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: By gathering these teams to a single site, banks want to ease:.
Trading rooms first appeared among United States bulge bracket brokers, such as Morgan Stanley , from , 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 and , 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.
Every emerging market segment raised the need for new dedicated trader positions inside the trading room. 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 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. Many large institutions have grouped their cash and derivative desks, while others, such as UBS or Deutsche Bank , for example, giving the priority to customer relationship, structure their trading room as per customer segment, around sales desks.
Some large trading rooms hosts offshore traders, acting on behalf of another entity of the same institution, located in another time-zone. One room in Paris may have traders paid for by the New York City subsidiary , and whose working hours are consequently shifted. Some institutions, notably those that invested in a rapid development RAD team, choose to blend profiles inside the trading room, where traders, financial engineers and front-office dedicated software developers sit side by side.
The latter therefore report to a head of trading rather than to a head of IT. More recently, a profile of compliance officer has also appeared; he or she makes sure the law, notably that relative to market use, and the code of conduct, are complied with. The middle office and the back office are generally not located in the trading room. The development of trading businesses, during the eighties and nineties, required ever larger trading rooms, specifically adapted to IT- and telephony cabling.
Telephone and teleprinter have been the broker's first main tools. The teleprinter, or Teletype, got financial quotes and printed them out on a ticker tape. US equities were identified by a ticker symbol made of one to three letters, followed by the last price, the lowest and the highest, as well as the volume of the day.
Broadcasting neared real time, quotes being rarely delayed by more than 15 minutes, but the broker looking for a given security 's price had to read the tape As early as , the Trans-Lux company installed the NYSE with a projection system of a transparent ticker tape onto a large screen.
In a solution called Teleregister,  came to the market; this electro-mechanical board existed in two versions, of the top 50 or top securities listed on the NYSE; but one had to be interested in those equities, and not in other ones During the s, the trader's workstation was remarkable for the overcrowding of telephones. The trader juggled with handsets to discuss with several brokers simultaneously. The electromechanical, then electronic, calculator enabled him or her to perform basic computations.
In the s, if the emergence of the PABX gave way to some simplification of the telephony equipment, the development of alternative display solutions, however, lead to a multiplication of the number of video monitors on their desks, pieces of hardware that were specific and proprietary to their respective financial data provider. The main actors of the financial data market were; Telerate , Reuters ,  Bloomberg with its Bloomberg Terminal , Knight Ridder notably with its Viewtron offering, Quotron and Bridge , more or less specialised on the money market, foreign exchange, securities market segments, respectively, for the first three of them.
From the early s trading rooms multiplied and took advantage of the spread of micro-computing. For PC, there was Lotus ,  it was quickly superseded by Excel , for workstations and terminals. Along video monitors, left space had to be found on desks to install a computer screen. Though software alternatives multiplied during this decade, the trading room was suffering from a lack of interoperability and integration.
Video display applications were not only wrapped up in cumbersome boxes, their retrieval-based display mode was no longer adapted to markets that had been gaining much liquidity and henceforth required decisions in a couple of seconds. Traders expected market data to reach them in real time, with no intervention required from them with the keyboard or the mouse, and seamlessly feed their decision support and position handling tools.
The digital revolution, which started in the late s, was the catalyst that helped meet these expectations. It found expression, inside the dealing room, in the installation of a digital data display system, a kind of local network.
Incoming flows converged from different data providers,  and these syndicated data were distributed onto traders' desktops. One calls a feed-handler the server that acquires data from the integrator and transmits them to the local distribution system. This infrastructure is a prerequisite to the further installation, on each desktop, of the software that acquires, displays and graphically analyses these data.
Two software package families were belonging to this new generation of tools, one dedicated to Windows-NT platforms, the other to Unix and VMS platforms. However Bloomberg and other, mostly domestic, providers, shunned this movement, preferring to stick to a service bureau model, where every desktop-based monitor just displays data that are stored and processed on the vendor's premises. The approach of these providers was to enrich their database and functionalities enough so that the issue of opening up their datafeed to any spreadsheet or third-party system gets pointless.
This decade also witnessed the irruption of television inside trading rooms. Press conferences held by central bank presidents are henceforth eagerly awaited events, where tone and gestures are decrypted.
The trader has one eye on a TV set, the other on a computer screen, to watch how markets react to declarations, while having, very often, one customer over the phone. The development of the internet triggered the fall of the cost of information, including financial information. It hit a serious blow to integrators who, like Reuters, had invested a lot the years before to deliver data en masse and in real time to the markets, but henceforth recorded a wave of terminations of their data subscriptions as well as flagging sales of their data distribution and display software licences.
