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Wall Street’s Trading Desks Endure Worst First Half in a Decade

80 points by sikim 7y ago

xiphias2 7y ago
,,we haven’t seen a lot of people repositioning their portfolios, we haven’t seen leverage increase.” Maybe people are starting to realize that changing portfolios all the time without a computer making the calculations is not the best way to make money (quite the opposite)
- benj111 7y ago
  You're not wrong, but this seems to be focussing on the institutional share holders, whose job it is to trade, not trading so much. For them trading is the best way to make money, thus the layoffs. I wonder how much of this is a short term blip, and how much is the new normal, and if it is the new normal, where does it all end up, is buying and holding going to get more expensive, or will the active investing core maintain the same cost structure, but just shrink. Will we be seeing more Lehman Bros, or more Deutsche Banks?
dmix 7y ago
http://archive.is/rSS5h http://archive.is/rSS5h
dmix 7y ago
> And technological advancements have narrowed spreads in many areas of trading. > “Part of the problem is that it’s too late to hedge interest-rate volatility, there’s not currency volatility to hedge. Speculators need volatility to hedge and enter the market.” Sounds like a good thing to me. > New rules limited lenders’ ability and willingness to make principal bets with their own money Anyone know what regulation this is referring to? One of Steve Mnuchin's stated goals was to reduce the domination of the 5 mega-banks and help bring back a healthy market of smaller banks that got squeezed out by new rules added after the financial crisis. Rules that were designed with the bigger banks in mind. So I wonder how the smaller players are doing.
- tma-1 7y ago
  https://en.wikipedia.org/wiki/Volcker_Rule https://en.wikipedia.org/wiki/Volcker_Rule
- MagnumOpus 7y ago
  The smaller players are doing worse - at least on the trading side that the article is talking about. Even well-bankrolled foreign operators like Deutsche Bank and Nomura are too small to make money and are exiting the market bit by bit, and anyone who is smaller than that just doesn't have the economies of scale (Not just on regulatory compliance but to be competitive on pay). There are a few niche players who carved out a place to be profitable, like Imperial Capital, but if they grew any bigger, one of the big 5 would just buy them.
- mruts 7y ago
  The rule they are talking about is the Volcker Rule. Prevents certain banks from proprietary trading. They are only allowed to buy and sell for the purpose of market making. This, of course, is an incredibly stupid rule. There’s not really a big difference between market making and proprietary trading in the first place.
  - kweinber 7y ago
    Proprietary trading is trading your own money with no obligation to transact or do any business with others. Market making is offering public liquidity as part of a market function. They are designated market participants with rules and responsibilities. They are not the same.
    - bboreham 7y ago
      I think you might be a bit focused on the equity market there. In fx and interest rates markets there is no “public liquidity”, everything is bilateral.
    - mruts 7y ago
      There's not a market maker in America that's selling and buying in order to provide liquidity. You buy low, and sell high, that's the end of the story, for both proprietary trading, trading for clients, and market making. There's no fundamental, categorical difference between these functions. The difference between prop trading and market making is fundamentally about the time horizon of exposure. Market makers are aiming to zero out their exposure through frequent trading, while prop trading attempts to express a view on the market in the long-term (seconds for market making vs minutes/day/years for prop trading). I'm a professional quant, and I don't see much of difference, at least as far as the government is concerned.
ThePadawan 7y ago
Off-topic discussion below. This is the most vile dark pattern I have seen in recent times. On loading this page, there is an auto-playing, muted video. When you press its pause button, it is unmuted and keeps playing. Only when you press the pause button AGAIN does it actually stop playing. At some point when implementing that feature someone said "Sure, I'm OK with that". What went wrong there?
- benj111 7y ago
  Is that even a dark pattern? Surely that's just outright lying.
  - perl4ever 7y ago
    There is a user interface pattern that predominates these days, where a view/page will be loading/changing, and it will reflow between when you click/tap and when that is processed, causing an incorrect response. Sometimes I get caught in a loop, where I try to select something repeatedly and every time it jumps just as I choose it. I always thought that was incompetence and not malice, but maybe apparent interface glitches are a significant profit center.
- Zarath 7y ago
  This happens on espn.com as well
- zulgan 7y ago
