We need to take a step back and look at today’s trading desk. By dissecting a trading desk into its functions, processes, and tasks, it becomes clear that 80% or more can be successfully automated with today’s technology – and that figure is just for the front-office, potentially even higher in the middle- and back-office. We first need to envision how the job will evolve in the coming years. I envision the trader’s role converging into a multifaceted position where responsibilities traditionally spanning from the front- to the back-office will be seamlessly integrated and executed with the aid of technology.

These technological advancements will profoundly impact our industry and give rise to a new kind of role: the “domain jack of all trades.” In other words, traders will likely become more akin to product owners. Being a market expert and knowing all the ins and outs of trading will no longer be sufficient. Instead, we will need to be familiar with all aspects of the business, from legal and settlement processes to transaction cost analysis and trading. This implies that fewer people will be needed to run a trading desk end-to-end, with more operations running as a one-man show, relying on the interaction of a human and a multitude of specialist systems or AIs. 

So, what are the skills of a domain jack of all trades? 

By definition, many, but the key ones I believe will be relevant are: 

Project Management Skills: The ability to manage multiple tasks, prioritise efficiently, and oversee the implementation and maintenance of automated trading workflows.

Adaptability and Curiosity: Flexibility to adapt to new market and regulatory conditions. A continuous drive to learn about every single corner of the business and market. This adaptability will be essential in an environment where change is constant and rapid.

Technical Skills: While traders may not need to program large-scale applications, the ability to retrieve and analyse data will remain vital. Skills in basic programming or systems knowledge will be necessary for tasks such as manual overrides, improvements, and customisations. Understanding technology will be crucial for validating automated workflows.

Soft Skills: Strong communication skills to convey complex information to diverse stakeholders. Problem-solving and creativity to navigate and innovate within complex systems. A holistic business understanding to see the broader picture and integrate various aspects of the business effectively. This is, and will likely continue to be, a people business, requiring strong interpersonal skills to manage relationships and collaborate effectively.

The interesting aspect of this vision is that no single degree can prepare you for this. It is unrealistic to expect a trader to be formally trained in finance, software engineering, and law to do the job. Therefore, either education will need to become significantly more industry-focused, or firms will have to identify and develop new talents to become the domain jack of all trades.

The trader of the future will be a multifaceted professional, adept at integrating technology, traditional market expertise, and a broad understanding of the operational aspects of the business. This evolution will streamline trading operations, creating more efficient and dynamic trading desks powered by human-AI collaboration.

How can firms ensure that their traders receive the necessary support to do so?

We have two aspects to consider, how our firms will develop domain jack of all trades within the existing workforce and how will we recruit them. In terms of development, I work for an organisation that has successfully cultivated domain jack of all trades for years. What I have seen is that ownership is what transforms a great employee or trader into a do-it-all, all-terrain expert; giving more responsibility and freedom only brings the very best of people as far as the firm’s mission is clear to everyone in the organisation, which is the case of NBIM – with the added advantage of having a common goal.

As a trader, this ownership can mean taking full responsibility for an asset class and/or a region. This includes managing counterparty relationships, overseeing internal processes, making key decisions, and communicating across various stakeholders. Effectively, you own a start-up within a larger organisation. This setup naturally drives innovation, improves how things are run, and maximises returns. Because of this, I believe that firms with a flatter structure are better positioned to foster ownership and hence develop successful domain jack of all trades.

Additionally, rotations or secondments across all seniority levels have been widely popular and highly effective tools. They not only support the development and future-proof our workforce but also cross-pollinate best practices. This exposure to different parts of the business helps traders develop a broad skill set and a deep understanding of the entire trading operation.

The other aspect is how do we recruit domain jack of all trades. It is obvious that the old-school interview rounds, and brain teasers and esoteric questions are no longer relevant. Hiring will likely become a lot more expensive. New grads will probably be hired from summer internships or similar programs where we can evaluate individuals over a longer time horizon. Finding well-rounded candidates for trading roles will be very difficult with short hiring processes.

How do you expect traders to adapt to software engineering requirements in the future?

The claim that traders will speak the language of software engineering is becoming increasingly true. However, it’s essential to understand that software engineering encompasses much more than just programming. While AI might handle the bulk of coding tasks, there will always be a need for scripting and integration. If we consider the trader as the conductor of an orchestra of AIs, the need for software engineering becomes much more apparent. The trader, as the domain expert, will need to resort to engineering principles to design and aid in the development of trading workflows and systems.