Moreover, the cable operators' investors lead to a huge growth of information capacity transport worldwide. Institutions with several trading rooms in the world took advantage of this bandwidth to link their foreign sites to their headquarters in a hub and spoke model. The emergence of technologies like Citrix supported this evolution, since they enable remote users to connect to a virtual desktop from where they then access headquarters applications with a level of comfort similar to that of a local user.
While an investment bank previously had to roll out a software in every trading room, it can now limit such an investment to a single site.
The implementation cost of an overseas site gets reduced, mostly, to the telecoms budget. And since the IT architecture gets simplified and centralised, it can also be outsourced.
Indeed, from the last few years, the main technology providers [ who? From the late s, worksheets have been rapidly proliferating on traders' desktops while the head of the trading room still had to rely on consolidated positions that lacked both real time and accuracy. The diversity of valuation algorithms, the fragility of worksheets incurring the risk of loss of critical data, the mediocre response times delivered by PCs when running heavy calculations, the lack of visibility of the traders' goings-on, have all raised the need for shared information technology, or enterprise applications as the industry later called it.
But institutions have other requirements that depend on their business, whether it is trading or investment. Within the investment bank, the trading division is keen to implement synergies between desks, such as:. Hence a number of package software come to the market, between and Though Infinity died, in , with the dream of the toolkit that was expected to model any innovation a financial engineer could have designed, the other systems are still well and alive in trading rooms.
Born during the same period, they share many technical features, such as a three-tier architecture , whose back-end runs on a Unix platform, a relational database on either Sybase or Oracle , and a graphical user interface written in English, since their clients are anywhere in the world.
These functions will be later entrenched by national regulations, that tend to insist on adequate IT: Telephone, used on over-the-counter OTC markets, is prone to misunderstandings. Should the two parties fail to clearly understand each other on the trade terms, it may be too late to amend the transaction once the received confirmation reveals an anomaly. The first markets to discover electronic trading are the foreign-exchange markets. Reuters creates its Reuter Monitor Dealing Service in Contreparties meet each other by the means of the screen and agree on a transaction in videotex mode, where data are loosely structured.
Its next generation product, an electronic trading platform called Dealing , ported on Windows, is launched in Like EBS , which competes with it head-on from , it mostly handles spot trades. Several products pop up in the world of electronic trading including Bloomberg Terminal , BrokerTec , TradeWeb and Reuters Xtra for securities and foreign exchange. More recently other specialised products have come to the market, such as Swapswire , to deal interest-rate swaps, or SecFinex and EquiLend, to place securities loans or borrowings the borrower pays the subscription fee to the service.
However, these systems also generally lack liquidity. Contrarily to an oft-repeated prediction, electronic trading did not kill traditional inter-dealer brokerage. Besides, traders prefer to mix both modes: For organised markets products, processes are different: Orders are subsequently executed, partially of fully, then allocated to the respective customer accounts.
The increasing number of listed products and trading venues have made it necessary to manage this order book with an adequate software. Stock exchanges and futures markets propose their own front-end system to capture and transmit orders, or possibly a programming interface, to allow member institutions to connect their order management system they developed in-house. But software publishers soon sell packages that take in charge the different communication protocols to these markets; The UK-based Fidessa has a strong presence among LSE members; Sungard Global Trading and the Swedish Orc Software are its biggest competitors.
In program trading , orders are generated by a software program instead of being placed by a trader taking a decision. More recently, it is rather called algorithmic trading. It applies only to organised markets, where transactions do not depend on a negotiation with a given counterparty. A typical usage of program trading is to generate buy or sell orders on a given stock as soon as its price reaches a given threshold, upwards or downwards.
A wave of stop sell orders has been largely incriminated, during the financial crises, as the main cause of acceleration of the fall in prices. However, program trading has not stopped developing, since then, particularly with the boom of ETFs , mutual funds mimicking a stock-exchange index, and with the growth of structured asset management; an ETF replicating the FTSE index, for instance, sends multiples of buy orders, or of as many sell orders, every day, depending on whether the fund records a net incoming or outgoing subscription flow.
Such a combination of orders is also called a basket. Moreover, whenever the weight of any constituent stock in the index changes, for example following an equity capital increase, by the issuer, new basket orders should be generated so that the new portfolio distribution still reflects that of the index.
If a program can generate more rapidly than a single trader a huge quantity of orders, it also requires monitoring by a financial engineer , who adapts its program both to the evolution of the market and, now, to requirements of the banking regulator checking that it entails no market manipulation. Some trading rooms may now have as many financial engineers as traders.
The spread of program trading variants, many of which apply similar techniques, leads their designers to seek a competitive advantage by investing in hardware that adds computing capacity or by adapting their software code to multi-threading , so as to ensure their orders reach the central order book before their competitors'.More...