THE BROKERAGE DESK IN THE TIME OF COVID-19.
By Carmine Calamello, Head of Brokerage Desk, Intesa Sanpaolo – IMI Corporate & Investment Banking.
It was March 2020 and suddenly, lights, PCs and the usual brokerage trading room chatter were switched off and the number of traders was reduced to the minimum required to ensure business continuity, minimise operational risks and implement social distancing measures.
It was not one of the typical business continuity exercises, but the start of the Covid‑19 era for sellside traders. Life in the workplace changed dramatically in just a few weeks with no-one predicting that the short-term solutions implemented to face the emergency would last longer than six months, and still be in place as I write. What was considered temporary has just been transformed in a permanent solution.
Private homes were swiftly transformed into a multitude of inter-linked business continuity sites. High market volatility, increased volumes and low liquidity were critical issues that had been tested in the past, but the pandemic raised a host of untested organisational issues. They ranged from the need to protect health and safety, ensure social distancing and reduce the risks of contagion associated with commuting while maintaining the same quality of service for clients.
These situations were hardly conceivable for a brokerage trading firm. Before March 2020, the thought of a remote trading desk would not have entered any firm’s mind. The only possible operative models were based on trading from the dealing rooms, or business continuity sites, already tried and tested numerous times in the past. It is not a coincidence that although smart working plans were familiar in the banking industry, trading desks and those managing market risks were excluded, because trading from home was either considered impossible or not recommended.
Fast forward to today, and the assumption was wrong. Financial companies are now realising that going forward the digital workplace could be an alternative model to run in parallel with the traditional setup.
There is no doubt that technology has been the enabler. If it happened prior to the age of laptops, smart order routers, sophisticated communication tools and algo-trading, the remote trading desk would not have worked. Today, family, friends and co-workers can use video and audio to keep connected in both their personal and business lives.
The organisation of a brokerage trading desk in ‘Smart Working’ requires several challenges to be addressed. This is especially true for exchange members, because in addition to internal conduct procedures, order tracking and registration of telephone conversations, some regulations require a physical presence in the trading rooms when handling client’s orders. Exchanges and regulators took the pragmatic decision to delay or suspend some obligations, to relieve market participants and help business continuity.
The daily interactions of a brokerage desk are multiple:
• inside the desk and intra-desks on the same trading floor,
• with IT dedicated support in the trading floor,
• with middle and back office,
• with internal and external market makers for trade over the counter,
and not least with clients. If we exclude those pure low-touch trades, the high-touch client orders require a restructuring of the operational model, pushing on automation where possible and supporting clients in Smart Working organisation at home.
It is critical for a brokerage desk in remote trading to have a reliable and structured communication network in place. This is also important for facilitating information flows and data sharing in order to overcome the physical distance that prevents the immediacy of being able to shout to a colleague.
The pandemic has accelerated a broader adoption of collaboration tools to facilitate chats as well as virtual meetings, but also the need of machine-readable data. It has often been said that data is ‘the new oil’ and for financial services, messaging tools used by portfolio managers, buyside traders, sales traders and sellside dealers have seen a spike in volumes as remote working has taken hold.
Negotiation is often a key element of trading in over-the-counter (OTC) markets, and where voice trading is not used this makes free text tools a vital facilitator of communication between buy- and sellside counterparties.
Other key priorities include managing risks and supporting clients. They might require a recalibration of hourly coverage to ensure that enough traders are ‘in’ the trading room during market openings. However, the remote working and social distancing measures have underscored another issue: the difficulties caused by complex, inefficient and highly manually processes. Even if the front office level of automation was already in place, other parts of the trade cycle still need much manual intervention.
Of course, a close eye on the regulatory changes is also necessary to understand whether a contingency model might finally be established as a standard. We expect that in the near future regulators might provide clearer indications on how to manage smart working in a regulated activity such as brokerage. We think that a review of security practices should be an important and pressing need in the coming months.
In addition to those critical priorities under discussion, when we consider a new normal, it needs to include:
• Culture of business: it is difficult to translate the ethos and identity of a firm, without proximity. The same applies for employees, when speaking to clients. Collaboration and social interacting (even if in a virtual way) is essential.
• Hiring and training of junior staff: within finance, like many jobs, experience and direct training from senior staff is key.
• Compliance and risk monitoring protocol: it is imperative that every firm is compliant with regulation and with internal risk frameworks, whether in the office or working from home. A report published during the first weeks of the pandemic said that since lockdown, compliance departments have been given increased budgets to manage risky areas, with special attention on communication tools.
• Managing your time: the most effective way to manage your time is to schedule your day, like a normal day in the office, together with planning regular breaks and time to switch off.