News from BT Global Banking and Financial Markets
Putting high touch in low touch
With a shift to greater automation, diminishing returns, both buy and sell side need to leverage technology to optimise liquidity, relationships and resources.
Appetite for European alpha is back. Some €2.5 trillion worth of equities were traded in the first quarter of 2014, the largest notional volume since 2011. However the Great Rotation back into Europe is flying straight into dual economic and regulatory headwinds which challenge traditional methods of trading.
As depleted resources force global investment banks to restrict high-touch trading services to their most profitable clients, buy side and sell side dealing desks are readjusting trading behaviours. This is altering demand for products and services and redefining the market participant landscape. Accessing liquidity remains the primary concern. Addressing this challenge will require unprecedented collaboration of high- and low-touch services facilitating an intricate balance between multiple channels, infrastructure and data to determine when, where and how to trade. There is no doubt that the changing nature of trading is high on the agenda of the industry right now.
Hunting for liquidity and alpha
Pressure on resources is driving some investment banks to restrict high-touch trading services to their most profitable clients and buy side and sell side dealing desks are adjusting their trading behaviours. The hunt for liquidity remains a primary concern, as is the search for alpha (investment returns), which is made more difficult by complex regulation and a difficult economic environment.
Consistent performance will only be achieved through the efficient interaction between people and technology
In response to this, there need to be new levels collaboration between the high-touch (human) and low-touch (electronic/automated) trading services that firms offer their clients, delivering an intricate balance between multiple channels, infrastructure and data to determine when, where and how to trade. As financial markets change, buy side clients demand ever more from the sell side firms that serve them. A new approach to trading is emerging – one that requires a range of execution styles, from high- touch, to hybrid with its blend of broker-assisted electronic trading, to pure low-touch electronic and algorithmic trading.
However, clearly these flexible approaches bring their own set of challenges, with many different aspects of the trade cycle to be orchestrated by those participating. Experts need to be pulled together quickly and at short notice to provide knowledge and advice to clients. Orders need to be captured and trades executed using a range of strategies. To achieve this, a unified trading environment is needed that allows people to interact, collaborate and trade in real-time wherever they are. And all of this must be underpinned by an agile technology infrastructure that allows the trading firm to stay the right side of increasingly strict compliance and risk regulations.
Information overload
As the industry automates, both buy and sell side participants need to make more of their use of technology to optimise liquidity, relationships and resources. According to a paper by Rebecca Healey from TABB Group, High Touch in Low Touch: Next Generation Trading, the deluge of information needs not only the ability to efficiently visualise, analyse and respond. Delivering portable access to content in real-time across organisations will enable firms to quickly and accurately react to both their clients and the wider market. The report states that technology must be highly intuitive and interactive to connect people with the information they want at the time it is needed. And this must be across silos, departments and different trading methods.
The huge rise in automated trading is driving down spreads and has made it much harder to find investment returns so in response to this, more complex trading strategies have evolved blending greater human interaction with automation, in order to find liquidity and collateral. That’s why we have developed BT Netrix HiTouch, which acts as a control centre for human interaction, integrates with apps such as order management and customer relationship management systems, and is tightly integrated with BT Radianz Cloud Services, which gives access to over 400 service providers covering almost every aspect of the wholesale financial community. We see the need for high-touch intervention to complement low-touch automation on both the sell side and the buy side.
People + technology
The smart application of technology is redefining the control of products and the ability to execute. Making the most of these new opportunities will require holistic and interactive networks to seamlessly link content and community throughout the entire trading cycle. Existing high-touch trading strategies are often expensive and inefficient. But by utilising technology, bespoke relationships can be built through highly integrated systems operating real-time, collaborating across organisations and communicating through multiple channels and devices.
A new trading environment, one characterised by more stringent regulations and the need to reserve more capital, is increasing the pressure to make the right decisions faster than ever before and maximise elusive investment returns. Consistent performance will only be achieved through the efficient interaction between people and technology, delivering better collaboration and high-touch services in a low-touch environment.