High-Touch Sales Traders Go Electronic
Today’s high-touch or cash sales traders are looking to electronic trading tools and skill sets to stay relevant in today’s equity market structure.
Born out of a “if you can’t beat them, join them” mentality, sales traders are increasingly learning about electronic trading tools to cater to the buy side’s increasing appetite for technology along with human interaction. If not, more traders could find themselves out of work in a persistently difficult job market.
According to a recent report from Greenwich Associates, the human touch in trading is still as important as ever, even in a largely electronic marketplace. As the buy side looks to their brokers for an increasing array of services, simply acting as an order taker is no longer enough to ensure return business. The sell-side sales desk must provide proactive suggestions, understand market structure and offer clients advice on how to best leverage trading technology. And that is something an algorithm or smart order router simply cannot do.
Re-enter the human sales trader.
Kevin McPartland, head of market structure and technology research at Greenwich Associates, told Markets Media that new buy-side demands are being handled by a smaller sales force than 10 years ago. So in order to provide a high level of service to the buy side and keep its business, the remaining top-notch sales desks are leveraging technology “not only to help clients trade, but to better understand their customers’ portfolios, trading habits and profitability.” He added that technology does not replace human intuition in this case, but instead enhances the abilities already present on the desk.
McPartland said 70% of brokers surveyed said that they were using technology to better understand their buy-side clients and deliver value in a more targeted, cost-efficient way.
Institutional investors “are looking for brokers to provide more value, including advice on investment strategies, liquidity, and assistance with market structure changes,” McPartland said. “Understanding each individual client in detail — the contents of their portfolios, how they like to interact with the market, what news matters to them — is what really makes one broker stand out from another. ”
Buy-side investors “are willing to reward those best at providing such customized service,” McPartland added.
Cheryl Cargie, head trader at Ariel Investments in Chicago, said that while the buy side is looking for more from its sales trader coverage, it depends on whether a buy side trader is representing a passive or active strategy. For a veteran with over 20 years in trading and representing all of Ariel’s trading strategies, Cargie wants a sales trader who will partner with her and be proactive.
“For a traditional trader like me, I want my sales traders to pay attention to my order and not just ‘set it and forget it’,” Cargie said. “I need them to be an extension of me.”
That means not being passive and if Cargie heads into a meeting, the sales trader will watch her order carefully and alert her to a change in market conditions.
“What has happened to the sell side taking care of us, instead of waiting for me to call them?” Cargie asked.
And she does acknowledge that times have been tough on the sell-side. Brokers have been reducing headcounts and technology has taken over as the first means of handling an order. Still, for sales traders who can offer the best service and technology, the rewards are there.
This last point, Greenwich noted, has been evidenced by a modest gain in the average commission rate, to 3.6 cents per share in 2015 versus 3.5 in 2013. The rate was 3.8 cents in 2010 when the market was considered to be in its heyday.
“Trading has always been and will continue to be a people business,” McPartland said. “With today’s market structure, however, good people alone are not enough. Brokers are investing in technology more than ever to ensure their sales traders have the support they need to target clients, understand their needs, and deliver the top service to the most profitable few.”
Featured image via iStock
Some material changes have come out of ESMA’s review of algorithmic trading.
This year BestEx Research launched algorithms tailored to futures market structure.
Institutions are prioritizing dark liquidity in their selection of algo providers.
Agency broker moves beyond execution to offer a broader suite of services.
Algorithms have become more prevalent in the spot FX market.