The robots took the stock market. Now they are moving towards bonds and currencies

When Ashok Krishnan spoke for the first time about automated trade, his colleagues from Bank of America easily dismissed his vision. Now he remembers how only a handful of people have listened to it. But now that they ignored it initially, their calls for help echo.

As the head of the e-commerce division, Krishnan is one of the few Wall Street veterans - including Phil Alison from Morgan Stanley and Mark Goodman of UBS Group AG - who have hired the last decade with a seemingly difficult task: to trade on other markets such as the bond market and foreign exchange markets. In their view, it is quite possible, watching the machines capture the stock market. Technologies such as mobile commerce and algorithmic trading make the robotics much more robust, making the markets much more complex.

The forecasted automation of bond and currency trading is coming pretty slowly, especially since traders have shown strong skepticism against them in order to protect their own jobs and businesses. In their view, customers prefer real human relationships, and automation weakens relations. This in turn creates the risk of reduced customer interaction and omission of other potential opportunities. Still, investors are demanding new and advanced cost-cutting platforms, as well as tools that give a clearer picture of the markets.

Bets are huge for Wall Street banks competing for the $ 22 trillion US Treasury and corporate debt market, as well as for the FX market with $ 5.1 trillion a day. Trade in fixed income instruments remains the most profitable revenue generator in the industry. Now companies will have to change dogma and adapt to new, modern electronic platforms, otherwise they risk falling behind.

The shares migrated to computer infrastructure first because they are standardized and traded frequently, making trading easy and creating a fast relationship between buyers and sellers. The same is true in part for FX trading and trading in government securities.

Last year Goldman Sachs warned analysts that old automation contradictions are no longer valid and that the bank analyzes the progress of traders and sales representatives on the road to modernization.

Electronic platforms would replace traders in two ways: They will require fewer people to handle transactions. And they will require those who remain to acquire new skills and retrain.

And no worries about jobs. 12 of the world's largest banks have significantly reduced their front-office staff - those who generate profits - by 11 percent since 2013.

In the most liquid markets, more than 90% of transactions are executed electronically. 79% of transactions are thus executed on the world currency markets, 44% on the bond market and 26% on the corporate bond market.

Source: Bloomberg Finance L.P.

Graphs: Used with permission of Bloomberg Finance L.P.

Photo: Pixabay

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