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Edition 10 - PUBLIC MARKETS

Why a new future for dealing desks has arrived

COVID-19 has required dealing desks to respond to a monumental shift in established ways of working. AMP Capital’s response has been guided by both the prioritisation of team safety and the aim of minimising the increasing cost of trading. It’s already clear that the lessons from this period are here to stay, as we learnt from Head of dealing, Dylan Kluth.

Overall, how has the AMP Capital Dealing Desk managed the transition from office to working from home?

If you had told me this time last year that we would be working in isolation during a third lockdown in London, I’d have found that incredibly hard to believe. I think we’re all personally surprised at how well we have handled what has in some part been a global social experiment, and pleased at how quickly and effectively we have been able to execute our continuity plans.

After over a year now of working through the challenges of a pandemic, in a team that is historically accustom to physical proximity for the whole working day, for sure we will take some fundamental lessons and strengths with us when the crisis eventually ends.

I credit a lot of our initial success to early, proactive moves. Historically, dealing desks have felt a reliance on sitting together for regular and clear instruction and action. Our traditional office-based set-up reflects this. However, when headlines in mid-February last year started to suggest that COVID-19 would impact the world as it had China, our dealing desk reacted quickly by proving our ability to work remotely. We’re thankful that we did, because when we went into our first lockdown about a month later, our team was ready.

Almost one year in to working between and in lockdowns, what are some of your key learnings?

First, reliable and effective communication has remained non-negotiable. Regular and clear delegation of our order book is critical to ensure best execution. Such processes were already well established within our team, and thankfully technology has made maintaining them easier than ever before. Plus, as a global fund manager, we are accustomed to working with teammates and stakeholders across the globe.

We are constantly looking for ways to improve, but so far, we have not had to develop any new tools to support remote working. We miss the face-to-face elements of our jobs, but we can still communicate effectively. Plus, knowing that we now have the proven ability to work from home gives us an extra layer of comfort and flexibility.

Second, it has become clear that our constant analysis of the way we trade has allowed us to remain nimble and effective when volatility increases. Volatility comes and goes, but this latest bout has sent a reminder – building a robust set-up matters when it’s business as usual so that our dealing desk can remain calm, cool and collected when volatility increases.

Why have trading costs increased and to what extent? What have we done to keep costs down?

Put simply, the cost of trading increases with uncertainty, and it’s no secret that uncertainty has been running high with COVID-19 concerns. Volumes were elevated during peak volatility, but the increased volatility, especially over multi-day orders, increased costs. 

To put it in to numbers, daily bid/ask spreads in the STOXX 600 went from 4 bps in 2019 to 15 bps at the peak of the selloff. In Europe, Italy, Germany and Spain saw the most significant increases. Turnover increased overall, but available liquidity (measured by quantities available at the prevailing bid and offer) thinned by almost half in the STOXX 600 and Russell 10001. In our view, markets faced high execution costs due to wider spreads, higher volatility and a lack of depth. 

For us, these circumstances have meant several things. They’ve meant leveraging our networks – we maintain a large network of global brokers across all asset classes, and have been working with them to ensure we have access to liquidity in all its forms. Further, our global multi-asset dealing desk uses a broad range of tools to measure and track transaction costs. We scrutinise this constantly – in volatile and normal times – to ensure the cost of trading is kept to a minimum. 

Lastly, AMP Capital’s team of dealers work closely with our Trader Technology Analyst – a new and important component of our dealing desk that help us analyse, improve and add efficiencies to our trading. Markets change rapidly, so it’s important that we use these moments to learn and innovate.

It has become clear that our constant analysis of the way we trade has allowed us to remain nimble and effective when volatility increases. Volatility comes and goes, but this latest bout has sent a reminder – building a robust set-up matters when it’s business as usual so that our dealing desk can remain calm, cool and collected when volatility increases.”

Where to from here, and are you looking forward to being back in the office when the pandemic settles?

I’m certainly looking forward to being back in the office and working alongside my colleagues… but I’m optimistic that dealing desks will see that working from home is no longer just a back-up for business continuity. 

If we can manage to work in isolation with the tough backdrop of a pandemic on our doorstep, I have no doubt we can make it work and achieve strong results when the health crisis abates. 

Further, amidst a human health emergency, our business continuity plan proved to be just as reliable and effective as our normal way of working. This drives home the fact that it’s the fundamentals of a team – not the space they work in – that delivers results. It also speaks to the importance of continuity planning for extreme circumstances, however unlikely they may seem. 

A new standard of working from home might also allow for greater workforce diversity – something which we feel could introduce new perspective and talent to our team. 

Considering the weight of history that formed a classic dealing desk structure, this is a huge leap in a very short space of time, and could easily set a new precedent for how we operate into the 2020s.

Footnote:
1. Dissecting the Viral Selloff, Goldman Sachs, April 2020

Important Notes

While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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