  > What went wrong there? nothing out of the ordinary, probably some team had to increase some company wide KPI of engagement, and likely every team has their own spin on it. it was ab tested and provided statistically significant increase on video engagement, which was likely defined as "people interacting with the player", in the end you see a chart with engagement growing due to experiment x,y,z.. and everybody is happy and convinced they are doing the right thing.
- Iv 7y ago
  Advertisement is a cancer. It is time we forbid it instead of making it fund every website in existence.
lefstathiou 7y ago
A lot of our clients work in investment banks. There’s been a long (since the election) and growing narrative that the market will correct any second now... any second. Meanwhile the market has gone up up up. Part of that, I believe, is because most of these trading desks sit in one place - NYC, a super liberal anti trump environment - so it’s hard not to buy into the narrative and go risk off which means you would have missed all the market growth. Almost everyone one of my friends that work at hedge funds have underperformed the market over the past 24 months. For the market to be at an all time high, somebody is making money. The good news is that most capital exists in pension funds which are effectively owned by “the people” so most 401ks should be doing well.
- taurath 7y ago
  It’s definitely a strange market. My worry is that the poor get basically no benefit from this (nor the tax cuts, nor the policies). They’ve gotten a 3% raise in the last year after several years of no unemployment and double digit growth for the stock market, and you can bet that’ll fall away after any downturn. It’s like we’ve created a perfect system to make the rich richer while not dealing with pesky inflation because wages are stagnant.
  - lefstathiou 7y ago
    I don’t pretend to believe I can predict the market... I suspect flight to quality is playing a role. If America is in a precarious situation, how would we position Europe (brexit, macro trade immigration), the Middle East (Iran, war), South America (Venezuela melt down) and Asia (trade war, militarization)? A lot of money is pouring into the US because it is relatively stable. Helps that US companies have favorable tariff policy, economic policy and a competitive landscape.
    - fauigerzigerk 7y ago
      That's certainly part of it, but I think share buybacks are another major reason for the disproportionate rise of US markets. US corporations have bought more of their own shares than anyone else in recent years (Unfortunately I can't find the data right now). It explains a huge chunk of EPS growth. Of course that wouldn't have been possible if corporate balance sheets hadn't been better in the US than elsewhere (especially in Europe). So it's still a sign of strength. But it also raises a couple of questions: Is it sustainable? Why can't corporations find anything better to do with that money? Why is capital spending relatively muted while productivity growth has been subdued for years (both indicators have improved somewhat only very recently)? I think low interest rates explain some of that. It makes sense to move funding from equity to debt in a low interest rate environment. But when buybacks run out of steam, I think we may well see a negative stock market reaction.
sabujp 7y ago
oh no, jpm only got 10.7 billion instead of 12, i guess it's time to close shop
thestartup 7y ago
I'm going to lay everything I have on the line next week by trying to catch a short position on index futures by Monday morning, July 22, 2019. My guess for Sunday is a big dip down, followed by dead cat bounce for somewhere at or near the open Monday morning. Sell the rallies as long as we are below ES ~8,000 / NQ ~3,000. Would be interesting to see MSFT, for instance, take a 70%-75% haircut in the next X years. [SPX 666 <- 10 years | 3,000 -> ??] This is not investment advice.
- thestartup 7y ago
  Short now
mruts 7y ago
The harder you think it’s going to be the market, the less you are going to trade. You need your confidence interval to reach a certain point before you are going to trade since you’lol have a negative expected value if you don’t have an edge (50/50)
ilaksh 7y ago
Dumb question: so is this about trading that the large banks arrange for their clients and get commission on? And if so, how is this problem different from MGM, Wynn, Aria complaining that Las Vegas is having a couple of slow months? Why do we need the banks for the trading anyway? Aren't there ways to handle it with technology rather than paying whatever fees the cartels want? Maybe I am a little bit cynical in general about this stuff.
- bboreham 7y ago
  This is a piece in Bloomberg, it’s written for people who work in the banks and money managers, so naturally they are interested it’s a slow period, jobs will be cut. There is a vast amount of technology involved, but someone sets the strategy and that person takes home millions if it works. They are supported by thousands of other workers who also, in total, take home millions. Small correction: way more money is made by actually buying and selling than by taking a commission on someone else’s trade. These roles are called “dealer” vs “broker”.
unixhero 7y ago
"Oh how fast the sun can drop." Pearl Jam

