Machines may be taking over the financial world, but in at least one corner of the markets humans are beating back the robots.
Sales traders such as Citigroup Inc.'s Samantha Huggins are in demand because they are proving more adept than computer programs at trading big chunks of stock, called block trades. While finding a buyer or seller and completing a transaction by phone is more expensive upfront, Huggins says her 18 years working in the markets gives her an edge in avoiding the pitfalls of letting some software slice the trade into tiny tranches over hours or an entire day.
"Ultimately, sales trading reduces their trading costs," said Huggins, a managing director at the bank. "If it didn't reduce investors' trading costs, we'd be a bunch of dinosaurs."
In Europe, sales-trader execution of single stocks is increasing, according to Greenwich Associates. In the U.S., their ranks are swelling. Banks have been hiring more traders in the past six to eight months, said recruitment firm Armstrong International. That's especially notable when banks in the U.S. and across Europe have cut tens of thousands of jobs in the past few years alone.
The personalized service isn't for everyone. At banks such as Citigroup, the biggest clients are the ones pining for the human touch. That's because they're only getting bigger and therefore hold ever larger positions. For example, assets under management at global investment firms have been rising since the depths of the crisis, and gained 8 percent to a record $74 trillion in 2014, according to data from Boston Consulting Group.
Handling a mammoth trade presents hazards. Algorithmic trading programs try to avoid detection by drizzling out trades little by little, but traders have become adept at sniffing out those patterns and will drive prices the other way. Another risk is that news could break, whipsawing the value of the stock before the transaction is completed. Those risks are why big investors would prefer to avoid expensive mistakes and are willing to pay higher fees to make a trade in one big swoop.
So-called high touch sales traders like Huggins specialize in those transactions, and they're expected to know all about their customers, including what's in their portfolios, how they like to transact and what kind of news is important to them.
Top-tier brokers also know where to find buyers and sellers. Global concerns such as the potential for Great Britain to exit the European Union have spooked portfolio managers into withdrawing from the market at levels not seen in more than 14 years. An algorithm can't find them, but an astute trader might be able to.
"A sales trader can do some very creative things," said Rob Boardman, chief executive officer for Europe of Investment Technology Group Inc., an electronic broker. The firm employs sales traders and also develops buying and selling algorithms -- called algos. "An algo is not going to make a phone call to the top five holders of a stock. It's not going to call the [chief investment officer] of a large institutional investor and say, 'Do you fancy getting out of this?"'
Small-batch, lightning-fast trading isn't necessarily attractive to big institutional firms, said Simon Steward, head of European equity trading for Capital Group Cos. in Los Angeles, which oversees about $1.4 trillion. It uses humans for more than two-thirds of its European stock trades.
Another concern is the boom in passive funds, which traders say dry up trade opportunities. Some index funds primarily transact in closing auctions, which can make it more difficult to trade during the rest of the day. About 20 percent of the day's volume happens at the close in Europe, compared with 14 percent in 2009, according to data compiled by Citigroup.
"There's a place for algos, but it's not the only solution," said Nick Wills, Citigroup's Europe, Middle East and Africa head of equity platform sales. "We're most interested in where this equilibrium goes."
Deutsche Asset Management, which oversees $842 billion, takes pride in its electronic operation, but said about 65 percent of the firm's trades by value still go through humans.
The firm handled more big block trades in 2014 than in the combined previous five years, said Mike Bellaro, Deutsche Asset's head of equity trading. Block trading grew by another $15 billion last year and the company had its best trading execution ever, he said.
Business on 06/22/2016