The technologies revolutionizing Wall Street have left traders and Washington regulators alike playing a perpetual game of catch up. In the current age of algorithmic trading, even those who can’t quite hack it as a quantitative trader may have a future working for a regulator such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Traders used to leave paper trails when they broke the law – emails revealing that they had inside information about a company’s earnings, instant messages laying out a conspiracy to manipulate prices or phone recordings discussing an illegal hot tip.
Now government watchdogs have to figure out how to look under the hood of machines running lightning-fast algorithms or machine-learning software. The danger is that cheaters will be able to hide abuses or will accidentally turn a software glitch into a market meltdown. And there are few legal precedents in which regulators have used computer code as evidence to prosecute misconduct.
To keep up, agencies like the SEC and CFTC are changing who they hire. They could take a page from hedge funds and investment banks that have been turning to people who know how to write computer code, not just traders with MBAs.
“What you really need are computer geniuses who failed as algorithmic traders and are willing to switch sides,” Brad Bennett, who was head of enforcement at the Financial Industry Regulatory Authority until earlier this year, told Bloomberg. “You have to be able to deconstruct the code.”
The SEC has been building algorithms in recent years to try to detect anomalies in trading of opaque bonds tied to mortgages, auto loans and other kinds of debt, and it needs former algorithmic traders to do so. SEC officials say the algorithms have helped the agency to identify billions of dollars of problematic trades.
Goldman Sachs has been promoting coders within its trading operations with approval from government authorities. Regulators like that trading supervisors understand the mechanics of their systems in case something goes wrong.
However, government agencies have a major challenge when trying to recruit the likes of Goldman strats or quantitative traders from a top hedge fund: limited resources trying to keep tabs on financial giants. The SEC has an annual budget of about $1.6bn, while the CFTC’s is $250m, constraining their ability to attract top talent.
Still, even if the raw compensation doesn’t compare to Wall Street, regulators do offer great benefits, and especially for traders who’ve been laid off, it sure beats unemployment.
Separately, there’s an elite cadre of wealthy families who are beating private equity firms and other strategic acquirers at their own game.
Family offices – also known as “family capital,” “family investment firms” or “permanent capital investors” – are loosely regulated, privately owned companies that manage vast amounts of money for wealthy clans such as the descendants of oil tycoon John D. Rockefeller, Microsoft founder Bill Gates and hedge-fund manager Bill Ackman. They’re also among the most secretive firms in the world, and they are expanding rapidly, according to Bloomberg.
In addition to traditional investments in stocks and bonds and alternatives such as hedge funds, an increasing number of family offices have made direct investments in companies and real estate. The most sophisticated ones are turning into investment giants, leveraging their patient capital and regularly pitting their checkbooks against private equity firms, per Bloomberg
Family offices are hiring away top talent and then sending them off to scour the country to beat other players to attractive acquisition targets and competing with PE firms for big-ticket deals in companies worth hundreds of millions or even billions of dollars.
The amount of capital moving around has grown significantly. Family offices did $100.6bn in deals in 2016, compared with $25.1bn in 2011, according to PitchBook Data figures cited by Bloomberg.
U.S. investment banks charge up to $15k for analyst calls to discuss their research. (FT)
HSBC has poached from Goldman Sachs and Deutsche Bank for its new global co-heads of its strategic equity and financing unit. (Financial News)
Wells Fargo has fired FX traders as problems grow (WSJ)
Third Point, the hedge fund founded by billionaire Daniel Loeb, is likely to be hiring. (Business Insider)
A former CTO and partner at Goldman Sachs reveals the future of automation and what it means for Wall Street jobs. (MSN)
The AI student has officially become the AI master, as Google’s AutoML program duplicated its own code more efficiently than its creators. (Interesting Engineering)
AI’s role in financial services isn’t as clear-cut as it may seem. (Winton)
Even if a trader tries to adjust to this shifting landscape by sharpening his or her tech skills or learning how to code, they could still lose their job. (Business Insider)
It’s only a matter of time before embattled Deutsche Börse CEO Carsten Kengeter steps down. (Handelsblatt)
One of the U.S.’s oldest business schools at one of country’s most prestigious public universities is considering closing its M.B.A. program, emblematic of the troubled market for graduate business degrees. (WSJ)
Investment banker Fabian de Prey, the 42-year-old head of global equity-linked products in EMEA for RBC Capital Markets. But, he runs ultramarathons – any race above 26 miles (42.2 km), the standard length of a marathon – in his spare time. (Business Insider)
Do you want to work on Wall Street? Don’t let the high cost of living scare you away, because there are cities that make New York City housing seem downright affordable in comparison. (Bloomberg)
Millennials don’t want to switch jobs (The Economist)
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