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I think the headline is a bit sensationalist. But it's mostly true. The GFC was the catalyst. The resulting regulation handcuffed most trading desks (like the f
by anonu 7y ago
I think the headline is a bit sensationalist. But it's mostly true. The GFC was the catalyst. The resulting regulation handcuffed most trading desks (like the failed and nonsensical volcker rule).
But the bonus culture is still alive and well at the small shops, especially the quant shops that embrace automation and scale.
- pnako 7y agoReally? It doesn't make much sense to have bonuses for automation since it's largely a group effort. And that's probably the main reason why those performance bonuses are disappearing.
- scawf 7y agoAutomation = following model Whoever build a good model get a good bonus ?
- pnako 7y agoYou're not wrong in the absolute; my point is more that designing, implementing and running a model, good or bad, is increasingly team work. So there is not a single 'whoever' behind that model.
- anonu 7y agoSoccer is a group effort, but you still have star players that get paid outsized compensation. Trading is very much about managing and taking on risk. Even if there are computers managing trading - managing risk is still human driven.
- pnako 7y agoLet me clarify my point a bit: the easier it is to measure the actual performance of an employee, the more their compensation will be linked to their performance. Take for example a company developing software. The variance in the compensation of the software developers will be lower than the variance in the compensation of the salespeople. That's because it's much easier to measure the performance of a salesperson. In most trading shops it's becoming more difficult to estimate the contribution of a single individual because technology is more important than before, and plays a role in how competitive you are. That doesn't make them any less talented, educated, hard-working, etc. It just makes it more difficult to know their exact contribution. Which means that their compensation will not necessarily fall down, but will become less performance-based.
- anonu 7y agoI think were talking about 2 different things. Yes, technology is important - but these aren't simple systems - nor are they open source. In the trading world, as an employer you are disincentived to give the keys to your model - aka your secret sauce - to all your employees. You will reward only a select few who you trust to stay on board, manage the model, continuously improve on it to stay pace with the changing markets. If you give the keys to too many people, eventually they will jump to other shops, copy your ideas and your edge will deteriorate.
- riffraff 7y agowhy do you consider the volcker rule failed and nonsensical?
- tomatocracy 7y agoOne argument for why it might not make sense is that banks were actually hurt by traditional banking problems (extending credit to poor risks and run on the bank type issues), not traditional investment banking/brokerage/trading firm problems (large market trading losses, getting stuck with large unsold underwriting positions, being sued by investors they missold to).