Short and sweet, thanks in main to what purports to be the world’s favourite airline taking 33 hours to deliver me back – I know the A stands for “awful” you can fill in your own version for the “B” – I thought I would look at what seems to be a growing opinion in certain fixed income markets that the human is going to disappear.
Speakers at last week’s Forex Network London first mentioned it, specifically that people will use the mouse over the phone in fixed income markets, and other contacts have reinforced the message. In part this is a reflection of people understanding that the new regulatory environment means that more automation is inevitable – and that electronic trading in particular products will be effectively mandated – but it also reflects a belief that human interaction will be severely reduced.
I know that fixed income markets have a different structure and way of doing things – hence my antipathy to the FICC model – but they tend to be more complex, and the minute things get complex, the more clients need their hand holding. This may be done by “mouse”, i.e. messaging systems, but if the fixed income market believes that many end-users will be happy with that they are deluding themselves. Equally, if the authorities believe that greater electronification of these products will make markets safer, I would humbly disagree.
One of the key problems of the financial crisis was peoples’ lack of understanding of products. It is much more difficult to get a nuance across in an electronic conversation than it is human (I would also note it is easier to understand when someone is promoting a product with a sketchy understanding of what it does when you can look in their eyes), and that means that when customers need to be helped, it has to be done, to a certain degree, by voice.
By all means execute these products electronically. I am and remain a huge proponent of the benefits of e-trading in markets, but equally I think it important that the industry does not over-react. The execution and post-trade environment is made for automation, but the pre-trade remains, to an extent, the domain of the human. It is where service providers can truly differentiate themselves and potentially costly mistakes can be avoided. I just hope the fixed income markets recognise that.