Electronic trading has made rapid advances in recent years, but investors still want to deal with traders over the phone, says Greenwich Associates.
A report from the US market intelligence and advisory services provider for the financial services industry finds that voice communications still retain a critical role in an increasingly electronic era.
The report, entitled ‘The Voice of Trading’, also examines the ways traders are using new technology to enhance the effectiveness of conversations with clients. Its author, Richard Johnson, vice president of market structure and technology at Greenwich Associates, finds that although algorithms, dark pools and electronic market makers have transformed trading, institutional investors actually execute the majority of their order flow via “high-touch” channels -usually via telephone.
“Even in US equity markets, often viewed as one of the most electronic markets in the world, high-touch trading, or single-stock trades routed to a sales trader, still represents the largest execution channel,” says Johnson.
Voice communications play a role even when trades are routed through electronic channels. A 2016 study by the firm found that nine out of 10 of the trading professionals surveyed use voice communications in electronic trades, primarily for post-trade interaction (discussing trade performance and receiving allocation instructions) and pre-trade interaction (confirming order receipt, discussing market conditions or expectations for the trade).
Much of this pre- and post-trade interaction could be conducted via chat or email. “But the fact that so many traders still rely on voice communication when trading electronically speaks to the more personal nature of a phone conversation and the nature of the buy-side/sell-side relationship,” says Johnson.
Trading desk communications are evolving rapidly with the ongoing integration of new technologies ranging from Instant Messaging (IM) and chat messages to electronic, computer-to-computer Financial Information eXchange (FIX) communication. Growing numbers of traders are switching to “virtual turrets” that replace classic trading desk hardware with software-based applications.
The report forecasts that innovation in the virtual turret space will continue, with the software becoming increasingly integrated with other tools on the trading desk. Virtual turrets could also be ported onto mobile devices, allowing traders to make and receive fully compliant phone calls at home or while travelling.
Despite the faster and more efficient methods now available, communicating by voice is always more personal, says Johnson. “Voice communication helps traders convey nuance, build trust and develop stronger relationships with their clients and brokers. “And trading is – and always has been – a relationship business.”