Umberto Menconi, head of Digital Markets Structures, Market Hub, Intesa Sanpaolo Group.
The European capital markets infrastructure that has resulted from a multitude of global events over the past 20 years is reshaping very swiftly, and this is mostly driven by technology and regulation.
In this scenario, the acclaimed importance of the digitalisation process and machine-readable data is getting more and more evident in every phase of the order workflow. They represent key drivers for the construction of a new financial market infrastructure. Machine learning (ML), big data analysis, artificial intelligence (AI), cryptocurrencies, blockchain, and non-fungible token (NFTs) are just a few examples of the challenges that market players are facing today.
This fast-changing world legitimises the question of whether, and how, the human role can be reshaped and what new skills are required to create a new paradigm, in which artificial intelligence remains a tool at the service of human intelligence, and not a replacement for it, and where humans maintain their central role within the financial markets’ evolutionary landscape.
In the past, brokers were mainly required to:
- have a comprehensive and deep knowledge of economic data analysis, market trend forecasting, trading rules and operative risks,
- develop interpersonal skills to deal with customers and internal stakeholders.
Over the last two decades, following technological innovation and a broader use of automation, trading desks have witnessed a considerable decrease in the total number of employees, while new departments have been created to manage increased regulatory complexity and monitoring of orders.
Automation of the internal lifecycle, data management and processes efficiency are now keys to step ahead of the competition, and the ability to manage, transform and get insights from a large amount of data has become a cornerstone for market players.
Nevertheless, digitalisation and computational technologies have to be backed up by skilled professionals that understand how to handle them, to control them and to extract added value, since technology by itself can rarely bring benefits to the table.
There are two viable options: either new skills for existing operators, or new traders. Probably it requires both of them. While teaching the basics of coding might be easy, being fluent with data and having the ability to improve new digital skills, develop digital collaboration tools and adapt to a quickly changing markets environment is another matter entirely.
Re-skilling existing traders is one option, and certainly there are clear benefits in increasing the level of awareness and ability to work with data and take opportunity afforded by innovation.
Another option is represented by university and graduate hiring programmes. Traditionally, the predominant academic background in global markets has been finance and economics. Today, re-skilling talent from different study paths, from engineers and mathematicians to physicists or philosophers, has become a priority.
Market Hub, Intesa Sanpaolo’s agency brokerage electronic platform, provides an example of this evolving philosophy. Recently, Market Hub has been reshaping its trading room by hiring new talent with analytical and technical skills, and giving them the instruments to succeed in this fast-paced and stimulating industry.
The adoption of a multi-asset and multi-market business model approach for clients’ order execution, and the need to diversify business models with both high and low touch approaches brings even more complexity to the table and requires brokers and dealers to be flexible and proficient over a wide range of instruments, trading venues and rules.
From a buyside perspective, large asset managers may also face the same challenges, and by hiring quants and data-scientists for modelling low-touch order flow, they can focus human resources to high-touch, and more value-add business.
New communication tools such as instant messaging and chatbox have further contributed to changing the rules of the game, replacing in most of the cases the client-sales-traders traditional voice channel to make order flow more efficient, reduce operative risk and fulfil reporting obligations.
This evolving environment has required an adoption and development of a new risk culture in trading rooms, with different factors and different scenarios under scrutiny, but also the adaptation of the role of humans.
Millennials and Gen Zers are currently living in a more complex and challenging world. Universities have reinvented their education plans to create highly motivated graduates who can add significant value to the financial industry. In the past two decades, programmes in finance and economics have been integrating their academic programmes with classes that were once pertinent only to computer scientists or mathematicians. Finally, through greater internship opportunities, and coding / data analysis skills learned during their academic career, these graduates are able to improve innovation and workflow efficiencies, whilst also better adapted to hybrid ways of working. Finance and economics degrees have been slightly changing towards a new hybrid between these innovative quant-heavy courses such as data mining and computational statistics, and traditional ones. Although important for a student’s personal awareness, we should caution that some courses are at risk of becoming obsolete since employers are often more interested in technical and practical skills that can fit better their new service models right away. In other words, university and business schools seem to be prioritising technical skills and quantitative classes by offering business cases, empirical projects and team-work to enable students to apply what has been learnt in class while training soft skills that are highly valuable on the job market.
In the last 20 years we have seen a growing and wider range of university courses and specialisations. Much progress has been made in developing coding and data analysis skills during the courses, with the implementation of computer science exams and a data-driven approach. Other alternatives are represented by financial institutions’ learning programmes. Some hedge funds and investment banks have developed an organisational area where both practical and theoretical concepts are taught to students or young graduates, in order to develop their skills and retain talent within the firm.
However, experience is still key in driving success in capital markets. Making progress in the integration of skills by experienced traders is certainly an important step to achieve better efficiency, as well as not getting overwhelmed by automated trading systems and decreasing competitiveness. Many international financial institutions are moving this way, by trying to match experience and innovative thinking. On the other hand, younger people need experience to enter the labour market – especially in global markets – and the best way to achieve this is by doing a multiple internship programme during their university years. Interns in capital markets are usually asked to take on analytical tasks to support trading desks through the production of market research, performance reporting and using analytic tools to extract value from the huge amount of market and trading data, while being constantly exposed to markets and trading operations.
The author would like to thank Edoardo Donolato and Lorenzo Bracchi for their collaboration in writing this article.
©Markets Media Europe 2022
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