Traders of the future will need to develop a robust understanding of engineering principles to collaborate effectively with technical teams and machines. This shift will enable them to design, develop, and manage complex trading workflows, leveraging the full potential of AI and automation. As the conductor of an orchestra of AIs, the trader’s role will evolve to integrate technical expertise with market knowledge, driving innovation and efficiency in trading operations.

In your Oxford style debate, your opponent is arguing AI will fill the role of coding and traders will go back to the phones – what do you think will happen?

I think Armon-Jones uses the phone as an analogy for the business getting even more relationship based. With increasing process and decision-making automation in trading, I cannot see this evolving in that direction – unless the trader makes a script to instruct the systems to route volume based on what broker took him/her out for lunch that week, in which case the trader would need to know how to program!

If voice trading is supposed to save the role of the traditional trader, we should see this role growing significantly over the next couple of years. Unfortunately, the opposite is true. Looking at current trends and how the future is shaping up, there will be a reduction of workforce at the trading desks. When that reduction of personnel required to run a trading desk becomes its minimum, it will converge to the trader as the conductor of an orchestra of AIs or the “domain jack of all trades”. It sounds scary, but also it opens lots of exciting possibilities and new roles in the industry.

The post The future role of the trader as product owner appeared first on The TRADE.

Christopher Lemmo left BlueBay, part of RBC Global Asset Management, in April this year after almost 13 years at the fixed income focused asset manager.

He has been appointed senior trader at Norges Bank Investment Management, based in New York.

Norges Bank Investment Management confirmed his appointment.

Lemmo joined RBC as an investment-grade credit trader in 2010 after previously spending nearly four and a half years at Vanguard in its analyst development programme and later as an investment-grade credit trader.

Joining the US-based RBC BlueBay desk as Lemmo departs is Ben Romeo who has been appointed senior trader after most recently serving at AXA Investment Managers for a decade.

RBC BlueBay confirmed Lemmo’s departure and Romeo’s appointment.

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Long-term strategy

“What we’re doing here is trading out the residual risk,” he explains. “We’re not involved in managing the fund’s investments, so we have a slightly different focus and time horizon. We manage the foreign exchange execution risk, we’re not making five-year decisions, we’re just trying to lay off risk profitably.” 

However, with the recent interest rate hikes, inflation, the energy price shock and other adverse market conditions, the last year has been interesting, to say the least. 

“Since around 2010s we’ve had very low volatility, so we’ve had a very successful trading strategy where we’ve been extremely patient and passive. There was no reason for us to jump onto any prices, we could just wait, let the market come to us, and keep our execution costs low. It has been a profitable strategy, but things can clearly change. There is of course this risk that your strategy isn’t suitable all the time – we are not dogmatic, we won’t sit patiently waiting to buy US dollars as the market runs away from us. 

“Our strategy is still working well in developed markets, but in emerging markets we are pivoting slightly, looking to build some capability and see how we can perhaps lay off risk somewhat differently to how we have in the past. In DM we can be incredibly patient, passive, and let the market come to us. In EM, it is no longer so easy, and that’s where we are seeing some challenges.

“We’ve also relied on our liquidity providers for risk prices perhaps a little more than we’ve done in the past – they are much better equipped than we are to lay off risk when markets are fast. We try to be fair to them in terms of clip sizing, spacing, and so on, and in return we rely on them to provide tight prices so that we can get out when we need to.

“Spreads are definitely somewhat wider right now, which is natural when volatility is higher. In the current regime, we have to be very careful in assessing liquidity and an LP’s risk warehousing capabilities – when the market is not moving, anyone can make a tight price in $100, but when it’s moving 50bps in two minutes then it’s a whole different ball game. 

Global code

These challenges notwithstanding, Pruthi is firmly focused on how to grow, develop and protect the FX market – and to that end, has been heavily involved in the development and publication of the FX Global Code, a principles-based set of guidelines for the industry developed following the series of heavy regulatory fines for misconduct in the mid 2010s. 

“FX is a difficult market to regulate because there is no regulator as such,” explains Pruthi. 

Back in 2015, BIS Markets Committee set up a group of senior market participants called the Market Practitioner’s Group (MPG), led by former deputy governor of the Reserve Bank of Australia Guy Debelle, which was given the task of establishing best practice for the FX community. The group decided to develop a principles-based code, because principles are difficult to arbitrage. 

“You can have as many rules as you want, and people will always find ways around them,” pointed out Pruthi. “But a principles-based code that covers as much ground as possible is much harder to circumvent. We spent probably three years thrashing out what those principles should be – with an initial focus on the ground highlighted by regulatory failings.”

