S&T Industry Future Outlook

Hello,

I am a rising junior intern at a large middle-market s&t firm rotating through their equities floor. I love the feel of the business and the work but have reservations about the future of the profession and if I would be better served recruiting for IBD. I begin recruiting for my rising senior summer in a few months.

The associates that I am interning with state there is a significant reduction in s&t volume in equities and that the future of the industry is at stake (due to easy/cheap liquidity through dark pools, etc). Is this a trend throughout all sectors of s&t or is this only a serious problem with equities? Is FX, credit, fixed-income, etc experiencing this same dry-up?

Thanks!

Comments (33)

Jun 12, 2016

Goldman sold their DMM position to IMC 2 years ago. Barclays sold their DMM position to GTS 6 months ago. Citi sold ATD/their equities arm to Citadel a month ago. That's equities. 80% of the top volume movers in Treasuries are not banks. A European HFT just passed a large number of banks in FX volume.

The last vestige of S&T is fixed income, which the algo firms can't hit as hard yet because of the fragmentation of the market and diversity in the securities. Those days are numbered as massive buyside firms are looking to consolidate and create a centralized exchange for bonds.

Anyone who's been following the WSJ or Dealbreaker knows every bank from GS to UBS has been slashing their institutional sales and trading departments heavily. Is S&T dead? No, obviously not, seeing as the positions still exist. But anyone who says that it isn't dying is in denial. Face it, the computers are taking over.

Jun 13, 2016

As for sales roles, I see cross-selling becoming increasingly important. Additionally, many sales people will serve as reps for electronic trading platforms/capabilities, rather than being voice broker-dealers.

May 29, 2017

I'm not sure if there's already a thread dedicated towards this subject...
But I'm interested in this as well actually!

I'm not concerned with the very poor
-Mitt Romney

May 29, 2017

Brokers are in trouble, but take that w/ a pinch of salt. People been talking about this for years and the brokers are still here, still making out like bandits (at least some of them).

Generally, the relevant concept here is the Chinese "weiji" (yes, it's a misconception, supposedly, but that doesn't matter). All the developments make brokers increasingly obsolete, but, at the same time, offer many of them all sorts of potential.

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May 29, 2017

I don't know man, seems like the fixed income S&T guys are doing alright.

Source: I'm an investment analyst at a PWM firm and we have to go to fixed income S&T guys to get high yield bonds or international bonds...Pershing's BondCentral system is shit, so we just either call a guy at BNY Mellon Capital Markets, or he refers us to a third party guy who can get us a quote that they can do directed trades through.

May 29, 2017

EDIT: Misread the question, can't delete...

May 29, 2017

S&T isn't becoming obsolete because of technology and neither are brokers who've been moving from phone to screen brooking. The bigger concern is volumes due to regulation and the euro crisis. Lower trading volumes means less broker commissions.

May 29, 2017

IDBs are doing fine. It's just a matter of volume like GoodBread said. They use technology to come up with stuff that makes traders lives easier and their services more valuable. I mean, I'm pretty sure some of my brokers make more money than I do...

May 29, 2017

Being a broker as long as theres some volume can be VERY profitable, and you will be paid in cash without clawbacks etc as the money you make is risk free and locked in.

The problems arise when volume dries up, and thats when you see a lot of these small brokerage houses die out. The big boys (Tullets, Cantor, GFI, Trads, Exane etc) always seem to do alright becuase they in general will have a guy who is the go to broker for a trader (every trader has 2-3 go to guys they give90% of their business to), and if you have these foundations in place, unless your trader gets tinned you will do more than alright.

May 29, 2017

So just one follow up question- why do people shit on IDB in this forum? I've seen other posts that S&T is significantly better, not only in terms of salary but just the job in general...

May 29, 2017
watever:

So just one follow up question- why do people shit on IDB in this forum? I've seen other posts that S&T is significantly better, not only in terms of salary but just the job in general...

Everyone sh1ts on IDBs in the mkt, which is why you see the same attitude here.

May 29, 2017
watever:

So just one follow up question- why do people shit on IDB in this forum? I've seen other posts that S&T is significantly better, not only in terms of salary but just the job in general...

Its because despite a lot ofthem being very well paid, the job is very un intellectual, I cant imgine anything worse than being a broker. All you do is just continually call up traders with various things you are working, and then after work have to take out traders who are hit or miss in terms of personality and stay out until early morning several times a week entertaining. On the other hand, the broker cars I walk past in the garage are much nicer than the traders haha.

May 29, 2017

It's not so much the salary as the job itself. Your typical broker isn't doing much from an intellectual perspective and entertaining traders (and always having to be back in the next morning) will get old fast unless you really hit it off with your clients.

May 29, 2017

quite interesting....would you say that it is harder to become a successful broker (in comparison to a trader)?

May 29, 2017
watever:

quite interesting....would you say that it is harder to become a successful broker (in comparison to a trader)?

Completely differnet skillset. One you need to be likeable, the other you need to be a bit more intellectual i guess is the way to put it. But both require hard work and the ability to make money, just in different ways. Depends on personality which one is easier for you.

