The fear that robots will upend the natural order and replace humans in equities trading has been debunked. Change, however, is both real and constant. Today’s firms have found that market knowledge is more important than having time in the market. That means data and automation are increasingly critical on trading desks.
- Equity markets are already highly automated with more to come. In order to keep pace with the rate of automation, traders need to adapt.
- Firms are either extremely automated or not really at all. However, the trend is changing as firms focus on automating processes.
- A new report from Refinitiv and Coalition Greenwich discuss the main drivers for this shift including regulation, cost and hybrid working.
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How to survive and thrive in an automated world
As markets continue to evolve, so too must the equities trader. They will need new tools and systems to give them data insights to trade proficiently, settle efficiently, and surveil pragmatically and effectively.
For example, Refinitiv’s customisable Trading Performance Analytics (TPA) platform offers real-time access to open order and pre-trade analytics, market impact, and different liquidity values.
TPA integrates with Refinitiv REDI EMS and can display executions on Refinitiv Workspace and Refinitiv Eikon desktops using CodeBook. Traders can also code their own ‘secret sauce’ in Python to reflect their values and priorities, helping them further stand out in the market.
Technology has helped reshape expectations for market change going forward. To continue to succeed, traders need to adapt quickly to the pace of change.
Bringing together automation, cloud, data and the human offers tremendous opportunity for future improvement and adaptation – areas in which the equities markets have long excelled.
What do equities professionals think?
Our new report with Coalition Greenwich found that while 44 percent of equity trading volume is automated, there’s a wide gap in the degree of automation. Firms are either extremely automated or not really at all.
But the tide is turning.
More and more firms are increasing the automation of their equity trading by volume and order type. In the next one to three years, 66 percent of equities professionals expect to focus more time on automating processes than on any other task.
Here are three main drivers for this shift:
Compliance to regulatory requirements
44 percent of surveyed equities professionals say their top automation focus is on regulatory reporting.
Our survey shows that the firms most interested in using automation want to enhance the downstream parts of the trade lifecycle.
Regulatory reporting is a top priority. Automating this task is an absolute necessity in a world of ever-increasing regulatory burdens.
Manual processes can no longer handle all the complex audit and exam requirements for trading, reporting and communication compliance. Timing and accuracy are critical.
The most important cost-reduction strategies are increased use of trading automation (37 percent) and system and vendor consolidation (35 percent).
Faced with declining commissions, increasing obligations, and technological challenges, firms are finding equilibrium in automation. It helps to direct trading to lower-cost channels and to lever the amount of coverage for each trader.
System and vendor consolidation allows firms to concentrate on what makes them successful and offload to specialists anything deemed unnecessary in their in-house expertise.
Shift to hybrid working
Over half of respondents prefer and expect to work in a hybrid environment.
During the pandemic, the cloud played a big role in supporting the shift to remote working.
Not only did it prove an effective way to maintain operations, but traders also embraced the flexibility. Hybrid working will likely become the new normal, and cloud-based services are one way to ensure trading automation and data quality goals are met.
In this environment, there has been a significant increase in demand for cloud-based workflow solutions like Refinitiv AlphaDesk’s Buy-Side Order & Portfolio Management system.
As buy-side clients look to seamlessly take their workflows anywhere, anytime, they can access our market-leading order management system (OMS) capabilities on a web browsing-supported device of choice via the Refinitiv AlphaDesk mobile solution, powered with real-time data from the Refinitiv Data Platform.
Trading in an automated world
The benefits are clear. An automated trading desk means fewer menial tasks and faster order entry, even with complex order types.
However, it is not a substitute for human intuition and intervention. These shifts just mean traders need to continue evolving their skills to ensure the right automation tool triggers the right execution with the right risk structure.
As challenging as change can be, it is a great opportunity for improvement and adaption.
The opinions expressed are those of the commentator and do not necessarily reflect the views of the firm, its clients, or LSEG, or any of its respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as a recommendation.