KEY POINTS
- Traders have had to adjust their day-to-day as
the coronavirus outbreak forces many to work from home.
- It’s not necessarily been flawless transition,
and wild volatility in the financial markets hasn’t helped.
- The phenomenon could linger beyond the pandemic
— but there are regulatory challenges ahead.
Traders have had to rapidly
adjust their day-to-day routine as the corornavirus pandemic has forced many
around the world to work from home.
Some are using software that lets
them remotely log in to their work computers, while others have been given
company PCs with specific programs installed. But it’s not necessarily been a
flawless transition, and wild volatility in the financial markets hasn’t
helped.
“In terms of the traders who I
speak to, the volatility we’ve seen in markets has just led to an overhaul of
risk management,” Nick Cowan, CEO of the Gibraltar Stock Exchange and a former
trader, told CNBC.
“When you see oil go below zero
you know you’ve got a problem,” he added, referring to the collapse in U.S. oil
prices which went negative for the first time in history last week. “Some of
the moves have been so dramatic.”
A big complaint from traders is
having to adapt from as many as six computer screens to just one or two in
their home setup. People working on trading floors tend to require multiple
monitors to keep an eye on different data and news sources simultaneously.
“I have multiple screens at
home,” Glen Goodman, a long-time independent trader, told CNBC. “One is pushing it. Two is probably doable
for any trader. As long as you’ve got those at home or work for a company
that’s providing them, you should be good to go.”
Another issue that has had to be
overcome is communication.
Traders at Barclays, HSBC,
Goldman Sachs and a number of other banks, for instance, are using messaging
platform Symphony to keep in touch and can set up “bots” to automate their
workflow.
Symphony claims that, unlike
rivals Slack and Microsoft Teams, its software is secure and financially
compliant. That’s an important feature for a tech start-up that’s targeting the
heavily-regulated financial services industry.
“It has bank-level compliance and
security and that’s very important,” Ying Cao, head of digital product at
Barclays Investment Bank, told CNBC.
In Barclays’ case, the app is
installed on company phones as well as employee’s computers and can be used for
both internal and external communication. Ying compared it to a social network
like Facebook, but one that’s “pure and compliant.”
“That’s a very attractive
network,” she said. “You know the other party is a trader or operations person
from BlackRock (for example), rather than some random person sending you a
message from a non-approved platform.”
Symphony is seeing new usage
records “every day,” CEO David Gurle told CNBC. The company aims to take on
Bloomberg, whose communication software has long dominated Wall Street when it
comes to exchanging financial information.
Then there’s Webex, Cisco’s video
conferencing software, which some investment firms are using as an alternative
to Zoom. The latter has been dogged by security and privacy concerns in recent
weeks as it has grown in popularity due to shelter-in-place restrictions.
“Many financial services
companies were using some form of collaboration tools in the past,” Chintan
Patel, Cisco’s chief technologist in the U.K., told CNBC. “But this has really
just pushed that to a new level.”
Investec and Intesa Sanpaolo are
among the major banks using Webex, Patel said, while stock exchange operator
Nasdaq also uses Cisco technology. Financial clients are also using Cisco’s
work collaboration and cybersecurity tools, he added.
“The key thing is protection of
data,” Patel said. “In the normal world you’ve got a pretty controlled
environment. You know what your trading floor looks like, you know what your
office space looks like. Suddenly what’s happened now is everyone’s home has
become the office.”
A new approach to regulation:
While communication can be fairly
seamless, replicating the physical restrictions of a trading floor can pose
further challenges, according to Chris Wooten, executive vice president at U.S.
financial crime consultancy NICE. The
New York Stock Exchange’s iconic trading floor has been closed since March 23.
Wooten told CNBC that the
“sterile environment” of a trading floor, in which mobile phones are not
allowed and communicating on unauthorized platforms is virtually impossible, is
difficult to enforce from home.
“These are challenges that in six
to 12 months, we’ll see how well we did in understanding if we were able to
maintain the high level of transparency that is expected,” he said. “We’re
going to learn a lot.”
Wooten also hypothesized that
this unprecedented period could forever reshape both the way trading desks
operate and the way in which communication is regulated.
“We did a roundtable discussion
with several of the leaders of the trading floors at the large financial
institutions, and I was surprised that around 70% of them said that they would
probably not send all of their people back to the office,” he revealed.
However, he suggested that there
is still some way to go in ensuring that work-from-home networks will not
disadvantage traders in an industry in which “microseconds matter.”
“Can I get advantage by being
able to execute my trade a few microseconds before the other guy and make a
penny either way on the side of the transaction?” he said.
“With the transactions being so
large, that’s real money to the financial institutions. I suspect they’ll get
that sorted out, but that’s the main challenge of working from home.”
As highlighted by the take up of
apps like Symphony and Webex, the way traders communicate is changing, and
Wooten suggested that the way this is regulated will also have to evolve.
“It’s mandatory that all trades
are analyzed. They’re captured, managed and analyzed for risk — it’s a
requirement,” he said. “However, on communication, it’s a suggestion. Human
nature is people talk about what they’re going to do before they do it, or they
brag about it after they do it.”
As such, Wooten said that
implementing the same level of scrutiny to messaging as to trades themselves
may help regulators identify potentially risky behavior.
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