The 2017 version of the code came out with 55 principles, with NBIM as the first buy-side signatory. The ownership of the code has now been transferred to the Global Foreign Exchange Committee (GFXC), made up of 18 central banks from across the world, with each bank bringing in a private sector representative. Pruthi is now the GFXC member as the ECB’s private sector representative, and as such has played an instrumental role in developing the latest version of the Code, which came out in 2021. 

“The first version of the code was fairly well received, but there were still some questions around certain topics. The idea was that the code should become a living document, so in 2019 we started working on the new version, adding in some of the things that the market was asking for, such as more guidance in pre-hedging, anonymous trading, disclosures, transaction cost analysis (TCA) and so on. 

“The 2021 version also strengthened its guidance significantly on last-look hold times [a practice whereby a participant receiving a trade request has a final opportunity to accept or reject the request against its quoted price], and as a result most liquidity providers have removed hold times altogether. This has been the biggest discussion in the FX market for the past five years, and the updated guidance should make the whole market fairer. 

“If you read through the code, and through LP disclosures, you’ll see there’s a spectrum there. But disclosure information is now all available at a central repository, all you have to do is click to understand how your flow is handled. This is tremendous from a transparency perspective.”

Progress has also been made in the field of algo disclosures and TCA templates – not all of which may have been published widely yet, but many LPs have done this already. And there are also now venues which are curating liquidity pools with code compliant liquidity – meaning that every participant in the pool has signed up to the code – a huge step forward. 

“All in all, there has been some solid progress made over the past few years,” says Pruthi. 

Looking ahead

So what still needs to improve, for the next round of updates?

“The idea is to keep pace with the markets. But the bar to make changes to the code shouldn’t be too low. Any division or addition to the code triggers a huge amount of work for all signatories – my own trading compliance team spent the best part of six months before we could realistically attest to the code. We shouldn’t take that lightly.”

That being said, GFXC will conduct a survey among market participants in Q3 and this is likely to be used to see if there are any immediate gaps that need filling. At present, the survey plans to focus on the effects of the July 2021 revision, and reflect on the impact of those changes. But there is still some work to be done. 

“I think there is less awareness in general around algo disclosures and templates, and that needs to change. If we could get to a place where all counterparties have a standardised disclosure, that would make it much easier for a buy-side participant to make comparisons. 

“We also want a robust, fair, openly transparent FX market, and that can only happen when data access is democratic. At the moment there are data haves, and data have-nots, and that is something the GFXC leadership is actively considering at the moment.”

So how should FX heads of desk be preparing their desk for any changes? 

“You know, it’s more about making your traders aware of all the changes that have been made, make sure they have access to all the disclosures and that they understand the implications of their execution choices. The code provides a framework to evaluate these execution choices and helps you to know what to expect from your counterparties and liquidity providers.” 

The post Looking ahead: Ankur Pruthi on the FX Global Code then, now and in the future appeared first on The TRADE.

NBIM needs no introduction. As the world’s biggest sovereign wealth fund, the $1.3 trillion fund manages the country’s oil assets on behalf of the Norwegian people, and is one of the most influential global investors – accounting for an estimated 1.5% of all the world’s listed companies. The fund occupies an unusual position with just one single owner, the Norwegian Ministry of Finance – or indeed five million individual stakeholders, if you count its public position owned by the people of Norway – which gives it a uniquely long-term perspective… and informs a uniquely P&L-driven investment strategy.

“We’re extremely long term – as long term as they come – and our target audience is literally future generations. So we have very little by way of the unexpected when it comes to in and out flows,” explains Norberg. “We have one owner and a huge, long-only balance sheet – all these characteristics make us a little different. 

“We don’t have to spend time on marketing ourselves or reporting to clients, so we can spend all our time on making investment decisions, which is of course an advantage. Then we have a very stable allocation, so we don’t need to worry about inflows, outflows, reallocations, or clients withdrawing funds, which gives us stronger positioning. Most firms need to keep their positions much more liquid than we do. We don’t have attribute our flows back to different accounts for every single trade and that makes a huge difference because it allows us to look at what’s best for the fund overall. Then our centralised trading desk means we can have an actual P&L on the trading desk, and it all goes back into one pool without needing to be segregated under multiple different funds, which is a significant advantage.” 

