Last week, Gary Cohn of Goldman Sachs made a largely ignored Investor Presentation at the Sanford Bernstein banking conference.
Buried amongst it was a worrying fact about headcount trends in the equity markets.
Cince 2000, Cohn said, revenues in Goldman's equities business have tripled. Over the same period, he said headcount in its equities business has halved as digitisation has taken hold.
This is not nice. It is especially so for people in fixed income, where a) electronic trading is still nascent in many product areas and b) electronic trading is taking off as we speak.
Hence, Goldman CFO David Viniar said in the bank's Q1 conference call that the technological advances that hit the equities business are coming to FICC, Morgan Stanley said last week that its electronic trading volumes had grown 100% over the last two years in FX and 60% in rates. And Deutsche boasted this month about its investment in streamlined processing platforms for commodities.
50% cut in FICC jobs coming too?
If equities jobs fell 50% during the shift to electronic trading, will this happen to FICC?
But they might fall 25%.
Ralph Silva, an analyst at SRN, says fixed income trading has already been substantially digitised, meaning the effect of shifting to electronic trading systems will be less than for equities - which was previously very labour intensive.
"It's more appropriate to expect a 25% headcount reduction in FICC following electronification," Silva says.
Which jobs will go? Silva points to back office processing roles. In the front office, he says things look a little better. He predicts, for example, that credit trading jobs will be safe for some time as many large key clients continue to prefer dealing with individuals, but that smaller accounts will be shifted to electronic systems.
Silva says research roles are also likely to be safe as businesses use research as a differentiator to sell their electronic trading as offering as a whole.
Earlier this year, a report from analysts at Morgan Stanley and Oliver Wyman said electronification will have different effects on different fixed income product areas.
They predicted that flow credit will follow the pattern of cash equities after 2000, with the market becoming consolidated in top players, but that flow rates might end up being a more dispersed market like FX in which mid-tier players also remain profitable post-electronification. Like Silva, MS analysts thought that research roles will be an important differentiator of electronic trading offerings and therefore safe. And they pointed to the likely continued importance of creating high margin 'structured solutions' for key products.
Even if jobs are safe, Silva suggests that over time the role of fixed income traders might become a bit boring.
"As electronification increases, people's primary function will cease to be trading and become exception management - fixing the parts of the electronic trade process that haven't worked."