Capital Group’s head of European equity trading on the impact of regulation and technology on equities trading, and the perennial essential skills needed to be a successful trader.
What does the trading desk of the future look like? Five-ten years?
If we look at the themes that are currently in play – the growth of multi-asset desks and the utilisation of greater technology – this will likely be the direction of travel and natural evolution of the buy side trading desk as asset classes continue to trade with greater similarities and as market structure appears to converge where possible.
In my view, the important thing to acknowledge is that there is no one-size-fits-all approach to trading desk composition for firms. What works for one may not work for another. The main drivers here are an organisation’s priorities or investment methodology. Continued focus around costs, regulation and market complexity will likely continue to fuel outsourcing for some firms and technological advancement primarily in the form of AI, will also play a key role.
As we have seen over the last decade, the buy side trading desk has evolved regarding requirements and approach.
What has the most impact on the evolution of equities execution? Regulation or new technologies?
In my view, equity execution evolution over the last few years has been driven in cycles by different focus points. MiFID II was a significant piece of regulatory change that changed the landscape in Europe in the way many firms approached their trading.
From MiFID II, we saw increased competition in the form of new venues and the requirement of robust SORs and an equally robust need to understand and evaluate the execution outcomes to validate your best execution process. We then moved to the next evolution around a greater focus on latency and a change in market composition regarding market participants which had implications on the way buyside firms approached the markets in Europe and trade execution.
In my perspective, it appears as if we are now entering a new phase driven by greater internalisation coupled with the growth of bilateral trading. Currently, these decisions are being led by industry themes on explicit costs, margin erosion and utilising advantages of scale amongst industry participants. As in the previous cycles, buyside firms are continuously evaluating execution outcomes to ensure the current market structure and market approaches are valuable and fulfilling their best execution obligations. As always, asking the right questions in these cycles is important to build a greater understanding of the decisions behind them.
With a focus on technology, this now as in the past will enable some firms to differentiate themselves from an execution standpoint. Once again, we have seen several cycles over the last decade around greater efficient content delivery. Trader automation tools, trader dashboards and now the more mainstream approach of AI utilisation in the trader toolkit will form the latest cycle. The speed of adoption will differ amongst firms based on their own internal AI policies and also their ability to embed AI into their workflows. It very much feels like every firm is on its own journey currently.
What tools/skillsets are most desirable over the short term to ensure your desk is future-proofed? What people skills and technologies will be most useful?
The skillsets I consider as important for a trader have not changed. The ability to be a strong communicator both internally and externally is important, as is the requirement to disseminate information in a fast and accurate way. The ability to build and maintain personal relationships, again both internally and externally, is crucial, as the need for trust and reliability has long been a defining factor within our industry, and I have not seen that change throughout my career.
Having the ability to listen is a somewhat downplayed skill, but it’s so key. The small subtleties in instructions or reading between the lines around the interpretation of market information can be the difference sometimes between a good or bad execution. I touched upon adaptability earlier and believe that this is a key skill as we continue to utilise new technologies in many different forms.
It’s invaluable to be open-minded and progressive in how we engage with these tools. In my experience taking traders along on the journey of new technology deployment is key to solid implementation of said technologies. You want the trader to have a say in the design as they will be using it day in and day out. Market structure awareness is important as we all now spend more time understanding where and why things are traded in certain venues or levels; knowing to be able to ask the correct question is critical. The final area and skill set is being a strong team member. This will take many different forms over a trader’s career, be it an organiser, leader, mentor, culture carrier, advocating for change or questioning the status quo, but will all be needed by a successful team over time.
What is coming over the horizon that you think will have the biggest impact on trading desks?
We are at a really interesting inflexion point for the industry as we are about to enter a new technological age with the proliferation of AI. This will have one of the biggest impacts on trading desks and markets over the next 5 years in my opinion. Greater efficiencies appear to be the initial benefit from this kind of technology, so you have to hope that this will make traders better and more focused with greater insights and opportunities to develop additional skills. But as mentioned before, the adoption will be at a varying pace and will no doubt look very different across trading desks. The use of data will continue to be a big driver for traders, and I believe we have only just scratched the surface on some of the analytics we use in terms of execution evaluation and routing technology. Continued academic studies on specific venues and market structure are essential to provide context for us to question and ensure the best outcomes for our clients.
It is an exciting time to be a trader, especially looking at current and future market developments. The hope is that this will help attract more talent to our industry, and help us continue to evolve, challenge, and improve.
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