80 points by sikim 7y ago

,,we haven’t seen a lot of people repositioning their portfolios, we haven’t seen leverage increase.” Maybe people are starting to realize that changing portfolios all the time without a computer making the calculations is not the best way to make money (quite the opposite)

benj111 7y ago
You're not wrong, but this seems to be focussing on the institutional share holders, whose job it is to trade, not trading so much. For them trading is the best way to make money, thus the layoffs. I wonder how much of this is a short term blip, and how much is the new normal, and if it is the new normal, where does it all end up, is buying and holding going to get more expensive, or will the active investing core maintain the same cost structure, but just shrink. Will we be seeing more Lehman Bros, or more Deutsche Banks?

dmix 7y ago

http://archive.is/rSS5h http://archive.is/rSS5h

dmix 7y ago

> And technological advancements have narrowed spreads in many areas of trading. > “Part of the problem is that it’s too late to hedge interest-rate volatility, there’s not currency volatility to hedge. Speculators need volatility to hedge and enter the market.” Sounds like a good thing to me. > New rules limited lenders’ ability and willingness to make principal bets with their own money Anyone know what regulation this is referring to? One of Steve Mnuchin's stated goals was to reduce the domination of the 5 mega-banks and help bring back a healthy market of smaller banks that got squeezed out by new rules added after the financial crisis. Rules that were designed with the bigger banks in mind. So I wonder how the smaller players are doing.

tma-1 7y ago
https://en.wikipedia.org/wiki/Volcker_Rule https://en.wikipedia.org/wiki/Volcker_Rule
MagnumOpus 7y ago
The smaller players are doing worse - at least on the trading side that the article is talking about. Even well-bankrolled foreign operators like Deutsche Bank and Nomura are too small to make money and are exiting the market bit by bit, and anyone who is smaller than that just doesn't have the economies of scale (Not just on regulatory compliance but to be competitive on pay). There are a few niche players who carved out a place to be profitable, like Imperial Capital, but if they grew any bigger, one of the big 5 would just buy them.
mruts 7y ago
The rule they are talking about is the Volcker Rule. Prevents certain banks from proprietary trading. They are only allowed to buy and sell for the purpose of market making. This, of course, is an incredibly stupid rule. There’s not really a big difference between market making and proprietary trading in the first place.
- kweinber 7y ago
  Proprietary trading is trading your own money with no obligation to transact or do any business with others. Market making is offering public liquidity as part of a market function. They are designated market participants with rules and responsibilities. They are not the same.
  - bboreham 7y ago
    I think you might be a bit focused on the equity market there. In fx and interest rates markets there is no “public liquidity”, everything is bilateral.
  - mruts 7y ago
    There's not a market maker in America that's selling and buying in order to provide liquidity. You buy low, and sell high, that's the end of the story, for both proprietary trading, trading for clients, and market making. There's no fundamental, categorical difference between these functions. The difference between prop trading and market making is fundamentally about the time horizon of exposure. Market makers are aiming to zero out their exposure through frequent trading, while prop trading attempts to express a view on the market in the long-term (seconds for market making vs minutes/day/years for prop trading). I'm a professional quant, and I don't see much of difference, at least as far as the government is concerned.

ThePadawan 7y ago

Off-topic discussion below. This is the most vile dark pattern I have seen in recent times. On loading this page, there is an auto-playing, muted video. When you press its pause button, it is unmuted and keeps playing. Only when you press the pause button AGAIN does it actually stop playing. At some point when implementing that feature someone said "Sure, I'm OK with that". What went wrong there?

benj111 7y ago
Is that even a dark pattern? Surely that's just outright lying.
- perl4ever 7y ago
  There is a user interface pattern that predominates these days, where a view/page will be loading/changing, and it will reflow between when you click/tap and when that is processed, causing an incorrect response. Sometimes I get caught in a loop, where I try to select something repeatedly and every time it jumps just as I choose it. I always thought that was incompetence and not malice, but maybe apparent interface glitches are a significant profit center.
Zarath 7y ago
This happens on espn.com as well
zulgan 7y ago
> What went wrong there? nothing out of the ordinary, probably some team had to increase some company wide KPI of engagement, and likely every team has their own spin on it. it was ab tested and provided statistically significant increase on video engagement, which was likely defined as "people interacting with the player", in the end you see a chart with engagement growing due to experiment x,y,z.. and everybody is happy and convinced they are doing the right thing.
Iv 7y ago
Advertisement is a cancer. It is time we forbid it instead of making it fund every website in existence.

