Technology has been transforming the trading floor over the past two decades, but advances and new tools are accelerating the process. “Digital" is a buzzword employed by many firms – but what are digital markets? In this podcast we explore how technology is set to impact clients and is changing the business. What asset classes across markets are more electronic and why? How can technology empower salespeople? J.P. Morgan’s Global Head of E-Sales and Co-Head of Global Macro Sales & Marketing Warren Rabin and Global Head of Digital Markets Eddie Wen discuss.
The Future of the Trading Floor Transcript
Julia Verlaine: Hello, I'm Julia Verlaine from J.P. Morgan and welcome to this episode of Market Matters. Technology has been transforming the trading floor over the past two decades, but advances and new tools are accelerating the process. Digital is a buzzword employed by many firms, but what are digital markets? In this podcast, we explore how technology is changing the way we do business. What asset classes across markets are more electronic? Why? How can technology empower salespeople?
Julia Verlaine: To discuss I am pleased to welcome Warren Rabin, Global Head of E-Sales, overseeing distribution across J.P. Morgan e-sales channels. Warren is also Co-Head of Global Macro Sales and Marketing. Joining us also is Eddie Wen, Global Head of Digital Markets, who leads e-commerce teams across all markets products. So, Eddie, I'm going to start with you. Electronification has been a long term trend across a lot of markets, but what are the driving forces contributing to the further electronification of markets today?
Eddie Wen: First of all, pleasure to be here. This is a wonderful opportunity for us to talk a little bit more about what's happening in the electronic markets for businesses. So, look, this trend isn't new. It's been happening for some time. Electronification is something that's an effect of a combination of technological changes, regulatory changes, client demand, and a lot of the inefficiencies that go on in the marketplace today are now better addressed through automations.
Eddie Wen: We're seeing a lot of these trends happening across different asset classes. They are not all happening at the same time. In some areas they have been a little more progressive toward that change, whereas other areas are slower in adopting to it. But the trend is very clear. There's a one-way move towards a much more electronified business model as we see across markets.
Julia Verlaine: So what is some of the difference, though, what we've seen in equities versus FX and rates, for instance.
Eddie Wen: So, look, in the equities space, I think we all are familiar with the electronification largely driven by the retail business in the very early days. The motivation in the foreign exchange business is really driven by efficiency gains. Looking at how do you actually do things more efficiently, a lot of the dealers invested heavily into electronic single dealer platforms and ultimately clients got better prices, better services, and I think that's lead to a long evolutionary change that drove a lot of the conversions of businesses that were formally done over the phone to electronic systems.
Julia Verlaine: So, I mean, Warren, from the sales perspective, how does this translate to that? What are you seeing?
Warren Rabin: Thanks, Julia. Really excited to be here. Thank you for the opportunity today. Eddie talked about efficiencies and I think that is true, and that has been the biggest driver, but I think also for our clients specifically it is about price discovery. It's about liquidity. It's about ease of workflow. If you trade electronically, you have a lot more data and less execution risk.
Warren Rabin: So I think for our clients it's a big win and I think for us it's a big win. It allows us to focus on some of the higher value services that we would like to provide clients and less on the heavy workflow of execution.
Julia Verlaine: Mm-hmm (affirmative). So my question then would also be how is technology changing the dynamics of the trading function today? That's more or you, Eddie. Then how are you two working together around this change from a sales perspective and the trading side?
Eddie Wen: I could probably go on for half an hour on this topic alone. So clearly I think the technology has changed our trading businesses, and that actually isn't something new. That's been going on for as long as I worked on Wall Street. I think maybe the pace of change has drastically improved. I think one of the key challenges when it comes to traditional trading innovations has been, we kind of think of the world as there's trading and there's sales, but a lot of this crosses over between the boundaries. The key innovation in e-commerce is, yes, there is a lot of electronic trading. We build algorithms, tools, automating much of the trading activities.
Eddie Wen: But I think the biggest change has been the process of distribution. If you have broadened the distribution process on these electronic systems, they almost have a bit of a network effect. If you're a trader, if you're a salesperson, you need to think about your business very differently and how you risk manage, how you source liquidity. Well, in some cases, your client is your liquidity.
