Simon Steward, Director & European Head of Equity Trading at Capital Group discusses the post pandemic world of trading and the skills required.

What have been the biggest challenges over the past year in light of Covid?
The last 12 months has clearly been unprecedented, and many challenges have identified themselves but when I look back to the very start of the pandemic, we were in the fortunate position of having a continuity plan that involved the trading desk working from home as a default measure.

Our traders nearly all had existing home set-ups, identical to their office environment and thanks to regular testing, we were able to adapt to remote working very quickly and handle the increased volume and volatility of the markets in those early weeks. The areas we could not control were our counterparties and the venues in which we execute.

However, what was quickly apparent as we moved day by day through the pandemic was that nearly all the firms that we interact with on a daily basis from the execution platform were also in a good space. The volume and volatility that was going across the market meant that everyone’s platforms were very well stress tested and held up which is obviously a huge testament to the industry.

How did your desk deal with the pandemic and what skillsets were required?
I am so proud of the way that my team adapted to the pandemic in what has been a challenging time for everyone. It was a team effort to ensure we achieved that across the organisation and huge recognition is due to all our associates globally who ensured that operationally and technologically we were able to guarantee the safety of our associates and service our clients’ needs seamlessly.

With the operational side of the trading function covered, a skill that was critical for our function was around communication. Our global trading team has an average of 20 years industry experience and this was a huge asset during such market events. That experience coupled with the core skill of effective communication as the working environment required, enabled us to smoothly navigate extreme market conditions.

The other skillset that was evident was the adaptability of the trading team. Our function is a largely collaborative one – from a team aspect all the way through to the integration and face to face connectivity we have within our investment group. With this removed, we actively worked at ensuring that connectivity remained a mainstay whilst adapting to a very different physical working environment.

What lessons do you think have been learned?
I believe our traders’ skills have continued to evolve over the pandemic. We work in an ever-changing environment from a market perspective where regulatory changes, technology and our trading relationships all impact our working day.

In my view, what has happened in the new environment has bought the requirement of certain skillsets to the forefront. The ability to be a strong communicator whilst adapting to an ever changing market and working environment is a huge challenge. The skill to be able to create a good work life balance when you are in a work from home environment takes some effort. Oftentimes it can be a challenge to walk away from your workstation at the close – as there is that sense of just 10 more minutes and you find yourself still sat there 2 hours later.

I believe traders have also developed their skillsets around identifying certain process improvements and opportunities around enhancements or automation. We found that this environment has focused traders that potentially have slightly less desktop real estate to identify non-core applications but also come up with solutions around enhancements that lead to greater efficiencies.

Maintaining and leveraging the strength of our broker relationships through the different channels that we execute is one that cannot be overstated. Events like we saw last year really emphasise the importance of those relationships for expertise, experience and the resilience of their platforms.

How can a trading desk future proof itself?
Firstly, creating a diverse team in conjunction with the ability to commit and develop early career traders and have them learn from strong culture carriers in the organisation is imperative to future proofing. The diversity aspect can take many forms be it gender, race, generational or economic. Establishing a diverse team will enable you to ensure you can evolve with the ever-changing trading environment.
Secondly, everyone has a role to play. Every voice is important and ensuring open dialogue on topics like technology enhancements, idea generation or culture will encourage future success.

Furthermore, I would say embrace technology. Do not be sceptical about it or view it as a replacement for humans. Technology should be a complimentary tool to aid a successful trader and facilitate further improvements especially around areas that can support in tackling both complexity and scale.

Finally, alignment within one’s organisation and in particular with the Investment professionals that you are executing for is key. You need to ensure you are in tune with those individuals to make sure you are producing aligned outcomes. When you take these things and embed them into areas of automation and process improvements, you end up with a desk that should be future proofed.

In general, there is much talk of the future trading desk – how do you envision the new world and the transition back to the office. Will hybrid desks replace centralised dealing desks?
At this point this is difficult to answer because the truth is nobody really knows. Many businesses are currently assessing what their future working environments may look like.

What we have seen happen in the last 12 months has without doubt brought our industry forward by several years. It has emphasised the future potential of flexible working. The ability to bring this flexibility into the trading world will hopefully enable us to retain existing talent and provide us a platform to attract new talent as well as a more diverse workforce – which is what we as an industry should be focused on.

There is also talk about fostering a better diverse and inclusive environment. How does that apply to trading desks and how do you see that evolving?
At Capital Group we talk about Diversity, Equity & Inclusion. With Equity referring to the equal advantage and opportunity for all. Diversity Equity & Inclusion is about embracing the fact that different perspectives are essential in generating successful results and to making sound business decisions. It is the belief that continued growth and success depends upon the diversity of our industry, as well as the ability to create a feeling of belonging for all participants, regardless of race, religion, ethnicity, gender identity or sexual orientation.

