The last decade has seen a significant evolution in the role of the trader across the spectrum of asset class desks, from primarily a sales-focused role to one that requires coding and analytical skills. Technology has acted as a catalyst for change in the front office, explained one of the bank speakers during Broadridge’s recent webinar on the transformation of capital markets, starting with equities but expanding into many other asset classes over time.

Traders now have the technology tools to enable then to handle higher volumes of trading activity, to trade faster than ever before and to have better access to liquidity and risk data to support decision-making in volatile markets. The industry’s arms race to better manage data in a low latency environment has caused front office roles to change significantly and technology such as artificial intelligence (AI) will, no doubt, change these roles much more over the coming decade.

Another bank speaker leading a transformation team noted that the line separating quants from traders has significantly blurred over time and that firms are looking for individuals with multiple skills that allow them to understand the technology and the business. After all, firms are seeking to maximize the potential of the roles of their front office staff and coding skills are a premium in today’s markets. The traditional disconnect between those developing technology and those using technology is much less of a problem when the individual that understands the optimization process is the one tweaking the system.

Technology may be a key enabler of change but it also poses a number of challenges to financial institutions – particularly when it comes to addressing legacy systems that are struggling to cope with the demands of today’s markets. The first audience poll of the webinar highlighted that many firms are facing these issues as coping with legacy silos came top of the list of industry challenges. The reduction of technical debt was highlighted by each of the panelist as a key focus for the next decade within their respective organizations. Broadridge’s Vijay Mayadas noted during his opening remarks that clients have demonstrated an appetite for both vertical and horizontal system rationalization.

The streamlining of the front-to-back trade lifecycle and all related workflows will be key to adapting to the market structure requirements of the future, including the North American markets’ move to shorten the settlement cycle by 2024. The reduction of the settlement cycle from trade date plus two days (T+2) to T+1 has been a talking point over the last six months in both the US and Canada and some firms in both markets have a long road ahead of them to prepare for the move. System modernization across the middle and back office will be a large program of work for these firms over the next two years and beyond, especially as the markets contemplate a potential future with T+0 netted settlement. A head of operations from a bank noted that from the operations perspective, the focus needs to be on interoperability to enable these changes.

The group discussed the pitfalls involved within transformation programs, including beginning the program before first identifying the right key stakeholders and their business problems. One speaker noted that his own digital and data transformation team has the full support of the C-suite and the program of work they have embarked on is all about aligning the technology architecture with the firm’s business priorities now and in the future. Not all transformation teams have as much support, however, and business leaders can be vague about strategic direction, which may negatively impact the technology program of work. Breaking down silos is not just about technology; it is also about operational structure and firm culture – all lines of business need to be pulling in the same direction for a strategic project at the enterprise level to succeed. He explained that successes can be achieved by incentivizing collaboration and fostering a greater spirit of innovation across teams. This can even be aided by getting the right people around the table at the right time.

Another front office head explained that digital transformation is often perceived as a cost reduction exercise, but it should instead be focused more on creating better products and services for clients, increasing capacity and delivering better outcomes for internal stakeholders and external clients. The group also agreed that return on investment (ROI) must be delivered in regular increments rather than via a big bang approach and Broadridge’s Justin Llewellyn-Jones noted that clients have worked with the firm to design initiatives that can be executed quickly and deliver business outcomes in months rather than years.

Technologies such as AI continue to make inroads in many areas across capital markets and they will continue to impact the roles of business, technology and operations staff across the industry. If the skillset of a trader is now more about building quantitative models, the future may see the complete automation of trading and the full evolution of the role into a quant role. Front office functions will require the deciphering of an even higher volume of complex data via the use of AI and machine learning (ML). It is already challenging for humans to consume the amount of data that is being produced and this will only become a greater challenge in future if technology in not deployed to support human decision-making. 

Of course, all of this must be done in such a manner that clients and regulators are comfortable. The requisite governance and controls must be in place to ensure that checks and balances are present around the AI and ML architectures. No black boxes can be present as both parties must be able to understand how and why certain trading decisions have been made.

The transformation of the front office may have begun in the equities space a long time ago but that has expanded over time into many other asset classes and further back into the post-trade realm. Technology already has and will continue to play a significant role in making capital markets firms more efficient, resilient and well-placed for the future.