Julia Verlaine: Warren.
Warren Rabin: I think it's a lot more exciting and more interesting than it's ever been, and the one thing that I constantly say to my teams, and I know Eddie does the same with his teams, is this is nothing to be afraid of. This is something to embrace. It is making the world more interesting. It provides more opportunities to service clients. For those that embrace it, I think there's a ton of upside.
Eddie Wen: I think another angle to add to Warren's point is just the scalability of our business. Sort of like when you automate the process of market making, your ability to do that in scale, and also the quality of your service actually improves substantially. You'll find that as you invest more dollars into technology and refining your pricing algorithms, the quality and competitiveness actually increases as time goes on.
Julia Verlaine: So, Warren, how do you see the sales function transforming in the next few years when it comes to technology? How is the role of the salesperson changing as well with the advent of data?
Warren Rabin: The role of the salesperson historically has been sitting between a client and a trader negotiating a transaction. That's what we looked for. That's what we used to pay for. There's still some of that takes place for sure, but less and less. As the clients are increasingly self-executing depending on the products that they're in. As Eddie said, every product's at a different stage of electronification.
Warren Rabin: But I think now what I'm looking for in my salespeople is relationship management piece has gone up in terms of the type of dialogue you can have with a client. You have more time to have that dialogue. Delivering content is more important. I think that's something that J.P.&nbbsp;Morgan's always been good at, but now there's more opportunity to do that and to do that in more interesting ways. It's not just sales and trading that's evolving electronically, it's also research distribution.
Warren Rabin: Data is another area where I think that salespeople will need to be better educated. So I see it with young people coming out of college now. A lot of the college programs, regardless of your major, have a little element of data science and that's an area that I think more and more of us need to understand. But I think it's more a mindset around using data.
Warren Rabin: I think we need to change the culture around being inquisitive and understanding the flows, the clients, the needs. Because it will make us better. It will provide better insights for our clients, better insights for our trading, and lead to opportunities and better profitability for both us and the client. So it's really a mindset shift of getting people to use the data that they are given.
Julia Verlaine: Mm-hmm (affirmative).
Eddie Wen: Look, I think the most progressive users of data tends to be people who are actually using the tools to raise other questions they may want to answer. So the ability to kind of have that more interactive, iterative kind of thinking approach in use of data is an important skillset.
Warren Rabin: I would go so far as saying that data is going to be the battlefield on which we fight the competitive marketplace over the next 10 years. If you think about post-financial crisis, it's been 10 years. The cycle may or may not be changing right now, but if we're entering a new cycle I think data is where it's going to be at. Understanding what you have, cleaning it up, putting it into position where you can use it appropriately, distributing it appropriately, consuming it appropriately, whether it's for internal use or external use, that is the battlefield over the next 10 years.
Julia Verlaine: And how are clients responding to this new world? Do you see an evolution in the clients? You talked about the evolution of the salesperson.
Warren Rabin: Clients are responding well. I mean, they're on board with this for sure. They need it every bit as much as we do, specifically around efficiencies. Everyone is under margin pressures. Fee compression is happening everywhere. Probably for a separate podcast, but ETFs and passive investing is driving costs down, so our clients, they want to save money. They're very much aligned with us and want to see continued electronification. They expect us to be at the forefront and expect us to lead the way and provide them access to liquidity, wherever it may be.
Warren Rabin: So it's very much a journey that we're on together and engaged with our clients.
Julia Verlaine: So I want to take this a little bit more personally. What did you both study and what would you study now if you had the chance and you wanted a career in sales and trading?
Warren Rabin: My major was in biotechnology at King's College University in London, but I have to say that was 30 years ago and I thought that biotechnology was the place where it was going to be at. I just picked the wrong one, I should have done information technology, but I don't think it matters what you study. A good education, the finance part we can teach you. Sure, it's definitely helpful to have a mathematical background, some data science, but the world is full of smart people.
Eddie Wen: Agreed. So I studied computer engineering in my undergrad and graduate school studies. Looking back at it, it was in the field of computer engineering or computer architecture. I was recently talking to some universities and they talked about one of the hot fields in computer science is electrical engineering. Well, at the time I went to school, computer engineering was the hottest area and now it's been replaced with data science, AI, and machine learning. So it does change over time.
