The Role of a Trader

Searching for a Raison d’Etre
by Anshuman Jaswal, PhD, September 9, 2013
Industry Trends
Global

Abstract

The role of the sell side trader has been under a lot of pressure in the last few years. A number of developments, including the financial crisis and the rapid technological progress made in the capital markets, have meant that the trader’s role has had to evolve rapidly.

In The Role of a Trader: Searching for a Raison d’Etre, Celent considers the various factors that will shape the role of a trader in the next few years. These include technology, the economic environment, the regulatory framework, the evolution of the capital market themselves and the rise of Big Data and social media. The intent on part of the employers is to hire a new breed of traders. There is a requirement for an individual who is more quantitative and technology oriented, yet is able to build client relationships that are strong enough to be able to anticipate clients’ requirements at least some of the time and address their current needs all the time.

The operating cost of a traditional sales desk can be high, and this can be an incentive to increase use of technology and reduce manpower, although the latter does not come cheap either, and there is a trade-off that has to be made. Similarly, the complexity of the product plays an important part because the likelihood of a plain vanilla product being traded using HFT is much higher.

“Due to the financial pressures, firms have to choose between traditional and automated trading,” says Dr. Anshuman Jaswal, Senior Analyst with Celent’s Institutional Securities & Investments Group and author of the report. “While some investment banks have gone for a mix of the two, it is important that all trading firms consider the issues involved and make a conscious choice, else they risk being caught out.”

This report studies the evolution of the role of the sell side trader, and also considers the changes in the role of their buy side counterpart. Rapid technological advancements are also highlighted by the role of social media in trading. Regulation and compliance are important issues that have impacted trading. This is discussed, along with a brief look at the ethics of the trading technology that is utilized in the leading global markets today.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

Evolution of the Sell Side Trader

4

Evolving Role of the Buy Side Trader

7

Other Factors

9

 

Impact of Social Media

9

 

Vital Role of Regulation and Compliance

9

 

Market Data Issues in a Tiered Market

10

Conclusion

11

Leveraging Celent’s Expertise

12

 

Support for Financial Institutions

12

 

Support for Vendors

12

Related Celent Research

13

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