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The Future of Trading

10 Top CIOs on Wall Street |  Why Mutation Will Matter |  Buyside Traders: Not Taking Orders Any More |  Calculating Cost First, Trading Second |  Trading Desk, in One Box |  Changing the Minds of Star Programmers |  2015: The Always On Desk

2015: The Always On Desk

November 4, 2010
By Tom Steinert-Threlkeld

Odyssey Financial Technologies, in the United Kingdom, for instance, allows users of its Investment Manager product to establish a new ratio for allocating assets and see what it will take to change it. If the manager asks for the fixed-income portion to be increased to 57 percent, from 53, the software shows a series of trades that adhere to company policy and known regulations. If the manager wants to go ahead, the trades get executed. Or they can be rejiggered, first.

In effect, the choices or “recommendations” will become clearer and the algorithms behind them less visible. Tim Mahoney, chief executive of BIDS Trading, sees an “aggressiveness” button as a not-unlikely outgrowth of the increasing injection of trading strategy into code.

Most markets will be electronic, Marques asserts, over the course of the next five years.

But, if nothing else, the “events of recent months” – particularly the May 6 crash -- shows that human direction of trading is still necessary, Mahoney contends. Trading firms still have to understand the mechanics of the systems they’re using. And they don’t want to cause conflagration, accidentally.

“Who wants to be Mrs. O’Leary’s cow?” Mahoney says.

If or when things go really wrong, algos may not understand what’s going on. "When something new and unusual happens, people are still much better than machines at dealing with that and making very quick decisions,'' said Marques.

Traders still need to understand the algos that they have to use, DePetris said. And this will become a career-maker. Traders who understand algos are the “big winners’’ when desks are always-on and moving at electronic speed, said Timo Pentner, managing director for the Americas at RTS Realtime Systems Group.

The process is likely to be helped along by the adoption of a messaging language that allows buy-side and sell-side traders exchange clearly defined algorithms and update them as they go along.

The Financial Information Exchange algorithmic trading definition language (FIXatdl) will allow algorithms to be released in a standard computer-readable tagging format. This will avoid the kinds of detailed documentation, coding and testing required by conventional programming of algorithms.

This should speed up the release and updating of algorithmic trading strategies, according to proponents.

Ultimately, companies are likely to have “chief algorithm officers,’’ suggests Bill Hilf, general manager for technical computing at Microsoft. But traders might also have programming tools of their own, akin to Visual Studio, where users plug in the languages and functions they need. Call it Wall Street Studio.

TYPE CHANGE

The types of humans found on the trading desk also will change, as the complexity of digitally driven trading increases.

A decade ago, one big bulge bracket firm on Wall Street had just 10 sector traders, each dedicated to stocks in one broad industry, on its desk. Now it has four chartered financial analysts, one quantitative analyst and one programmer. “We look more like our investors, than we look like a trading desk,’’ the head of the firm’s trading said early this month.

And not just any programmer will do, any more, said Jeff Birnbaum, chief technology architect for Bank of America Merrill Lynch.

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