The Wall Street Journal had an interesting piece over the weekend about “straders”. It’s an unlovely portmanteau word, combining “strategists” (Goldman Sachs speak for quants) with “traders”. A more descriptive term might be “traders who also write computer code”. After all, we don’t call regulatory capital compliance specialists in FIG investment banking teams “complankers”, or tax specialists in prime brokerage business “trokers”.
Although the word is a bit of a nightmare, the concept is very interesting. It has its roots in a decision taken by the SEC in 2016 in the wake of some of the flash crashes on a variety of markets that year and the demise of Knight Capital Group in 2012. The SEC thought that, to protect the market from rogue code, anyone responsible for designing or operating an algorithm that was connected to the securities markets would have to be licensed themselves as a securities trader. In that way, not only would the SEC be able to exercise a bit of control by pulling people’s licences if they turned out to be no good, they would be able to ensure that the algorithms were being run by people with at least a bit of street smarts and industry knowledge.
Adam Korn of GS was one of the first coders to take the SEC exam and qualify, and now there are over 200 traders-who-code working at Goldman alone. Citigroup has allowed employees to cross the divide from the other side by sending experienced traders on coding “boot camps” to learn basic Python programming skills. Far from getting resistance to the concept, they have found that even veteran money makers have been willing to take as much as three days away from the floor, and demand for the courses has greatly outstripped supply.
Of course, it’s open to question to what extent the traders have really been writing operational code, or indeed to what extent the creators of algorithms have been put in charge of final decisions on risk taking. In many contexts, the true value of having each side learn a bit about each other’s work is the “b.s. factor” – once you understand something even a little bit, it’s much harder for someone to bluff you on that subject. Improving communication seems to be a big part of the motivation for blurring the lines between the two disciplines, as UBS has found when it introduced “scrum teams” of programmers and traders working together to implement new functions on its system.
Or maybe it’s just that “being able to code” isn’t as much of a secret elite skill as it used to be. Emanuel Derman, in his autobiography “My Life As A Quant”, records that when he was inventing the modern discipline of quant analysis, the lion’s share of his working time was spent programming user interfaces so that the algorithms developed by his team could be used by others. He had to do this because he was the computer expert – there was nobody to delegate it to. Now that we have user friendly computer languages and web-based design packages, there is much less reason for all technology to be delegated to a special class of technically qualified experts.
Separately, Schroders plc has a fairly unusual recruitment issue. With the impending retirement of Bruno Schroder from the board, the company has to consider Bruno’s wish that he should be succeeded by his daughter, Leonie Fane. In a normal company, this would be frowned upon as nepotism. Schroder is meant to be one of the non-executive directors, overseeing the management of the company in the interests of its shareholders. How can that duty be consistent with passing on the post from one family member to another?
Well…on the other hand, while we talk about “shareholders” in the abstract, in the case of Schroders plc, the Schroder family owns 48% of the company. You can see why they might feel like this level of ownership, plus the fact that it’s their name above the door, might entitle the Schroders to a board seat. Although analysts and corporate governance specialists are not too happy about the idea, they seem to be less concerned by the general principle that the family should have a board seat, and more concerned by the fact that (unless you count the Red Squirrel Survival Trust or other charity boards) Fane does not seem to have much in the way of relevant experience. At present, no retirement date has been set for Bruno Schroder, but if this is the plan, considerable due diligence will be required.
Arnaud Vagner, formerly of Noble Group and most recently of “Iceberg Capital”, the whistle-blower research analyst whose reports were partly responsible for the writedowns and share price collapse of his former employer, has given his first in depth interview. He claims to have had no short positions and not to have benefited from Noble’s troubles. He’s gone public because he is launching a legal challenge to Noble Group’s restructuring plan, on the basis that “bad companies ought to die”. (Bloomberg)
Kweku Adoboli is still intending to fight his deportation order, despite being denied permission to seek judicial review earlier this week. He has appealed to the Home Secretary Sajid Javid, saying that as a former Deutsche Bank employee, Javid ought to appreciate the pressure exerted by banks with a lax compliance environment. (Guardian)
Crispin Odey is on the way back! Although still considerably below high-water mark after the horror years of 2016 and 2017, Odey Asset Management is the top performing hedge fund for 2018 year to date. (Financial News)
In Australia, a movement back into the game from someone who got out – former Deutsche managing director Mark Davis had moved to run the local operations of Western Union, but is now coming back to run the Australian equities business. (AFR)
Did GAM move too quickly in very publicly suspending its top fund manager Tim Haywood and liquidate the bond funds he managed? Analysts covering the stock are suggesting, after a 20% share price plunge, that they may have done. The chief executive, Alexander Friedman, is now seeing his own position questioned. (Financial News)
Extraordinary story of the question of how one of India’s richest healthcare-and-finance groups ended up losing as much as $2bn in its dealings with a religious group. (Bloomberg)
With MiFID squeezing research revenues, consolidation talk is being revived among the UK’s small- and mid-cap stockbrokers. (FT)
RBC has whistleblower problems in London, with five more complaints coming to light at the regulator after an employee won an unfair dismissal case. (FT)
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