From a trading perspective we should all be committed to making the market a diverse and inclusive place. The process requires essentials such as empathy and patience and by being brave and open enough, this makes our industry far stronger and better.

I believe the key around this in the trading environment is ensuring that we have the correct platforms at the industry level to discuss initiatives so that we can ensure that this has the right support and emphasis. My expectation is this will be happening far more throughout 2021.

What does the move to sustainable investing mean for the trading desk?
The impact will be very firm specific especially concerning the trading desk and how trading patterns will be affected outside of the general support of the investment groups processes in stock selection.

One area that is becoming potentially impactful for the trading desk is around ESG practices within trading for organisations to focus upon. Individual firms will have a responsibility over time to help create more sustainable financial markets and similar to the DE&I space, the key here will be establishing platforms near term to be able to provide opportunities for the industry to collaborate and share ideologies in order to make meaningful change. This is another key initiative I see for the industry in 2021 and beyond.

Has Brexit had an impact?
In terms of the impact on trading, Brexit has largely not been too impactful. The industry was well prepared going into the year end of 2020 despite the fact there were still some unknowns late on in the process. When we look at the liquidity landscape now and the position we are in, there is very little in the way of surprises as to where liquidity is being formed.

It very much appears that market structure has hardly changed pre versus post Brexit. We have seen Swiss equivalence granted in a post Brexit environment (February 3rd) and the market is monitoring the impact the equivalence will have upon liquidity, spreads and the cost of trading for Swiss Instruments.

Aside from the pandemic and Brexit what are some of the biggest challenges that traders face? What have been the biggest changes?
In the trading landscape, the primary focus in my opinion is always around liquidity and how market structure changes impact that. Post Brexit there will be focus around the potential for regulatory divergence. Continued discussion around what the future market structure will look like with specific venues is still under the microscope. The adaptation of new market initiatives around the close in Europe remain in their infancy but have the potential to alter the landscape significantly.

The evolution of a consolidated tape will continue in discussion form as many market participants contribute to the ongoing debate around what this should look like. Finally, there is much discussion around market resilience especially within primary exchanges as we look to develop a ‘playbook’ to ensure outages can be handled in a far more efficient way for the industry going forward.

What are the opportunities for your desk?
When I think about all the areas especially regarding future proofing the desk, there are bound to be opportunities and it really is about identifying them and acting on them.

We place a lot of emphasis around technology as an organisation and at some point, when we take stock of the pandemic, the ability of our traders to identify efficiencies and process improvements has been critical in terms of technology investment for us moving forward.

The other area is around better alignment and being able to establish how we can add value to the overall investment process outside of just liquidity discovery. As such, we continue to work on harnessing our data sets and our data analytics capabilities.
We are in the strong position of having dedicated resource in this space from our Market Transaction Research group that can help utilise data across the whole trade process – encompassing pre trade, in trade and post trade – to ensure we are well aligned with our investment professionals needs to consistently deliver superior investment results for our clients.

What technology do you think will play an important role?
Technology and automation discussions tend to go hand in hand, and so firstly identifying those processes that can utilise automation is essential as is also ensuring that the automation will create value and efficiency improvements.

There is then the key decision around what kind of technology you need to incorporate to deliver this solution and whether you ‘buy vs build’ this obviously requires careful consideration at the onset around relevant skillsets internally or ensuring you engage with the right third-party provider who understands your needs.
The appreciation that automation can throw out downstream implications within businesses is well known so flexibility remains key as you may need to pivot dynamically. The biggest challenge though is always time. Being able to narrow that time from the point of opportunity identification to the actual roll out is critical as the markets and its requirements are rapidly evolving.

The industry has talked about the use of machine learning, artificial intelligence and natural language processing which I have no doubt will all form key parts of how we operate going forward.

What tech would you like to see being developed?
We are very fortunate at Capital Group to have a dedicated technology team that have an incredible set of skills that enable us to create solutions for the trading group when a use case is identified.

We do however strike a good balance between identifying enhancements and tech that we can build versus those where we need to engage a third-party.

I have seen significant technology change over my career, and I have no doubt that we have barely scratched the surface on some of the opportunities for the trading desk moving forward with the introduction and identification of greater use cases for machine learning and artificial intelligence.

The utilisation of blockchain in certain operational processes is becoming more common now and will continue to evolve. Technology around data utilisation will probably be where we see the greatest continued usage as we all continue to be largely data driven in our trading processes.

Biography:

Simon Steward is Director & European Head of Equity Trading at Capital Group. He has 22 years of investment industry experience and has been with Capital Group for 20 years. Prior to joining Capital, he worked in the client relationship division of Goldman Sachs Asset Management. He holds a bachelor’s degree in economics from Sunderland University. Simon is involved in many different industry initiatives including the position of Deputy Chair of the Investment Association’s Buyside Trading Committee & has recently joined the board of the Plato Partnership.

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