Ex-Goldman Sachs trading head: salespeople are still stuffed
Are charismatic salespeople really immune to the algorithmic apocalypse? While some people claim the endurance of individuals with strong client relationships at banks in the future, one ex-very senior trader at Goldman Sachs with a ringside seat on the machine learning "revolution" begs to differ. He suggests salespeople are stuffed, irrespective of clients' partiality to them.
David Ha spent eight years at Goldman Sachs, latterly as the Tokyo-based co-head of Japanese rates trading. He left Goldman in June 2016 to take up an elite residency at Google Brain, Google's California-based programme for people interested in machine learning. These days, he's busy pursuing a career in artificial intelligence, but he still has opinions about the structure of the trading floor.
The trouble with sales, says Ha, is that no one wants to pay for them. "You can't have it both ways," he says, "The process of automating trade execution lowers margins across the business. Low margins means banks cannot afford to hire high-powered, senior MD-level fixed-income salespeople to "cover" [important] clients."
Ha suggests the sales squeeze is therefore an inherent part of trading automation. Equally importantly, he says that algorithmic trading disassociates the actual execution of the trade from the decision-making process leading up to the trade, making it difficult for salespeople to extract a fee if clients only pay for actual trade execution: "The execution desk at the client who controls trade execution is not in the same team as the decision-maker, and the execution desk is incentivised to obtain the best price. They are not incentivised to do any favours for a senior fixed-income salesperson at a bank."
Under algorithmic trading systems, Ha says banks' trading platforms share a common application programming interface (API) with the result that platforms automatically compete between themselves to achieve the best price. Salespeople are out of the loop.
Ha doesn't say so, but there's a danger of this dynamic increasing visible under MiFID II. Although banks like Barclays have been busy hiring senior salespeople this year, the new regulations shift the focus further towards best execution by demanding that brokers ensure “all reasonable” steps are taken to ensure a trade takes place in the most efficient way possible. While salespeople and sales traders with deep relationships may be needed to talk clients through the changes to market structure when the new rules are first introduced, they're therefore likely to prove superfluous once the new regime is properly underway. Unless clients pay for relationships and trade advice rather than simply execution, salespeople look exposed.
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