lefstathiou 7y ago

A lot of our clients work in investment banks. There’s been a long (since the election) and growing narrative that the market will correct any second now... any second. Meanwhile the market has gone up up up. Part of that, I believe, is because most of these trading desks sit in one place - NYC, a super liberal anti trump environment - so it’s hard not to buy into the narrative and go risk off which means you would have missed all the market growth. Almost everyone one of my friends that work at hedge funds have underperformed the market over the past 24 months. For the market to be at an all time high, somebody is making money. The good news is that most capital exists in pension funds which are effectively owned by “the people” so most 401ks should be doing well.

taurath 7y ago
It’s definitely a strange market. My worry is that the poor get basically no benefit from this (nor the tax cuts, nor the policies). They’ve gotten a 3% raise in the last year after several years of no unemployment and double digit growth for the stock market, and you can bet that’ll fall away after any downturn. It’s like we’ve created a perfect system to make the rich richer while not dealing with pesky inflation because wages are stagnant.
- lefstathiou 7y ago
  I don’t pretend to believe I can predict the market... I suspect flight to quality is playing a role. If America is in a precarious situation, how would we position Europe (brexit, macro trade immigration), the Middle East (Iran, war), South America (Venezuela melt down) and Asia (trade war, militarization)? A lot of money is pouring into the US because it is relatively stable. Helps that US companies have favorable tariff policy, economic policy and a competitive landscape.
  - fauigerzigerk 7y ago
    That's certainly part of it, but I think share buybacks are another major reason for the disproportionate rise of US markets. US corporations have bought more of their own shares than anyone else in recent years (Unfortunately I can't find the data right now). It explains a huge chunk of EPS growth. Of course that wouldn't have been possible if corporate balance sheets hadn't been better in the US than elsewhere (especially in Europe). So it's still a sign of strength. But it also raises a couple of questions: Is it sustainable? Why can't corporations find anything better to do with that money? Why is capital spending relatively muted while productivity growth has been subdued for years (both indicators have improved somewhat only very recently)? I think low interest rates explain some of that. It makes sense to move funding from equity to debt in a low interest rate environment. But when buybacks run out of steam, I think we may well see a negative stock market reaction.

sabujp 7y ago

oh no, jpm only got 10.7 billion instead of 12, i guess it's time to close shop

thestartup 7y ago

I'm going to lay everything I have on the line next week by trying to catch a short position on index futures by Monday morning, July 22, 2019. My guess for Sunday is a big dip down, followed by dead cat bounce for somewhere at or near the open Monday morning. Sell the rallies as long as we are below ES ~8,000 / NQ ~3,000. Would be interesting to see MSFT, for instance, take a 70%-75% haircut in the next X years. [SPX 666 <- 10 years | 3,000 -> ??] This is not investment advice.

thestartup 7y ago
Short now

mruts 7y ago

The harder you think it’s going to be the market, the less you are going to trade. You need your confidence interval to reach a certain point before you are going to trade since you’lol have a negative expected value if you don’t have an edge (50/50)

ilaksh 7y ago

Dumb question: so is this about trading that the large banks arrange for their clients and get commission on? And if so, how is this problem different from MGM, Wynn, Aria complaining that Las Vegas is having a couple of slow months? Why do we need the banks for the trading anyway? Aren't there ways to handle it with technology rather than paying whatever fees the cartels want? Maybe I am a little bit cynical in general about this stuff.

bboreham 7y ago
This is a piece in Bloomberg, it’s written for people who work in the banks and money managers, so naturally they are interested it’s a slow period, jobs will be cut. There is a vast amount of technology involved, but someone sets the strategy and that person takes home millions if it works. They are supported by thousands of other workers who also, in total, take home millions. Small correction: way more money is made by actually buying and selling than by taking a commission on someone else’s trade. These roles are called “dealer” vs “broker”.

unixhero 7y ago

"Oh how fast the sun can drop." Pearl Jam