Dispersed trading floors are here to stay. While sell-side traders will eventually make it back to the trading floor, banks are accepting that they will need to maintain partially remote trading floors for the foreseeable future. Though triggered by the COVID-19 pandemic, this is just another step along the path away from trading pits and towards electronic communication and automation. Trading pits gave way to electronic trading, physically separating traders from different firms from each other. This further progressed within the firm as trading floors grew larger and global, leveraging technology to allow trading and sales to sit farther apart – sometimes in different offices. Although the driving cause today is different, traders, sales, support and operations staff within the same firm are forced to physically separate. Technology is filling the space in between.
In light of this, banks are taking an honest look at their own trading operations. Opportunities loom among the challenges. Those that shift towards digitized workflows, lean into partnerships and unlock the value of data will be ahead of their peers when physical trading floors open again.
The renewed importance of outsourcing
Outsourced trading, be it outsourcing risk, outsourcing particular trading workflows, or outsourcing staff, will accelerate as teams continue to remain dispersed.
Pre-pandemic, savvy banks had already begun evaluating which functions were best suited to remain in house or outside their organization. Furthermore, these banks created digital workflows leveraging technology to drive and mediate interactions between multiple parties inside and outside of the firm. When disruption hit, the attention turned towards ensuring continuity in their day-to-day functions. Now that the situation has relatively normalized, albeit to a “new norm,” banks are examining areas where they can hone their individual strengths and expand upon those digital workflows.
Central to performance is technology that enables staff to stay connected and work together seamlessly, sitting at desks across the globe. Technology must mimic the complex workflows of trading in order to supplant the human, in-person interaction that is no longer possible. How can technology replace human coordination? It must be incredibly complex, flexible, and customizable. Trading workflows must shift with the constant tide of market changes.
A workflow that functions well today may be obsolete tomorrow. Human, in-person interaction adapts to this easily and almost subconsciously. Technology, however, needs to be structured and programmed. Banks will need to leverage others to manage the myriad of changing trading protocols, new products and internal processes. This is where outsourcing to trusted partners is a logical move. Adaptation at such a broad scale – as we saw in the early days of the pandemic – is taxing. Partners are well-equipped with the scalability that bank trading teams need to adapt on the fly, freeing up banks to focus on other areas where their IP can generate new business opportunities and support revenue growth, even in the midst of market disruption.
The changing nature of compliance
Regulatory challenges are nothing new. What has changed in the ability to address them in a new working environment.
It’s well known by now that regulators have raised concerns over institutions’ capabilities to adequately monitor trader communications while they work remotely. Fortunately, the same process and approach of digitization of interaction provides the transparency and access that such monitoring requires.
To adequately comply with regulatory monitoring requirements, voice and electronic communication workflows must be built on a foundation of structured and accessible data across various applications.
The availability of this data opens new doors. Data transparency and accessibility plays not only an important role in a firm’s observance to internal and external compliance rules, but its overall productivity. When data is accessible, discoverable and logically structured across an organization it is now open to digitization of workflows of which will empower better remote connectivity, integration and regulatory awareness.
Why workflows – and the data that support them – matter most
Physical distance between the trading desk, sales traders, compliance, operations, support and the customers themselves means increased complexity. To streamline all the information and processes splintered across numerous parties and locations, workflows must become increasingly digitized and well-defined. Those built on well-structured and universal data accessibility will prove strongest.
Even the simplest of trading workflows will involve all or some combination of the parties above. These parties must seamlessly pass information back and forth, carefully accounting for human-human and human-computer interactions. In many cases, digital workflows and data transparency will entirely replace the physical interaction between teams – including client management and idea generation.
The barrier towards modernizing trading workflows is identifying where data sits, its logical business purpose, its structure and its relation to other relevant data. Data sitting across both new and legacy systems need to be surfaced and rationalized to create one clear picture of activity. Banks must leave no piece of their infrastructure unexamined. Unlocking the value hidden within legacy systems (instead of simply trying to replace them) by integrating their data into digitized workflows will be integral for success.
Once more, this is where the right partner adds value. Banks are realizing that integrating legacy, third-party and in-house technology into one agile ecosystem is essential to their evolution – yet, doing this all themselves is beyond what their resources may allow. Technology partners have the capabilities to integrate and unlock various systems, without trying to usurp or diminish existing investments. Technology partners also build a natural expertise across a variety of technologies and uses. Additionally, banks may not have the time to tackle this all on their own, as the looming threat of further lockdowns and economic instability creates the possibility of further disruption.
Continuing the momentum
To be sure, nearly every institution was able to make the shift towards a dispersed trading floor with relative ease. It was originally believed that the work-from-home scenario would be temporary; we are fast learning that this is no longer the case.
Looking nostalgically to restore the previous normalcy misses the opportunity at hand. Digitized and interconnected workflows, outsourcing and leveraging the power of data will reap significant benefits for trading teams well into the future. As banks consider how the post-pandemic trading floor will operate, the goal should not be how to get everyone back into the office – but how to connect them, workflows and data in a manner that enables them to thrive in a new market. This should be the new norm.