“I am a one in ten…”

October 3, 2006

Remember that UB40 tune from the early 80s recession ?  Or, to put the question another way, how much can we automate ?  Mostly’s recent post about only 10% of traders surviving growing computerisation made me think again about the automation of fixed income market making. Of course, the IBM paper he refers to is somewhat self serving: IBM think you need to select a strategic technology partner to meet the challenges of the next 10 year. I wonder who they could be thinking of ?

A lot of the market making job has been automated in the last few years…

  • Pricing: calc engines driven by depth ticks from Eurex or Liffe constantly reprice bonds
  • Quoting: autoquoting systems driven by the pricing engines crank out bid and ask with sizes to multiple ECNs
  • Auto RFQ: on quote driven markets a dealers trading system will handle the negotiation with clients raising RFQs. Mostly alluded to this in an earlier post when he mentioned tiering.
  • STP: most bond trades flow straight through to settlement with no manual intervention

So what remains to be automated ?  To me it seems that the big ones are inventory management, and the pricing of liquidity. If we can do those, we make a lot of traders redundant, and maybe us techies can collect their bonuses 😉  But how do we get the turkeys to vote for Christmas ?

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