The Contagion of Change: COVID-19 and the Trading Desk
(The following article first appeared in the Q2 issue of GlobalTrading.
The Contagion of Change: COVID-19 and the Trading Desk
By Drew Miyawaki, Head of Global Equity Trading, Legal & General Investment Management America
The trading desk: a term in our industry where an object is used to describe many different things at once within an investment management organization. Literally (another oft-misused term these days), the trading desk refers to the furniture – a collection of desks, monitor displays, cables and telephones–- and in most firms, a random assortment of sports equipment, toys and games strewn among a smorgasbord of snacks. Figuratively, though, the trading desk represents a collection of characters responsible for the implementation of the firm’s strategies, where investment ideas become reality with each execution. The trading desk is a team, a source of information and activity where profits and losses are realized and conversation occurs at all levels of volume where no topic seems off limits. The trading desk in many ways is a monitor on the pulse of a firm’s activity level; it is not difficult to deduce when traders are busy or when they have idle time on their hands. Obviously, the trading desk is far more than the furniture, the hardware and even the software and systems. Ultimately, the trading desk is about the people, the ideas, the energy, and these vital aspects can flourish, regardless of their location.
Throughout my entire 20+ year career I have operated under the belief that there was a correlation between physical proximity to the desk and optimal trading outcomes: as one moved further away from the desk, their effectiveness as a trader declined. As technology proliferated through our industry, the focus of trading became functionality and connectivity – the closer to the source of the information, the better the advantage. Terms like co-location and direct access became measuring sticks for prominence, productivity, and ultimately profit. Whilst other areas of the organization embraced remote working conditions, traders stayed put, firmly based within the office walls. The conventional thinking was that traders needed to be together, to be able to see and hear each other constantly. Unencumbered physical access to portfolio managers was preferable, but first priority was trader proximity. Information was shared and indirectly absorbed by being together at the trading desk. The term ‘Work From Home’ became part of the industry’s lexicon but the phrase ‘Trade From Home’ was never taken seriously, I for one being a staunch opponent.
Practically, supporting Trade From Home was a technology problem. The concerns were not of short supply: reliance on non-uniform personal hardware, unreliable residential internet connections, lack of power redundancy, an insufficient number of monitors and phone systems, and the risk that an action taken during the trading process went unrecorded were all legitimate obstacles. Personally, there was a collective reluctance to be away from the information hub as well as an ego component: traders are generally allowed to jump the queue when it comes to internal corporate IT resources and support to make sure their systems function before all others.
(Click here to listen to a GlobalTrading podcast about trading from home.)
The global reaction to the COVID-19 quarantine situation changed the way we look at many aspects of personal and professional life. When it was clear that traditional business continuity plans and disaster recovery contingencies were not going to be suitable for a pandemic-induced shelter-in-place, suddenly Trade From Home needed to be taken seriously.
Legal & General Investment Management America (LGIMA) was an early adopter of Trade From Home. Within days in early March, LGIMA provisioned new laptops, monitors and docking stations and delivered them to trader residences globally. In some cases,we upgraded residential modems and routers and installed hard line internet connections to home office space to reduce reliance on strained family Wi-Fi bandwidth being shared by eLearning offspring. Virtual phones were downloaded to trader profiles and traditional morning meetings were replaced with video conferencing. Communication has evolved from shouting over desks to collective chat rooms, conference calls and group messaging – all of which is recorded both for compliance and for reference.
LGIMA is in week 17 of Trade from Home as of June 22, and we have managed to mitigate the challenges that the new process has presented along with the volatility and confusion the markets have offered. The end of March saw an intense index rebalance followed by an extreme quarter-end valuation, resulting in two of the busiest equity trading days in our history, all handled by a global trading team working remotely. Additionally, we have found ancillary effects have created a more efficient work environment: new virtual meetings have become quicker; a previous reliance on lengthy email conversations have been replaced with real-time document sharing and editing, and a general openness among colleagues to consider more innovative, alternative methods of work streams and engaging with others. Historically, traders have been compelled to congregate within an office regardless of conditions. Power outages, terrorist attacks, elections, sovereign referendums, polar vortexes and hurricanes have all presented hurdles in getting trading personnel physically together to ensure business remains uninterrupted. Disaster recovery and business continuity plans are built and funded around a specific location for key staff. The uninhibited vocal sharing of information is difficult to replicate remotely. Training new or younger traders is difficult to perform virtually. The support, banter and camaraderie that are built through the trading desk’s entertaining wagers, contests and games are some of the important things lost from this new reality that we are all adjusting to.
Times have changed and will continue to be fluid as we navigate through this situation. Countries,cities and businesses will vary their responses to relocating personnel back into office spaces and we will have to try to solve for new scenarios where some coworkers are located in the office whilst others remain at home. Longer term, this situation has shown that Trade From Home can add sustainable flexibilities to allow not only for catastrophic contingencies but also improved work-life balances without disruption to productivity or performance.
This recent situation has opened our eyes to new possibilities along with some challenges. Trading in a COVID-19 environment has effectively stress-tested the Trade From Home concept that will help move our industry forward. In a business of measuring risk and reward, Trade From Home is clearly an investment worth executing as a long-term position.
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