Despite the trend towards electronic trading, voice communications between traders and their clients still sit at the heart of global financial markets.
A new report from Greenwich Associates documents the critical role voice communications retain in an increasingly electronic era, and examines the ways traders are using new technology to enhance the effectiveness of conversations with clients.
The Voice of Trading shows 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 U.S. 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 Richard Johnson, Vice President of Market Structure and Technology at Greenwich Associates and author of the report.
Voice communications play a role even when trades are routed through electronic channels. Nine out of 10 of the trading professionals participating in a 2016 Greenwich Associates study 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 Richard Johnson.
Virtual Turrets
Trading desk communications are evolving rapidly with the ongoing integration of new technologies ranging from IM/chat messages to electronic, computer-to-computer FIX communication. Growing numbers of traders are switching to “virtual turrets” that replace classic trading desk hardware with software-based applications. 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 traveling.
Voice is Here to Stay
There may be faster and more efficient methods, but communicating by voice is always more personal. “Voice communication helps traders convey nuance, build trust and develop stronger relationships with their clients and brokers,” says Richard Johnson. “And trading is—and always has been—a relationship business.”