Best Practices for Managing a Trading Desk Virtually, A European Buy-Side Perspective

BCP and the potential of WFH as a permanent solution

• Employees embraced WFH and now want to retain that work-life balance flexibility 
• Senior management now willing to consider hybrid work dispersion model (subject to employee role).
• Portfolio Managers and Traders desks gain a lot of value from face-to-face and centralized input, panelist expect a centralized in-person model to persist.
• Firms are now looking at potential cost savings related to no longer maintaining a BCP site— WFH now viewed the new disaster recovery model— and/or pursuing a smaller office footprint model with a percentage of staff in office, and a percentage who work remotely.

WFH re-entry plan

• Geographically, countries are at a different point in the easement-of-restrictions, with one already back to in-office/full staff, while others have triaged staff into a mix WFH and in-office.
• Some firms are implementing a return to office on a voluntary basis, depending on family circumstance, mass transit, child care and other personal considerations.
• One panelist shared that they are already engaged in face-to-face meetings while another panelist commented that an in-person meeting ban was in place.

Internal communication

One panelist shared that early on, there was a proliferation of internal communication tools which led to crossed wires, the solution was the establishment of global communication tool protocol:

• Trading desk style of communication has proliferated throughout the organization with analysts, Portfolio Managers, implementation teams
• Daily briefings between Portfolio Manager/Trader: Increased engagement and focus on market timing/trade analytics for liquidity issues and risk management
• Market spreads prevented traders from locking prices which led to Portfolio Manager frustrations, had to manage team expectations

External communication

• High-touch interaction was reduced, panelists expressed difficulty in connecting with broker firms who were also WFH and whose capital risk was under pressure
• Reliance on electronic/low touch, portfolio trading, and algos in equities, derivatives and FX increased but in other asset classes like credit, they had to rely on voice orders, as sell-side/liquidity providers on RFQ platforms had vanished
• Trading errors relatively low, a leading indicator that execution quality was maintained throughout the stressful periods

Trading tools across multi-asset classes

• Bank/broker balance sheets made it difficult to overnight positions, so virtual trading desk is not ideal for all asset classes
• Connectivity with the street hard to manage, low-touch trading has become the go-to trading channel in a WFH environment in most asset classes
  • Great stability and tool performance in equities, derivatives, fixed income and FX
  • MiFID II/ECB went too far in applying stricter rules. Credit market before ECB actions = no buyers, after ECB actions = no sellers
  • Market making could be eased by regulator in fixed income markets to help cope with market liquidity needs
• Less need for historical data, fresh market data was/is essential
• Data-driven and real-time results were instrumental to confirm decision making versus market-feeling during periods of market stress

Automation and the continued role of the human trader

• COVID pandemic pushed adoption rates of automation, but it was not a one-size-fits all:
  • Automation rules stopped in certain asset classes (fixed income) and the rules engine was re-calibrated
  • Other illiquid names were handled manually
• Overall the panel sees automation as enhancing the value of human trader, enabling them to focus on specialized alpha drivers instead of smaller trades
• Some automated tools worked very well (EOD systems for next day of trading)

Outsourced dealing desk helps release pressure valve and other benefits

• Significant shift seen in last year or so, buy-side much more open to outsourced trading services, no longer viewed as a threat but a competitive advantage
• Not a one-size-fits all but does help supplement scalability and flexibility; saves on expenses and helps improve resiliency
• Increases the value of the in-house trading team, outsourcing can share knowledge/expertise in terms of knowledge/market access gaps
• Useful in special market cycles when it is stressing–when super busy or specific times.
• Pace of increased regulation/complexity may lead to a hybrid model of in-house and outsourcing