trading desk so that the guy who trades the S&P [500 Index] sits next to the guy who does credit derivatives, who sits next to commodities. Other firms are kind of going toward that model."
Responsiveness was another resounding theme of the morning. Even high-value information is no good if it comes too late or prevents other work from getting done. For Bob Gauvain, director of U.S. trading at Pioneer Investments - who has five screens on his desk - this applies both to transaction cost analysis (TCA) and algorithmic trading.
Gauvain says that when it comes to TCA, "Real time makes all the difference in the world." He explains that many systems can produce daily reports, but the information is not sufficient to allow traders to make same-day decisions because the reports take time to digest and analyze.
There is no question that algorithms are fast and efficient, but they are not always responsive. There still are times when it is best to have the ear of a sales trader on the other end of the line, according to Gauvain, even as an algorithm robotically - perhaps too robotically - works its way through the marketplace.
"Algorithms have to take the role of a sales trader," said Gauvain, who noted that his firm plans to increase its use of algorithms from 20 percent of total volume currently to 50 percent in the coming years. "Things change in the course of a day; you have to be able to change what you are doing and react. Right now, there are algorithms where, if you want to cancel and replace an order, you lose your place in the markets - that is 5 minutes you are not there. You want the algorithm to be a sales trader that you are manipulating."
The traders also felt that, largely due to the prevalence of technology that is empowering the buy side, the role of the sell-side sales trader is changing from a simple account manager and sales agent to more of a consultant who can guide buy siders through the fog of options available to them in a market with thinning margins and increasing regulatory demands. As profits narrow and brokers reduce head count, Gauvain noted, many sell-side traders and technologists now are coming over to the buy side. Having observed this trend in combination with the shift toward unbundling of research, Gauvain foresees that "smaller and midtier firms may look at their business models and see that they can get paid without having the trading desk and become more of a boutique."