Specialising for profit

Leading a team based in Singapore, Oslo, London and New York, Malin Norberg took over management of the fund’s global fixed income trading in January 2021, from her previous position as head of EM debt trading. Upon her hire, the trading team split into two teams: equity and fixed income. The fixed income team – which covers everything from credit to FX to emerging markets – is now up to 17, consisting of 14 traders (including Norberg), two quantitative analysts and one technology hire. 

“We used to be more generalist, and regional,” says Norberg. “Everyone used to trade a little bit of everything, but about six years ago we split into specialist teams, and now each team focuses on a specific area. Every trader is a specialist in the asset classes they trade, and they partner very closely with their portfolio managers to understand how to get liquidity even in the most challenging conditions.

“We’re sitting back-to-back with our portfolio managers. We work very closely with them and we generate ideas in daily morning calls – but we’re also very autonomous in the sense that we have full responsibility for execution in the market. For example, we have internal risk pricing books where if a portfolio manager wants to do something in the secondary market in terms of FX or credit, they just send in the order and it gets priced up and executed immediately (from the perspective of their portfolios) , and the trading desk takes over that responsibility for execution in the market. 

“That means we own the risk and P&L of the position , and it means the PM usually gets a better price than they would have, for that type of size. It allows the trading desk to manage risk much more efficiently, more like a portfolio position rather than just standalone positions. So we can hedge it, we can offset risks that we can cross, and that’s a pretty unique set-up. 

“In addition, we have our own liquidity provisioning portfolios where we can take positions on short-term dislocations in the market, along with elements that wouldn’t really fit into the PM portfolios. Structuring the desk like this makes it much more than just an execution desk, it actually becomes a profit centre for the fund. 

“And for the traders, of course, it’s a much more interesting position to be in – when you have your own portfolios, you’re constantly looking at the opportunities in the market and you always make sure you know what’s going on. So you have a grasp on liquidity conditions, you stay in contact with your counterparties and even when it may not be a very active period for the fund, by doing this, you’re always prepared for the next big trend.”

The importance of integration

Based in Oslo but with a background in technology as a systems analyst and with a stint in New York as a fixed income trader also under her belt, Norberg has used the past few years to good effect in terms of integrating the technology function within the team and extending its analytical function to improve decision-making.

“Technology is no longer a support function, it’s an integrated part of the way we operate,” stresses Norberg. “Earlier this year, the people working on analytics became part of our team. There is a team of developers also now devoted to our business area. They sit next to us in the office, and we work closely together. A key objective of mine is to better integrate analytics and data into our decision-making in order to be smarter about how we trade.

“The technology space is definitely a challenge for us. There is so much happening in the technology landscape and it takes an effort to be on top of the developments in this area. We’ve been focusing our efforts on building in-house tools that combine our proprietary data with external sources to provide us unique insights, and we’re really trying to streamline our processes. For example, primary auctions are something we’re spending a lot of time on, consolidating all of our information into one place enriching data with historical selections and analytics, which keeps the PMs and traders informed and in a position to make better investment decisions.

“We currently have a number of gaps to fill in our PMS/PMS setup for fixed income.  Some years ago we used BlackRock’s Aladdin, which was a good all-round system. Now, however, we’ve adopted the Longview system from Linedata that our equity traders use, and we’re trying to fill the gaps by building in-house. We did a project a year ago where we looked at fixed income EMS systems, but we couldn’t find any that were mature enough to actually do the work we needed. What we don’t have yet is electronic connectivity and straight-through processing for all products, and this is one of the important topics we are trying to address.

Size and speed

“For us, the biggest technology trend that we are making use of is data offered and consumed via API’s – or directly via platforms like Snowflake Marketplace. Datasets for analytics and decision making have become much more widely available, coupled with modern software development and cloud services we can develop solutions in a much more timely and efficient manner without massive implementation projects. This reduces the threshold for assessing new products and solutions. We also see willingness from the buy- and sell-side partnering up with technology companies to build new solutions and streamline processes.

“It all makes for better opportunities, and for more cost-efficient and scalable solutions. What that means for us is that external data becomes available faster, and that can be used for analytics, automation and rule-based routing. Our traditional system portfolio is still there, but we are now working to try to present one single interface where everything from investment research to execution can take place. That reduces real estate used by traders and provides more analytical input directly into their decision-making process. 

