A new climate on the trading floor

Trading by its very nature is often hectic and uncertain—throw a global crisis into the mix and we are brought to a new level of unknown.

This climate brings with it a host of questions for the trading industry and how best to adapt to the new circumstances we’ve all found ourselves in—post-COVID-19. Here we take a dive into the world of trading in Asia from a pre- and post-pandemic perspective, what it means, and how to somewhat future proof your organisation and stay ahead of the pack.

Recent months—a buy-side retrospective

Looking back over the past few months, it’s important to take into account a combined view of both investor demand and market volatility. These two factors together resulted in record trading volumes globally, so much so, that some trading platforms crashed briefly due to a higher-than-normal escalation in trading volume. This across-the-board spike affected all asset classes, making the year-on-year volume increase by an estimated 30-40 per cent.

Interestingly, with both domestic and international travel relatively grounded, we have seen a greater number of high net-worth individuals with much more time on their hands. This cohort—who would usually spend cumulative hours, days and weeks in the air—have taken to trading with a newfound enthusiasm.

From the perspective of running a business, the buy-side requires a greater acceleration towards the set up of digital initiatives, in particular, digital communications. Many have made some inroads here, turning to SaaS collaboration tools to ensure clients are kept abreast of market movements. Zoom and Microsoft Teams, and in some cases, Slack are being used to ensure clients are kept in the loop and are receiving the same level of service as they would have pre-COVID-19. While it appears there has been some uptake, it’s not enough to meet the demands of clients in the current landscape.

There’s a good possibility we’ll see the buy-side outsourcing or delegating certain functions that can be performed digitally via appropriate software. Whether it’s a customer service video conferencing tool, business analytics reporting functions, a vendor partner or strategic business partners—as the saying goes… where there’s a will, there’s a way.

Recent months—a sell-side retrospective

Looking at the sell-side, we’ve seen a substantial increase in call volumes across both sales trades and customer support across the industry.

Traders have become creative when it comes to approximating the trading floor environment. Pre-coronavirus, it was easy to ask a colleague to sense-check an order, morning briefings were live and face-to-face and conversations held throughout the day helped formulate trading ideas or strategies. And while most organisations plan for disaster recovery, it’s unlikely they would have planned for the cultural aspect, empty offices and difficulties to maintain regular business operations. With so many working from home, we’ve seen a rise in voice trading throughout the industry.

At the same time, there has been a noticeable lack of digital connectivity and a decrease in desk-bound staff—down to a mere 25 per cent in some cases. The sheer inability to service all incoming calls has been so significant that some organisations have either turned business away or in some cases, they’ve passed business on to their competitors.

So, what to do?

Sell-side firms experiencing greater success during these times are those that invested in technology stack over the past few years.

Modern-day trading and investment platforms, market data terminals, clearing engines and risk management systems are generally web or cloud-hosted. These are inherently location independent, supporting the ability to perform all the necessary actions of a professional investor even if they have been without a workspace and desk, using the kitchen table as their office.

Another critical requirement is secured remote access to trading and execution management systems for central dealing desks. Gone are the days of on-premises systems—and those still using them could consider a review of their future technology strategy, or, unfortunately, run the risk of feeling handcuffed in the new world.

Organisations that have already invested in technology are reaping the benefits over their competitors during the pandemic from their ability to quickly scale up servers in cloud deployment to handle the bandwidth required for trading. They also have the ability to ensure research content or data from information systems is automatically shared and updated across systems.

The new normal of remote working is somewhat forcing us to find better ways of doing business and to become comfortable with digital interactions being the norm.

The new-look buy- and sell-side relationship

Pre-COVID, we experienced more face-to-face conversational interactions—these were highly sought after and paid handsomely for. This once very traditional relationship is experiencing a slow, yet steady, shift towards one that is more value-driven. Now that we are seeing the other side of COVID, the level of service and value-add provided by the sell-side is actually more important than sitting in a room and having a conversation with someone. The new normal of remote working is somewhat forcing us to find better ways of doing business and to become comfortable with digital interactions being the norm.

How has the buy- and sell-side’s need for technology changed over the years and how has it been affected since COVID?

Current circumstances have created a hardware and network load increase for organisations. While sourcing and allocating hardware does take time, that’s not the real issue— problems arise around secured remote access. It’s a necessity for everyone in the industry, therefore a VPN overload can pose real trouble if not properly addressed.

It’s not all grim, however—this issue can be overcome by considering a managed service model whereby organisations offload their tech requirements to their provider of choice. Doing so means they have the time—and the headspace—to continue to focus on their clients while leaving their tech provider with the job of deploying, managing and monitoring the new software and market data connectivity requirements.

Understandably, there is often great apprehension when investing in technology, perhaps even more so during these times. The cost and time associated with deployment often seem like more of a headache than it’s worth. While it can take time and budget to get your tech sorted, investing in technology has gone from something that was simply nice to have, to something that is absolutely essential. For both the buy- and sell-side, failing to keep up with this rise in tech adoption could result in the inability to transform in these times, and possibly become irrelevant in the marketplace.

When considering the best technology for your organisation, while it’s tempting to only think about the short term, it’s vital to consider the long term too. So what could this mean for Singapore? The MAS Financial Sector Technology and Innovation (FSTI) Digital Acceleration Grant (DAG) scheme supports smaller Singapore-based financial organisations looking to adopt digital solutions. These solutions are expected to improve productivity, strengthen operational resilience, better manage risk, and improve customer service. This means smaller buy- and sell-side organisations can kickstart their tech transformation projects with minimal up-front costs, with the ability to claim 80 per cent of the cost for technology implementation (capped at $120K) if they have their solution running for six months by 31 December 2021.

Fueling growth post-COVID-19

While we can’t change this new world we are living in, we can adapt. By ensuring value transparency across core digital capabilities and creating a variable cost model, organisations can refocus on the right technology spend to compete in volatile markets.

By embracing the notion of digital communication and business-appropriate technology, we will have a strong foundation to see us through the fallout and out the other side. A futureproofing of sorts for both organisations, their clients and the industry as a whole.

Minimal upfront costs to kickstart new software projects

While we can’t change this new world we’re in, it’s vital to consider the long term and adapt. So what does this look like for Singapore buy- and sell-side organisations wanting to implement new financial technology software?

Co-funding through the MAS Digital Acceleration Grant means more bang for your buck.

Learn more