You got it all wrong about electronic trading jobs and MiFID II

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Aghast

If you thought electronic trading jobs in big investment banks were nice secure gigs to have, I'm going to have to pop your bubble. Electronic traders at large investment banks are like Starbucks outlets in 2013. They're about to have their lunches eaten by smaller, cooler, edgier new competitors.

I know people say that MiFID II is going to be a good thing for a few banks at the top of the tree in sales and trading. But I don't see it. Instead of consolidation, I see MiFID II opening up the market. Buy-side firms aren't going to want big and bland any more. They're going to go niche.

Why do I think this? Well, under MiFID II, the buy-side won't have to keep on trading with a particular brokerage firm if it wants that firm's research. If it wants the research, it will buy it separately. The whole point is to free up buy-side firms to use brokers with the best execution systems.

Now, you might think these systems exist within big banks, but again I'd say you're wrong. Yes, big banks have been investing big money in the past few years but in my experience this hasn't gone into execution. It's gone into compliance. Like Starbucks, banks have been relying on their brand to carry them along as they've done this. Meanwhile, smaller brokerage houses and third party algo providers have been investing heavily to prepare for the MiFID II opportunity.

These small firms are not like big banks. They have less interest in crossing flow and in trading on certain exchanges to increase margins. They're usually agnostic about the trading venues they connect to. They have one purpose, and that's providing clients with best execution. By comparison, banks will often be hesitant to route a trade through a rival's crossing network or systematic internaliser. They're still about keeping control for themselves.

This gives the smaller brokerages and third party algo providers an opening. Not only are they more flexible in their pursuit of best execution, but they can simplify life for the buy-side. This is especially the case when it comes to third party algo providers which are certified with all the major brokers. Instead of having to manage multiple electronic broker relationships and master all the different transaction cost analysis templates, the buy-side can simply deal with one algo provider who does everything else for them. It's like comparing a Nokia from 2003 with the latest iPhone X - advanced, yet simple.

This means, that if you're looking for an electronic trading job now, banks are probably not the best place to go - unless you like life frothy and generic. The same applies to quant jobs. Quants in banks are increasingly set to work on tedious compliance initiatives. By comparison, independent algo providers give them a role at the heart of execution. I know where I would rather be.

Donovan Reid is the pseudonym of a trading professional in London

Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com

 

 

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