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

Sushil Krishan

Director, Institutional Equity Derivatives Flow and Solutions Sales at UniCredit
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What are the main consequences of technological advancements on the Derivatives Sales and Trading industry?

27.02.2019 11:29 am

Ahead of the Derivative Sales and Trading Transformation Conference , we spoke with Sushil Krishan, Director, Institutional Equity Derivatives Flow and Solutions Sales at UniCredit  about the main consequences of technological advancements on the Derivatives Sales and Trading industry as well as the implementation of a ‘high-touch’ and ‘low-touch’ sales structure.

To view the Conference Agenda, click HERE!

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!

 

Sushil is currently a Director of Flow and Solutions Sales and Head of Institutional Equity Derivatives Switzerland at UniCredit. In this role, he is responsible for institutional clients covering a variety of transactions and products, from simple ‘vanilla’ products to complex trades. He particularly focuses on covering insurance companies and large asset managers in the German-speaking region. Within his current position, he has co-led the transformation of the fragmented product driven sales forces into a ‘high-touch’ / ‘ low-touch’ sales structure within Institutional Equity Derivatives. He has been at UniCredit for over 15 years, primarily working within the field of Institutional Equity Derivatives Sales. He holds a B.S.C in Finance & Management from the Frankfurt School of Finance & Management and Napier University in Edinburgh.

Digitalisation and automation are key issues for the contemporary derivatives market, as automation, data visualisation, and AI are reshaping the industry’s processes and perspectives. This is unsurprising as changes such as the move from voice trading to electronic trading have been occurring within derivative sales and trading over recent years. However, automation, AI, and similar advancements should be considered on their own merits, as they are currently shaking up the trading process. The derivatives market is rapidly becoming a technological battleground as firms compete with each other to have the most effective processes and tools in order to gain an advantage. Some of these changes may seem futuristic, but there are evermore real life examples demonstrating their impact. Their effects have been felt across all asset classes, from the simplest of listed derivatives to the most structured and bespoke products. 

This marcus evans conference will look at how banks are systematising derivative trading and sales with automation, data visualisation tools, AI, and new machines like chatbots.a.

To view the Conference Agenda, click HERE!

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