Trading room

By -

A trading room gathers traders operating on financial markets. The trading room is also often called the front office. The terms "dealing room" and "trading floor" are also used, the latter being inspired from that of an open outcry stock exchange. As open outcry is gradually replaced by electronic trading, the trading room gets the only living place that is emblematic of the financial market. It is also the likeliest place within the financial institution where the most recent technologies are implemented before being disseminated in its other businesses.
Trading rooms are also known as "trading labs" or "finance labs" in universities and business schools. Trading rooms, have become a key medium in creating a "wall street atmosphere".

Before the sixties or seventies, the banks' capital market businesses were mostly split into many departments, sometimes scattered at several sites, as market segments: money market (domestic and currencies), foreign exchange, long-term financing, exchange, bond market. By gathering these teams to a single site, banks want to ease:
  • a more efficient broadcast of market information, for greater reactivity of traders;
  • idea confrontation on market trends and opportunities;
  • desk co-ordination towards customers.



Trading rooms first appeared among United States bulge bracket brokers, such as Morgan Stanley, from 1971, with the creation of NASDAQ, which requires an equity trading desk on their premises, and the growth of the secondary market of federal debt products, which requires a bond trading desk.
The spread of trading rooms in Europe, between 1982 and 1987, has been subsequently fostered by two reforms of the financial markets organization, that were carried out roughly simultaneously in the United Kingdom and France.
In the United Kingdom, the Big Bang on the London Stock Exchange, removed the distinction between stockbrokers and stockjobbers, and prompted US investment banks, hitherto deprived of access to the LSE, to set up a trading room in the City of London.
In France, the deregulation of capital markets, carried out by Pierre Bérégovoy, Economics and Finance Minister, between 1984 and 1986, led to the creation of money-market instruments, of an interest-rate futures market, MATIF, of an equity options market, MONEP, the streamlining of sovereign debt management, with multiple-auction bond issues and the creation of a primary dealer status. Every emerging market segment raised the need for new dedicated trader positions inside the trading room.

A trading room serves two types of business:
  • trading, and arbitrage, a business of investment banks and brokers, often referred to as the sell side.
  • portfolio management, a business of asset management companies and institutional investors, often referred to as the buy side.
Brokers and investment banks set up their trading rooms first and large asset-management firms subsequently followed them.
The business type determines peculiarities in the organisation and the software environment inside the trading room.

Trading rooms are made up of desks, specialised by product or market segment (equities, short-term, long-term, options…), that share a large open space.
An investment bank's typical room makes a distinction between :
  • traders, whose role is to offer the best possible prices to sales, by anticipating market trends. After striking a deal with a sales, the trader arranges a reverse trade either with another trader belonging to another entity of the same institution or to an outside counterparty;
  • market-makers, acting like wholesalers. Trades negotiated by market-makers usually bear standard terms.
Sales make deals tailored to their corporate customers' needs, that is, their terms are often specific. Focusing on their customer relationship, they may deal on the whole range of asset types.

Comments

Post a Comment

Popular posts from this blog

Electronic trading

By -
Electronic trading , sometimes called  etrading , is a method of trading  securities  (such as  stocks , and  bonds ),  foreign exchange  or  financial derivatives  electronically.  Information technology  is used to bring together buyers and sellers through an  electronic trading platform  and network to create virtual market places. They can include various exchange-based systems, such as  NASDAQ ,  NYSE Arca  and  Globex , as well as other types of trading platforms, such as electronic communication networks (ECNs), alternative trading systems, crossing networks and "dark pools".  Electronic trading is rapidly replacing human trading in global securities markets. Electronic trading is in contrast to older  floor trading  and phone trading and has a number of advantages, but glitches and cancelled trades do still occur. History For many years stock exchanges were...
Keep reading

Stock market data systems

By -
The earliest stock exchanges were in France in the 12th century and in Bruges and Italy in the 13th. Presumably data about trades in those times was written down by  scribes  and traveled by  courier . In the early 19th century  Reuters  sent data by  carrier pigeons  between Germany and Belgium [1]  In London early exchanges were located near coffee houses  which may have played a part in trading. In the late 1860s, in New York, young men called “runners” carried prices between the exchange and broker’s offices, and often these prices were posted by hand on large chalk boards in the offices.Updating a chalk board was an entry point for many traders getting into financial markets and as mentioned in the book Reminiscences of a Stock Operator those updating the boards would wear fur sleeves so they wouldn't accidentally erase prices. The New York Stock Exchange is known as the "Big Board", perhaps ...
Keep reading

Role of stock exchanges

By -
Stock exchanges have multiple roles in the economy. This may include the following A stock exchange provides  companies  with the facility to raise  capital  for expansion through selling  shares  to the investing public. Besides the borrowing capacity provided to an individual or firm by the  banking system , in the form of  credit  or a loan, there are four common forms of capital raising used by companies and  entrepreneurs . Most of these available options might be achieved, directly or indirectly, through a stock exchange. Capital intensive  companies, particularly  high tech  companies, always need to raise high volumes of capital in their early stages. For this reason, the public market provided by the stock exchanges has been one of the most important funding sources for many capital intensive  startups . After the 1990s and early-2000s hi-tech listed companies' boom and bust in the world's major sto...
Keep reading