What are the main consequences of technological advancements on the Derivatives Sales and Trading industry?

Let’s split the consequences in three categories: Bad, Neutral and Good.
As ‘Bad’ I would consider:

• Less personal contact between clients and brokers 
• Reduction of personnel 
• Margin compression 

As ‘Neutral’ I would see: 

• Stronger separation of product and research sales 
• Implementation of platforms
   

For the ‘Good’ I can name:

• Increased efficiency 
• Reduction of operational risks 
• Reduction of costs 
• More transparency 
• Increased pricing quality 
• Speed of services 

This list is by far not complete, but probably some of the most relevant aspects are named when it comes to transforming the businesses towards the existing and coming technological advancements. 

Could you please briefly explain the implementation of a ‘high-touch’ and ‘low-touch’ sales structure?

The base idea is to allocate resources towards the client’s needs. Larger Private Banks and Asset Managers have implemented straight through processing for smaller orders or plain vanilla products. There is no advice needed anymore on the execution of e.g. an ETF or exchange traded derivate. So the single trade is ‘low-touch’. The challenge is to use the existing personnel’s knowledge within the concurrent changed environment. Clients are advised on the connectivity towards the different platforms and pricing engines and the benefits associated with it. Once setup, the sales services ends, unless there are any changes on the broker or client side.
When it comes to ‘high-touch’ trades we are looking on bilaterally and bespoke solutions which involves time and resources like structuring, legal and documentation. This is very much driven by the offering of the bank and the client’s needs. 

What other methods of structuring derivative sales operations can financial institutions use?

There are in general three main concepts in use, which are product-category specific sales units, such as credit, rates, equity  and so on, a client-group specialized approach for InsCos, AMs, etc. with additionally a product angle or, finally, a regional approach. While this is still an reasonable approach for some banks or brokers, we see our approach as the fourth category which can be run cross border and products. 

What are the benefits of a ‘high-touch’ and ‘low-touch’ sales structure within derivative sales?

There are two main aspects which need to be considered. First, with MiFID II and the accompanied separation of trading and research costs for clients, a broker will not receive orders based on ‘good’ research or trading ideas anymore. The only way to receive an order is through technological advancements, best price and above average execution service provided. Advising clients on the benefits to setup the IT Infrastructure towards the broker, is usually an one-time effort, which leads to stable and recurring revenues, at lower personnel costs and overall reduced labor-force. Second, resources are allocated correspondingly to revenues, where ‘high-touch’ usually have higher margins which justifies the higher personnel costs required. 


What would you like to achieve by attending the Derivative Sales and Trading Transformation Conference?

The agenda is filled up with great topics to get a better understanding and knowledge about the future of derivative sales and trading. Gaining insights into what disrupts the industry and learn how to tackle the future requirements to be successful are just a few of the things I will look for!