The Money Pit

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Night desks have an image problem. Around the world they toil while the rest of us sleep, but they are often regarded as the poor cousins of their daytime trading desks. Traditionally viewed as a service rather than a profit centre, firms have been reluctant to invest in them. Fidessa’s Lewis Richardson, Derivatives Product Manager, explores the global issue of loss-making night desks and examines how technology can not only stem those losses, but boost productivity and improve the bottom line.

Night desks are an essential part of today’s 24-hour global markets. Whether located in Chicago, London, Hong Kong or Singapore, they play a key role in executing a firm’s strategies. But they inherit all the problems of the daytime trading desk, compounded by the tyrannies of time and geography. Whether running a ‘follow-the-sun’ or a centralised model, night desks are trapped in a vicious circle, overburdened with systems but short on efficiency.
With one London trader suggesting recently that they are “notorious at costing money… they usually work an enormous amount of orders and have a high error rate because of communication problems”, is it any wonder that night desks feel somewhat hard done by?
Many of these problems stem from the melting pot of technologies that night desks have to use to take in and execute the flood of orders they receive from the daytime desks. This usually involves multiple OMSs, instant messaging, email and phone for managing incoming orders and even more systems for managing alerts and call levels.
With huge volumes of order information being passed between these systems there is plenty of room for error. Lost or erroneous orders, double entries and missed call levels all add up to a significant operational risk.
More often than not, the orders handed over must then be cancelled and re-entered. In many markets this means losing queue priority, a particularly irksome problem during roll-over periods. Special instructions, such as specific client recaps and release and cancel times, can be lost as orders are checked against paper tickets, emails, or manual spreadsheets. At the end of this unhappy trail, erroneous orders are finally communicated back to the trading desk and to clients with sub- optimal results.
Faced with these myriad problems, today’s night desks are crying out for a solution.
A single global OMS is an obvious starting point, immediately removing the need for manual handling of orders and allowing for efficient handover between users in the same office, in the same region, between regions or across multiple global hubs. Handovers can be managed and monitored at group level to ensure nothing is missed. A solution should eliminate the need to re-enter orders, ensure they maintain their queue position and provide better execution quality for proprietary and client trades. It should facilitate the handover of an order at any stage in its lifecycle, without the need for traders to specify whether or not the order is to be handed over later. The original trader should also be able to maintain visibility of the order, no matter where and when execution took place.
From a risk perspective, the advantages are significant. An efficient system will provide a full audit trail, including handover action. Real-time order visibility gives certainty to both traders and clients that trades are being handled as they were originally specified. And ensuring orders stay in the market negates the timing and execution risk involved in pulling and re-entering them.
A harmonised, global risk console and single point of order entry also provides seamless global monitoring and tight management of limits across the world. Risk parameters and limits can be centrally maintained while orders are handed across various owners in different geographies, regardless of where the order is worked or who is currently handling it.
An efficient night desk may not win new business, but the continued reluctance to invest in good technology to support it looks like an increasingly dangerous decision. Poor trading outcomes damage reputations and client relationships. Preventing costly errors before they occur creates both operational and cost efficiencies across the whole trading lifecycle. And that has to be good for traders, for trading firms and for their clients.