Mostly… fixed income and cross product eTrading

June 20, 2008

Human sales/trading in an increasingly electronic world

Filed under: 2015, etrading, Nuts and Bolts — holky @ 8:19 am

EFN tells us that TABB reckon e-trading use will grow rapidly in European fund managers and investment banks over the next two years – causing the number of sales traders to drop by 9% a year for the next two years, with human traders executing 50% of flow in 2010 (down from 82% in 2005).

The point that new opportunities for the sellside trader are arising thanks to increasing fragmentation – in providing clarity to the buyside on where to execute (“navigating the markets”) – appears underlined by Traders Magazine suggesting that buyside traders do not have a coherent and considered strategy regarding the use of dark pools (for example 18% of the buyside traders unsure what they think their potential usage would be of a dark pool that was able to send out indications based on order flow that resides in that pool).

Isnt the uncertainty just because the landscape is not particularly well charted because it is still changing (and perhaps dramatically so) – eg more execution venue launches later this year. So while sellside need to help buyside clients understand whats out there, surely once the dust settles and the landscape is charted, more buyside will want to execute based on the proprietary rules that they have, in their systems/processes, with regard to when where and why.



  1. Can’t really see the dust settling for quite a while, buyside traders will have to get used to a fast moving, rapidly evolving environment.
    Just my opinion.

    Comment by oxymoron — June 22, 2008 @ 7:36 pm

  2. Agreed. This e-market will not develop this year and probably be stagnant for 2009. The situation for dealers grows worse, with little room for investing in FI e-markets. Goldman took most of the banks down the yellow brick Tradeweb road. That investment ate a big chunk of budgets. The rumored regulatory changes to both trading and clearing (NY Fed mentions both in his statements on reg changes) may foster some VC investment in client to client platforms, but again, there will need to be a clearing environment (perhaps, TCC, perhaps growing FI Prime Brokerage) to support the back end of any investments. Very likely cash bond trading goes this way or simply that exchanges will pick up this part of Fixed Income. It’s clear that the business mentality at the banks has not yet seen reality. The banks are still derivatives focused thinking that the spreads they are currently enjoying in derivs will remain and keep traders in their seats. There was never a better opportunity for exchanges to grab this business with pure e-trading, low cost, and ata laden. The algo opportunites, multi-asset trading, all never had such a ripe environment for the taking. However, there is very little money for the banking industry to make this happen. Once again, with help from goverments encouraging competition, private capital, and most likely the hedgefund community will make this happen. Citadel where are you now?

    Comment by Lacidar — July 1, 2008 @ 12:26 am

  3. Interesting comment “Goldman took most of the banks down the yellow brick Tradeweb road”.
    I would agree that the banks are focusing on spread trading rather than diminishing returns of government business. TW have recently introduced an execution charge on US Treasuries & rumoured to be thinking of similar on Europeans thus driving business into the arms of Bloomberg. Many of TW’s European clients will rebell against this. TW have lost massive income from the decline in MBS market plus stilll struggle in credits where there is no liquidity & no margins.
    Will this be the case of IRS where they still struggle?
    Exchanges see the opportunity of the CDS space & TW & MA have both been left behind already.

    Comment by Jake — August 1, 2008 @ 1:25 pm

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