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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.