Investment banking is a game of knowing when to double up and when to quit. Both Citi and Barclays have seen significant falls in their trading revenues so far this year, particularly in equities. But while Citi is closing down its CitiCross alternative trading system, Jes Staley’s Barclays is pressing ahead with the new algorithmic system that has seen its equity quant team double in size over the last 18 months.
The Barclays Barx platform isn’t completely new – it’s been around since the days of Jerry del Missier as a trading system for fixed income and rates businesses. But the revamped version is meant to be a fully cross-asset platform, allowing trading on bonds, rates, futures, equities and FX all on one system. That’s ahead of the curve if it can be delivered – even Goldman Sachs’ Marquee doesn’t bring all the asset classes together in quite that way.
But possibly more importantly, although the concept of Barx isn’t new, the actual software has been “built from the ground up”. Trading is always an arms race, and the development cycle means that a brand new system will be able to offer users more speed and better functionality. In Barclays’ case, they are heavily promoting their data science capability and Barx' ability to let algorithms take advantage of “advanced forecasting” to provide better and better analytics to improve their execution. The idea is that by centralising all the models on a single platform, it will be easier to customise things for clients.
In other words, Barclays has spent a load of money on this thing; it’s even started teaching its traders to write their own Python programs so they can handle the custom analytics without bothering Daniel Nehren and his team. They’ve spent the money because they are hoping to gain back the market share which they (and, in fairness, most other European banks) have been losing, both globally and in their own home markets.
That’s the real story of the new Barx. But....however sophisticated and state-of-the-art the algorithms are, they can only access the trading liquidity that Barclays has, and that in turn is usually going to be a function of market share. The more clients the new platform drags in, the more able Barclays will be to “cross” their orders with each other, and the better the system will work.
This is where the problem lies. There is, unfortunately, no magic bullet solution to bring in market share. And the electronic graveyards are full of platforms that were cutting edge in their time, but for one reason or another never took off. That’s what makes the fixed cost investment in Barx such a risk. But failing to have made the investment would have been a decision to retreat from the field and give up the lost market share forever.
For the time being, Barclays is gambling that it has a strong enough client franchise to support the technology that it’s installed. Let’s hope Jes Staley knows when to hold them and when to fold them.
Elsewhere, it’s not just equity and fixed income trading markets that have had a quiet start to the year. Capital markets deals have also been thin on the ground. And while a “quiet” trading floor is still a pretty busy place, an IBD office going through a slack period can be absolutely excruciatingly boring. What do you do?
According to Global Capital’s pseudonymous Asian diarist “Taipan”, one pastime of underemployed debt bankers is the production of insulting pictures of U.S. Presidents. Back in the 1970s, this just meant doodling vampire fangs and horns onto copies of Time magazine, but nowadays it’s possible to spend an afternoon constructing a Photoshop meme of Donald Trump as Thanos, wreaking destruction on the markets with tweets. However witty the memes, they do tend to raise the question of whether the bankers have anything better to do. All too often in this market, the answer to that question is “no”.
Despite the strong growth in the industry and good outlook for pay, though, half of the women in private equity surveyed by MJ Hudson and Investec said that they were having such a horrible time they wanted to quit. That’s roughly 10% of the entire PE workforce; presuming that at least one in eight men feel similar, 20% of people in private equity today are thinking about getting out. (Financial News)
Although the Uber IPO may be pricing away from the top of its range, it’s still likely to be a very actively traded stock on its first day. Pete Giacchi of Citadel Securities is going to be its designated market maker on the NYSE trading floor, and so will have the job of shouting and waving his arms while executing orders that determine its opening and closing price. (FT)
In some new jobs, you’re replacing a huge and beloved star and can’t hope to be as productive or well-liked as the person you’re replacing. This probably isn’t how Satnam Lehal will be feeling as he moves from Morgan Stanley to be head of financial crime prevention at Danske Bank (Reuters)
SocGen introduces a blockchain solution for covered bonds, a financial market dating back to the 1700s and originally used for financing Prussian churches (Bloomberg)
There’s been a rash of banks facing recommendations from shareholder advisory firms to vote against the board’s reappointment as a protest over governance. Deutsche Bank have taken the unusual step of arguing back in a press release (Deutsche Bank, FT)
Nithin Kamath has managed to go from burning out as a stockbroker to founding Zerodha, now India’s most popular discount brokerage. Even more unusually, he’s done so without VC money. (Bloomberg)
Lots of hedge funds would like to mature into sustainable businesses and outgrow their founders’ personal money management franchises, but it’s very difficult to achieve (Institutional Investor)
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