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Multi-Asset Trading: To Specialise Or Not To Specialise?

With Fabien Oreve, Global Head of Trading, Candriam Investors Group

fabien-oreveIn recent years, more and more asset managers have had many good reasons for installing a multi-asset trading desk.

First of all, for reasons of operational efficiency and cost control. Recent improvements in the order and execution management system (OEMS) technology used to handle different asset classes are powerful factors behind operational efficiency and economy of scale. It is, for example, easier to output large numbers of transaction reports when these are generated by a consolidated desk equipped with a multi-asset OEMS.

Another reason is portfolio managers’ growing need to actively invest in a greater variety of instruments, including – globally – listed derivatives and foreign exchange.

Finally, the development of multi-asset execution teams derives from a greater reactivity to the changes brought about by electronic trading. The growing electronification of the markets has enhanced convergence among asset classes as different as bonds, equities and foreign exchange. The growing sophistication of the multi-asset OEMS has enhanced innovation in data consolidation, with pre-trade, trade and post-trade information directly available in the same place, on the same screen, for every large asset class.

The introduction of consolidated trading desks raises questions such as: Is there a standard definition used by everyone for multi-asset trading? Is there a standard trader profile within this new structure? Should this structure be organised at management level only or at trader level? Does the trader have to be a specialist or a generalist?

For some time now, thanks especially to improvements in electronic dealing, specialised fixed income traders have assumed a bigger role in foreign exchange transactions. And it is not uncommon to see equity traders negotiate futures on indices and other highly liquid derivatives.

With a multi-asset OEMS, buy-side traders, regardless of their expertise, gain visibility across all asset classes. It is useful to have one system that is structured into multiple order blotters, and coordinate team efforts to smoothly trade equities, futures and currencies, or bonds, futures and currencies.

A certain level of multi-tasking can help smoothly absorb sudden variations of volumes in a specific asset class. It’s not at all a matter of an equity trader dealing in illiquid bonds or large-size bond orders. However, today the OEMS technology enables traders to filter and select orders by level of difficulty and to delegate the easiest part of the job to less experienced or more generalist colleagues.

Well-documented and internal best-execution procedures regularly updated by the head of the multi-asset desk are also indispensable tools for encouraging less experienced staff to help their more experienced colleagues, while maintaining the same high levels of execution performance.

Becoming multi-skilled in an execution team also limits the risk of weariness in professionals whose main job involves working the same type of instrument day in, day out. Encouraging the multi-skilled, flexible approach also means that the team is not necessarily handicapped by the unscheduled absence of a colleague (for personal reasons, illness, etc.).

Nonetheless, multi-tasking should not take priority over motivation or individual performance. In other words, multi-tasking should not inhibit the accumulation of the expertise that staff need to guarantee certain levels of performance at all times. Such expertise is essential, especially as regards the most challenging asset classes and the least liquid financial instruments.

Fixed-income, in particular corporate bonds and emerging market debt, obviously requires such specialisation and expertise. Equities, too, rely on experience and savoir-faire to deal with large lists of complex orders that require combined electronic and voice trading.

From an organisational point of view, the optimal solution could lie, eventually, in balance. Multi-asset trading desks should have their fair share of specialists capable of handling the major equity and bond asset classes (in particular, the less liquid buckets) and, at the same time, allow its specialists to widen their skill set and promote teamwork on the most liquid markets, with the support, in particular, of the ever-more sophisticated OEMS and trading platforms.

The topics covered in this article were discussed at the Institutional Investor’s International Trader Forum in Rome on September 7th, 2016.

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