I was just reading the thread "Alternatives to Banking" on the front page, and Bernanke (the WSO user not Fed Chairman) argued that Sales and Trading is a better alternative to M&A in terms of avoiding some of the declines we have seen in banking in general. Do you guys think S&T is here to stay at anywhere near the pre-crash levels? Has technology mostly already taken its' toll on the industry?
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Doubt it. Volcker rule is pretty damn thorough.
I don't see why computers can't take over way more of the whole S&T side of things. Sure there will always be a need for traders and whatnot on the buy-side, for HFs, etc, but why will they be needed in large numbers for the trading work done at banks once computers are a bit smarter?
Investment banking seems much less likely to be really hit by changes in the economy. In bad times, M&A still goes on since things are cheap, and in good times it booms since firms have money to spend. Plus, banking has a much bigger relationship component to it. Computers can't wine and dine clients or go out and win deals.
Because the more illiquid products are not possible to be done via computers (where legal shit plays a big role etc)
What most people dont understand is that trading at a bank is not execution, its risk management, and humans are necessary to manage that risk.
strong this.
Everyone assumes you can easily buy/sell products. That is not true, and once they become more liquid new products are created because that is where a ton of money is made (spreads)
At the same time (in response to the above), computers will never replace sales people.
Many traders exist too not purely for proprietary strategies or market making, but to help clients. If you want to place a specific type of type that is hedged a certain way to exposure in a certain area, how would you do it? I can see the need for things like this as well.
I don't think computers will ever replace trading in the physical markets when it comes to transport / shipping / storage / refining / etc / etc, but will surely grow in terms of helping them.
I think S&T will see headcount reductions just like any other industry (IBD included) that encounters disruptive technology. Vanilla products can, and will likely be largely automated. Aren't a majority of trades in liquid products already from HFT machines?
I think we could see a convergence of structuring and traditional trading in the next 20 years. If you have to learn the workings behind complex, illiquid instruments, why not design them as well?
The only commodity I could see changing substantially with technology is power- I don't know much about the space, but it seems like smart grid tech could reduce the need for power traders significantly.
Agreed. We need some sort of financial reform, but the Volker Rule is not it. Wall Street was not blown up by prop trading, and probably never will be. Everybody is acutely aware of the risks in prop trading, and will manage them accordingly.
It is the stuff that is thought to be so safe (a CDS of a AAA rated MBS? free money, right?) that has the potential to do real damage. The Volcker rule does nothing to solve the reliance on rating agencies, nor does it begin to address "too big to fail".
Interesting, I didn't fully understand that. Thanks for sharing!
The Volcker rule is not destroying prop trading. It is merely transferring prop trading out of BBs. The traders who used to head prop trading at BBs have not been summarily executed. Most of them moved to existing prop firms or hedge funds or started their own.
Yep quite a few ex-BB prop traders have started their own shop.
I've read somewhere on here that because FX forwards and swaps traders see very little flow, they mostly take prop positions in almost everything besides commodities. Maybe that's where they'll stick the bank prop traders going forward. Although I'm not entirely sure how that setup can be justified under Volcker...
Unlikely- most, if not all FX pure prop desks got shut down. Paul Volker deserves to be taken outside and bludgeoned to death.
Not pure prop...I'm talking about the FX forwards market makers mostly doing prop because the product that they're officially supposed to quote for clients doesn't see much flow. I think someone like Revsly posted it.
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