“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 ?