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[ I N - D E P T H | S A L E S T R A D E R S ] ce embra y l l u f els ers es trad h touch mod l a s t s e g “ The b touch and hi d service.” e & w QUITY the lo a fully round CASH E F O D L EA g RA E MAN , H E GENE offerin D SHER SOCIET R HOWA I FLOW t is no secret that the financial crisis led to a continuous whittling down of dealer risk and a cutting back of staff as banks have struggled with new regu- lations and cost pressures. Both these factors have meant that sales traders—the traditional conduit between the buy- and sell-side— have experienced a downturn in fortunes. Not only have banks culled a large proportion of their sales trading staff but many of the current generation of sales trading desks now rely on juniors to ser- vice parts of the client portfolio. Meanwhile, electronic trading continues to transform the way buy-siders do business with new trading venues providing a slicker, more efficient and cheaper trade environment than 10 years ago. All of which points to a sorry fate for the sales trader. But there is new hope. While it might ap- pear that the balance has tipped in favour of the machines, the demise of the sales trader has been 30 TheTrade Spring 2017 TION , EXECU exaggerated. According to a study by Greenwich Associates last year, 51% of trading of single stocks was executed via sales traders in 2015. This is still lower than the 55% figure in 2010 but an increase on the 50% figure of 2014. In the US it was 55% in 2015, another increase on the previous year. Indeed, many believe there has been a reversal in the market in recent times with a more complex environment leading to a renaissance of the sales trader. “Sales traders are in vogue— they are having something of a renaissance at banks,” says Michael Horan, head of trading services at BNY Mellon’s Pershing. “We are seeing some banks re-hiring. They are realising you need to have someone on the phone, a consultant to face clients. You can’t just rely on machines and faceless relationships.” Others feel that the move to elec- tronic, so-called low touch, trading may have plateaued. “Though you have seen a significant move over the past few years to low touch trading that has probably now plateaued,” says How- ard Sherman, head of cash equity & flow execution at Societe Generale (SG). “Some of that business has begun to migrate back to the voice side.” Sourcing liquidity Part of the catalyst behind the re- vival in the sales trading business is the shrinking liquidity the market has seen in the last three to four years. As low interest rates push investors into a further, almost incessant, hunt for yield, having a human contact who knows where to source liquidity is more valuable than ever. “A lot of the buy-side we deal with tend to be diversified in their investments,” says Horan. “For example a lot will trade the FTSE 250. That market doesn’t lend itself to electronic trading—it’s very much about calling around. You’ll see most sales traders working on the equities side in those kind of assets.” In order to find the best liquidity for their clients, sales traders these days have to be more conversant with data and liquidity sources— from knowing when to look in order management systems (OMS) or data warehouses, to checking who is active in a particular name on Bloomberg, it is a much more involved role. Added to this, sales traders are now experts in trade execution. The increased technological use by the buy-side has led to chang- ing demands of sales traders.