Eddie Wen: To answer your question what would I be studying now? Yeah, sure, a lot of the data driven fields are probably very interesting and it's equally applicable across many industries. That's an important area of focus for many of the new students who are coming out. But that said, to Warren's point, I think the general inquisitiveness about learning about the business and actually moving into a financial area where there's a lot of individual empowerment and the ability to make a difference, that's quantifiable. It's a unique aspect about this business and it's always been what attracted a lot of talent into this field.
Julia Verlaine: And I think what you were getting at, too, is that picking up the phone is just as important today, even though we have so many computers. If anything, it's more important, right? That human contact with clients?
Warren Rabin: I think we're saying is EQ is as important as IQ, and I think that will always be the case in this business and in lots of businesses. We need both. Certainly on the sales side, EQ is always going to be really important. When we pick up the phones today, what we're doing on the phone may be different to what we maybe did 10 years ago.
Eddie Wen: Look, I think the complexity of the tools and the complexity of the markets that we live in today, it's much higher than what it used to be. Ability for salespeople as well as traders to articulate complex concepts to a client or to another individual in the firm is critically important. These are not necessarily an engineering skill. It's something that's kind of a mix between having technological understanding of the underlying components, but also be able to explain it in terms that a person who might not be aware can understand clearly.
Warren Rabin: I would also add that today we have sort of two sales forces. We don't think of it that way necessarily, but we have a traditional sales force that's engaging with our clients every day, talking about markets and helping them transact. We also have an e-sales force that I'm also responsible for that is interacting with our clients in a slightly different way, trying to gain mind share and, more importantly, desktop space. Going to see clients and letting them know that they can transact with J.P. Morgan over J.P. Morgan Markets or another third party platform.
Warren Rabin: They're very eloquent when it comes to explaining to clients the best place to go and execute the trade, what algorithms they might want to use, and I think over time, and I'm sure of this actually, in the not so distant future those skills will merge. We won't think about two separate sales forces. The more traditional sales force today will also have to become eloquent as it relates to algorithms and advising our clients on where to execute.
Warren Rabin: I mean, one thing that we didn't talk about earlier when you were talking about the pros of electronic execution, and I don't know if Eddie would agree with me on this or not, but there is a small con, which is sometimes that leads to fragmented markets and liquidity pools being in different places.
Eddie Wen: So I think with the change that we're seeing today, the blurring of the lines between what is traditionally a quant, a technology person, a salesperson, a trader, they're all becoming very similar. The individuals on the trading floor today have a mixture of those skillsets. If you look at the conversations that we have with clients, particularly around explaining the intricacy of an algorithm, how it trades in our equities business or in our foreign exchange business. Those are two areas where it's become very algorithmic in nature. The conversation goes along the lines of very low level details. How does an order routing component on our system work? What are the different liquidity sources? All the pockets and fragments of liquidity that exists in various different exchanges and ECNs, how do they work? But this last look, what does it mean in foreign exchange market?
Eddie Wen: Those type of conversations are very insightful. It requires a lot of details and a lot of patience about understanding the intricacies, and ultimately those little details matter in terms of advising clients on what is the best course of action or the best strategy to use when it comes to an execution.
Julia Verlaine: So you talk about how markets have become more complex. Would it be fair to say that maybe 20 years ago, markets were more siloed so, therefore, roles were more siloed? We're talking about a blurring of lines that technology is bringing on is also fluency and cross asset fluency and liquidity. Can you articulate a little bit more how you're saying markets became more complex and how that's translating into what we're seeing today?
Eddie Wen: Well, I think what happens is, as these markets electronify and we're seeing certain patterns of liquidity formations, right? So you definitely see the emergence of what started in equities was more of a central limit order book concept where everybody trades on exchange and everybody gets market data. Then now come foreign exchange and fixed income, where they created protocols such as request for quote. Like in the fixed income market, you see a client goes in and requests for prices from five dealers and they get the execution price and pick the best one. And then you have foreign exchange, which has created a concept of kind of a combination of central limit order book and bilateral requests, but you have the ability to have streams. You put number streams together.