Doom and gloom

“Having said that, fixed income data is nothing but a challenge. We are a strong proponent of well-functioning markets as we believe that that’s going to benefit our investments in these markets, which we intend to be in for a very long time. Hence we’re very positive to initiatives bringing more transparency to the market, such as the consolidated tape. That’s going to help the trading environment as well as the capital markets in Europe – we envision it as a low-cost utility, that should be available to everyone and bring the same transparency to all market participants. It will be important to have a proper governance structure around that with market participants weighing in on decisions as to how it is set up. The ultimate goal should be to have as much transparency around prices as possible, available as soon as possible.

“We’ve been working closely with Ediphy on their journey, giving them advice on set-up and how we envision a tape should look like. It’s also worth mentioning that ideally, we’d have the tape joint between Europe and the UK instead of two different transparency regimes, which will fragment liquidity. There’s no upside in having numerous different regimes. If it’s a consolidated tape, it should be consolidated. 

Market movements

“Another big challenge is of course the volatility and illiquidity in the current market, which seems to be here to stay. It’s a unique environment that we haven’t seen in a long time, and with the current quantitative tightening and rising rate environment we can see that many of the strategies that have worked up till now on both portfolio management and trading are now behaving very differently in this new rate environment. It has become more challenging to move size, especially in markets that were already quite illiquid to begin with. In certain emerging markets, for example, liquidity in cash bonds  has completely dried up. Dysfunctioning markets have also made it more difficult to make money on relative value type of trades as dislocations tend to persist for longer.  

“Up until now we’ve been almost wholly invested in cash bonds. Over the past couple of years, however, we have put in place more use of derivatives, such as interest rate swaps in emerging markets, to be able to manage risk more efficiently. We’re definitely not moving away from cash bonds, which our still our main business, but derivatives are allowing us to take more active risk-taking and shift positioning faster and more cheaply . In certain emerging markets, you can manage the risk more efficiently with interest rate swaps, for example, or taking quicker bets on our hedging risk where we can’t buy or sell quick enough. 

World view 

“More than ever, it’s impossible to trade this market without having a macro view, so it’s interesting to see how much broader our morning discussions are becoming compared to a few years ago. Before we’d talk about things more directly  related to our markets – now it’s German gas prices, water levels in the Rhine and pork prices in China. 

As fixed income markets see increased volatility however, the opportunities are also improving – for those who can take advantage of them. 

“Of course, we are very excited that people are starting to care about fixed income again. The asset class is becoming more attractive to invest in now that there are higher interest rates. However a lot of the flow into fixed income these days seem to be going into similar positioning. When there are lots of like-minded positions the flow tends to go the same way – people are buying the same bonds and creating more rapid price movements in those bonds, which is not always rational. These days it also feels like it’s being conducted in a lot of small clips through portfolio trades or other protocols. That can be a good chance to capture liquidity, but it does require you to have the appropriate set-up in terms of technology and staffing, so not everyone can take advantage of that.

Relationships matter

“We’ve actually managed quite well in terms of liquidity, and our hand is seldom forced. We have the luxury of rarely having to rush it too much. But we’ve always been very conscious about having good relationships with our brokers – being friendly investors, and partnering up with them on large trades instead of just pushing through our own trades. This relationship becomes even more important as liquidity dries up: so coming back to my original point, having traders who are in tune with the market and their counterparties has been invaluable. 

“One key advantage for us however, especially in terms of large trades, is that we’re not bound by best execution. Best execution for us, because we only have one owner, is about what’s best for the fund, long-term, not about trying to push every single trade as far as we can.

“With the set-up that we have and the relationships we have, we’ve evolved to becoming more of a liquidity provider than a liquidity taker. And our most successful counterparty relationships are with those who put some effort into getting to know us and understanding how we operate. Since they’re taking less risk on the sell-side, what tends to happen is that they get shown a block where maybe they can’t take the entire size, so they show it to us and ask if we want to partner with them. 

“We have the autonomy on our desk to take that kind of risk ourselves – we don’t have to go back to our PM, we can make those decisions straight away and that’s been working out very well for us.” 

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Eivind Aukrust has joined DNB Asset Management after six and a half years at NBIM, according to an update on his social media.

His most recent role as a portfolio manager at NBIM was his second stint with the firm after serving as a trader there for over six years from 2008-2014.

In the interim, Aukrust founded Auka Capital and spent a year as a hedge fund manager.

“Forever grateful for having spent the most formative years of my career at this amazing place, if your passion is finance and markets it’s a no-brainer to pursue a job at NBIM,” said Aukrust in his update.

“Now I’m humbled, honoured, and super excited to join the superstars at DNB Asset Management DNB, where I’ve just started as Head of Index linked strategies!”

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