Is it even worth applying for a new sales and trading job in an investment bank in 2017? As markets are automated, there's less need for traders. As client lists are cut, there's less need for salespeople. And as costs are squeezed, the back and middle office are being stripped back to the essentials.
It is. Dixit Joshi, the former equities trader who joined Deutsche Bank five years ago and now heads its fixed income sales and clearing activities, has written a densely-worded piece for Financial News explaining his vision for trading jobs in the future. If you're used to the old methods of doing things, Joshi's vision will come as a shock. But some sales and trading jobs will still be good to go.
Anything that can be automated, will be automated. As liquid bonds are increasingly traded electronically, banks are going to cede market share to exchanges and new 'liquidity providers' (there were 99 electronic platforms to facilitate fixed income trading by the middle of last year).
"As investors move from trading bonds on an Over The Counter (OTC) basis to automated trading, they will become increasingly agnostic about which party provides certain services to them,"Joshi says. Put bluntly, liquid bond trading won't be where the money is.
Joshi says banks will still trade these liquid bonds, but that they'll focus more on where they can, "add real value". And Joshi predicts that the real value come in part from, "market-making in illiquid securities."
If you're going into trading now, you therefore need to find an area where it's hard to match buyers and sellers. High yield trading is one such example. In October, it was reported that a Goldman Sachs high yield trader made profits of more than $100m after buying illiquid high yield bonds to sell-on to clients and holding them for several weeks while prices rose. This is no longer possible in highly liquid markets like FX trading where buyers are matched to sellers immediately.
Alongside illiquid products, Joshi says banks will focus on "providing bespoke OTC financial products." In simple terms, this means structuring special financial derivative products that meet individual clients' needs and selling them to clients directly.
Deutsche isn't the only bank going for this market: most banks are focusing on high margin "client solutions" business. This is creating demand for structurers and sales-traders who can understand clients' requirements and create products that do exactly what clients want.
Joshi says sales jobs in investment banks are changing too. In the past, he says they were all about ensuring clients' trades happened (were "executed"). In the future, he says, "the focus will be on generating trading ideas for clients and helping clients decide when, where and with whom to execute a trade most effectively".
In other words, Joshi says trading jobs are going up the value curve and becoming more rather than less skilled: salespeople will need to become proper advisors to clients. What Joshi didn't mention, however, is that there will be fewer of them. As we've noted before, sales jobs at all banks are splitting into "high touch" and "low touch." Joshi's vision of the future refers to the high touch salespeople who work with core clients and have deep market and product knowledge. By comparison (and Joshi didn't say this) so-called low touch salespeople will add less value and will work with 50-100 peripheral clients at a distance while encouraging them to use a bank's electronic trading systems efficiently.
Joshi said salespeople will need to use data to generate trading ideas. As we wrote last year, Deutsche is in the process of developing a complex risk management and pricing system to match SecDB at Goldman Sachs. This system can be expected to feed into the data available to salespeople at the German bank. Goldman Sachs is already several steps ahead though and is developing its SecDB system into Marquee - a product that can be directly accessed by clients.
During last week's conference call, Goldman's soon-to-be new CFO Marty Chavez said there won't necessarily be a swing back to "high touch" salespeople in future. "To the extent that markets have become more electronic, it makes our people more electronic and strengthens our client engagement," Chavez said cryptically when asked about clients' increased need for human interaction. At Goldman, a salesperson's ability to parse data won't necessarily be a career saver: the firm is working with Kensho, a start-up which uses artificial intelligence to filter data and develop trading ideas which could be communicated to clients directly...