Eddie Wen: And what you're seeing is the convergence of these three paradigms have created new trading models in every asset class. So you see now in foreign exchange there are some anonymous central limit order book things and there are now in fixed income bilateral streams. In equities, you have IOIs, which kind of look like bilateral streams. So you can see that these transformations across different kinds of trading protocols lead to a lot of innovations and different forms of liquidity and how people interact.
Eddie Wen: Now people don't actually have to trade the same way all the time. They have a choice of a number of different protocols and there are different venues more suitable for different clients' needs.
Warren Rabin: And most clients are in the business of investing and making money for their clients. They're not necessarily in the business of execution. So if we can help them get the best execution for them and take some of that burden away by providing the best access across all of the different channels that Eddie mentioned, I think it’s a win-win for everyone.
Julia Verlaine: So technology has been changing a lot over the past 20 years, but has the trading floor itself physically changed? Do we see that reflected on the floor?
Warren Rabin: It's funny you ask that question. I had a client coming to visit the trading floor just last week and the first comment she mentioned to me was, "Wow, the trading floor hasn't changed a lot in the last few years." And I found that a little surprising. The trading floor has changed a lot. The number of people on the floor may not have changed, but the roles and the responsibilities and the jobs that they do has changed very much.
Warren Rabin: We still have sales and trading, but we have a lot more quants on the floor. We have an electronic trading desk on the floor sitting right alongside our traditional voice desks. We have desks that are zero touch for clients that basically monitor client activity to make sure that the algorithms they're using are working as they expect and to intervene if they're not.
Warren Rabin: So to the naked eye, if you just transported yourself from 2008 to 2019, no, it hasn't changed a lot. But if you dig into it and look and understand what they're doing has changed.
Julia Verlaine: What about the volume?
Eddie Wen: That's my next point. To the naked eye, it hasn't really changed, but to the ears it probably has. If you look at the number of years I've been on the trading floor, I definitely have sense that the volume level on the trading floor has gone down over the years. The need to verbally communicate information has now been superseded by electronic machineries that makes it much more scalable, much quicker, much more efficient.
Eddie Wen: But generally speaking, I think one of the interesting dynamics I observed is the physical proximity problem actually has changed. Used to be you want to be next to this key trader or this key person where there's a lot more information as activities are happening. Now the ability to have that information shared on electronic channel means that the dispersion and sort of like the area coverage can be a lot greater.
Warren Rabin: That's very true, Eddie. I remember back in my day geography was everything. Where you sat was so important and it could make the difference in your career, the physical location, next to a certain trader or next to a certain research person, next to a certain salesperson. That is gone. In fact, it doesn't really matter where you sit today.
Eddie Wen: Yeah, the physical proximity problem can actually be solved a lot better through technology, especially in light of changes like in Brexit, when we have potentially some of our displacements of people throughout continental Europe, our ability to use electronic trading's going to make that process a lot easier.
Julia Verlaine: So what does the future salesperson or trader look like? What skillsets do they have?
Warren Rabin: We're looking for salespeople and traders that are entrepreneurial and innovative. I've actually never been in this business at a time when it is as entrepreneurial as it is now. The opportunity for every single person on the trading floor, it doesn't matter what level you are, to make a difference in our businesses has never been greater.
Warren Rabin: In fact, I think some of the people coming into our business, they're making the greatest difference. They're tough, they're resilient, they're diverse. They are different backgrounds and it is imperative for our business that we have those people.
Julia Verlaine: Do you have an example of maybe sort of a fresh idea that someone brought to you that you hadn't seen that shows this kind of new skillset?
Eddie Wen: We've had a number of partnerships with local universities where graduate students would come in and do some work with us interning on the trading desk. What I found is even individuals who have had no finance training, they've had maybe training in data science or analytics and so far, if they may be able to look at some of the information and be able to derive insight to help improve some of the quality of the tools that we've been building. That's how the world is today. It's not necessarily about having 15 years of experience, but rather having that ability to analyze information and drive conclusions that will help improve the quality and create that innovation that drives change.
Julia Verlaine: Thank you.
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This podcast was recorded on August 21st, 2019.
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