May 29, 2017
watever:

quite interesting....would you say that it is harder to become a successful broker (in comparison to a trader)?

No, it's not harder, but the attrition rate is a lot higher, IMHO. Thus, while it's probably easier, it's a lot less likely that you'll become a successful broker than a successful trader.

May 29, 2017

Any idea of the actual attrition rate of a broker? Of a trader? Thanks guys this is very helpful

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Best Response
Jun 13, 2016

Strictly speaking from the credit side of things:

1.) Quants arent 'taking over'. Obviously you need a certain level of technological proficiency- but this market is much more tilted to the fundamentals. When I was on the SS on a HY desk, We only had two guys who were engineer majors. Conversely, half of the MBS team were engineers/tech majors- and the Tsy desk probably had even more.

2.) Electronic trading (on the credit side) isnt really a major 'threat' at the moment b/c fixed income is way too fragmented. We use about 4 different ebroker systems. While they may be somewhat helpful with oddlot trades- they are NO where near as quick/efficient as calling someone at MS/GS/JPM and trading over the wire. Especially if youre trading size.

3.) Regulation is the Killer. Regulation is the one reason why credit is getting hammered. In order to be profitable in IG/HY/distressed, you need to be able to carry inventory. If I cut your inventory/risk in half, I cut your potential profit generation by even more. And when your top line is limited, management starts to focus on the expenses- thus leading to further head count reductions.

Despite what the media may say, 1 is not going to be an issue. 2 could become an issue, but not anytime soon. 3, on the other hand, will continue to hurt the credit markets unless someone repeals Dodd Frank/Vogel etc.

    • 4
Jun 30, 2016

Dear BillyRay,

Thank you very much for the reply. I sat with a BB credit trader a week ago and was blown away at the differences in that side of S&T compared to my current firm. I will ponder your response more and get back to you with any more questions. Do you believe that FX or structured products (two areas I am interested in) will experience this kind of pressure any time soon?

Jun 30, 2016

To echo BillyRay, what are called "spread products" are like 20 years away from the centralized exchange / technological advances people always warn about on this forum. The fact is the market is just so illiquid and fragmented it will take ages before people figure out how to make it not so. Regulation is absolutely what's hurting us and what may ultimately be what kills us. However, regulators are shifting their focus to non-bank participants. If banks can't provide liquidity because of capital requirements constraining balance sheets then you would think hedge funds / market making shops would step in. But if they start getting regulated the way bank dealers are then a lot of products just won't be profitable and will either have to be placed privately or stop being issued.

May 29, 2017

No more prop, no more pop...what did you think FinReg was about?

May 29, 2017

I want to be optimistic, but it looks pretty bleak, especially for sales&trading. M&A banking and private equity should be fine, since there's been a lot of M&A and buyout activity going on.

S&T, however, is a different beast. The financial regulation bill has forced a lot of banks to either transfer traders over into asset management divisions or get rid of them altogether. For example, Credit Suisse laid off 30% of its prop desk, and JP Morgan is getting rid of it entirely. Anecdotally, a friend of mine is starting his second year at Chicago Booth MBA, and he said trading jobs were VERY tough to get.

May 29, 2017

I knew banks were getting rid of prop desks but I didnt read her comments as Prop although she doesnt specify.

May 29, 2017

We shall see.

May 29, 2017

Depends what kind of trading you're talking about. As other posters above said, prop trading is going away at many of the major banks.

At my bank, we're increasing our sales force. You're going to see a growing trend in trading, where it's harder and harder to make a profit as commissions are getting squeezed. With commissions being cut bymany of the major institutional players, the only way banks can remain competitive and keep their revenues high is by hiring a larger sales force.

May 29, 2017
iBANKhard:

Depends what kind of trading you're talking about. As other posters above said, prop trading is going away at many of the major banks.

At my bank, we're increasing our sales force. You're going to see a growing trend in trading, where it's harder and harder to make a profit as commissions are getting squeezed. With commissions being cut bymany of the major institutional players, the only way banks can remain competitive and keep their revenues high is by hiring a larger sales force.

Hey, it makes sense that to rebuild a client-facing trading practice, you'd want to hire more brokers to bring in flow. Two questions:
1) any more client-servicing traders being hired?
2) how is it looking for MBAs? Or are only undergraduates and experienced hires getting love?

May 29, 2017

I'm interested in doing sales coverage for a desk. iBank, do you have any suggestions on where I should look? Anybody know what the outlook for sales is like?

May 29, 2017

Bump, would like to hear comments on the 2nd question from jtbbdxbnycmad. What about for MBAs that are attempting a complete career switch into trading (from a non-finance background)?

May 29, 2017

prop only traders are a fairly low percentage of the total amount of traders. And prop is just going to be mixed in with flow. I know of a couple desks that are called 'flow XYZ" but are basically prop desks that price stuff for clients on the side.

Its kind of like if you have strippers and prostitutes, but you know strippers also do a bit of 'prop' in the back rooms. If you make prostitution illegal you will just see a larger focus of prostitution within strip clubs.

May 29, 2017
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