The bond-trading veterans aren’t so sure they want the help.
Consider what happened when former Goldman Sachs executive Chris White drew attention to a Bloomberg article on equities and electronic trading staff moving across to fixed income.
White publishes a weekly bond market wrap up called Friday Newsletter.
The story was met with a swift response from a group called the 10,000 Hours Team, made up of anonymous trading veterans.
“Don’t know if anyone has been paying attention, but the track record of FX and equity leadership in [non-Treasury] fixed income markets has been nothing short of laughable,” wrote one.
“I have had the pleasure of ‘helping’ equity/fx guys bring their vision to credit multiple times and it never ceases to amaze me how little they understand credit and how uninterested they are to actually learn credit,” said another.
The comments neatly encapsulate the tension between equities traders and their colleagues in fixed income. The former had a good year in 2015, with revenues up, though 2016 has been a little tougher.
Fixed income pain
The fixed income business, in contrast, has been experiencing a steady decline in revenues — from $123 billion in 2010 to an estimated $80 billion in 2015 across Wall Street. The top 10 global banks have seen a 30% decrease in fixed-income front-office headcount since 2010, according to figures from Coalition.
That has led banks to shift bosses from the ascendant equities business to their downbeat fixed income units. At Morgan Stanley, the global head of markets, Ted Pick, comes from an equities background, as does the new head of fixed income, Sam Kellie-Smith.
At Credit Suisse, Tim O’Hara, who most recently led the bank’s equities business, was handed the reins as head of markets. Deutsche Bank’s new global head of markets, Garth Ritchie, also comes from an equities background.
The changes are in part driven by the fact that the fixed-income trading is actually beginning to look a little bit more like equities trading. It’s moving on exchange and going electronic.
This is sometimes referred to as the “electronification” or “equitization” of fixed income.
“Parts of the fixed income market are moving towards a more agency model, which more closely resembles the way equity markets work,” Kevin McPartland, principal in market structure and technology at Greenwich Associates, told Business Insider in January. “And it’s hard to ignore the growth in fixed-income e-trading.”
As the comments on Friday Newsletter point out, these efforts don’t have the best rate of success. There are significant structural differences between the two markets.
That isn’t to say that electronic trading and equities know-how have no use in the fixed income business. Some corners of the fixed income markets have taken relatively quickly to this kind of trading, such as foreign exchange and the rates market.
But other areas of the fixed income business, such as corporate bonds, have lagged in their take-up of electronic trading.
That’s principally because the bond market includes thousands of securities. The stock market, in contrast, has about 500 highly liquid securities. In FX, most trading is in a handful of currency pairs.
What that means, in practice, is that it is relatively easy to find a buyer or seller when you’re dealing in JPMorgan shares, but it is much harder to figure out who the buyer or seller is when you’re dealing in one of JPMorgan’s 1,500 plus bonds.
Then there are the cultural differences. Morgan Stanley’s Ted Pick alluded to this at a Credit Suisse event when explaining the changes in the fixed income leadership at the bank.
“The thinking was to try and contribute some of the DNA from equities, where we would try to avoid at least one of the mistakes of these phenomenon … where one business effectively quote unquote takes over another, and you have a bunch of people adding to their business cards.”
Time will tell if banks are able to pull off the manoeuvre without causing a civil war on the trading floor.
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