Wall Street erases the line between its jocks and nerds
There used to be a strict hierarchy: Traders made money and won glory while programmers wrote code and stayed out of sight. Those days are over
Meet the straders.
Part risk-taking trader and part computer-whiz “strategist,” they are prowling the halls at Goldman Sachs Group Inc., GS 0.16% erasing a oncereligious line between the jocks and the nerds.
“You say ‘trader’ and I don’t even know what we’re talking about,” said Adam Korn, a 16-year Goldman veteran. “Everyone who comes to sales and trading needs to know how to code.”
Mr. Korn is the unofficial king of the straders, and an evangelist for the financial world they represent. Across Wall Street, traders who spent their formative years barking into phones are signing up for coding classes. Engineers once relegated to the back office are being empowered to try their hands in the market.
It is upending the pecking order of the trading floor and is, in large part, a concession to the reality that has set in a decade after the financial crisis.
Wall Street traders buy and sell everything from stocks and bonds to bundled credit-card debt and oil. Before the 2008 meltdown, they thrived on instinct and an informational edge. They worked the phones, sussing out which customers were hungry and which ones were desperate, and pounced on weakness. “There’s blood in the water,” Morgan Stanley chief John Mack would tell his traders. “Let’s go kill.” They did, and were richly rewarded for it.
Those days are largely gone. Today, snippets of code, sometimes called algorithms, do much of the job of a trader. They keep tabs on the banks’ positions, generate price quotes for clients, match buyers and sellers, and flag unseen risks.
They are increasingly doing the job of a salesman, too: The latest software can suggest which clients might be interested in a particular stock or bond by analyzing their recent investments, the same way Amazon.com can suggest items inspired by a customer’s purchases
The rise of automation is partly a response to the financial crisis and the rogue trading scandals that followed, which encouraged banks to take discretion away from error-prone and ego-driven humans. It owes partly to a talent war between Wall Street and Silicon Valley, with banks eager to stress their tech bona fides.
It is also a response to the rise of computer-driven “quant” funds. These investors ignore traditional stockpicking methods and instead hunt for patterns in the market that signal a buying or selling opportunity. When a bank like Goldman comes calling, these clients more often want to talk about data processing than, say, dairy production. “Being able to speak that language” is important, Mr. Korn said. For traders, succeeding in this world depends less on trusting one’s gut than being able to interpret what the computer is spitting out—and what ought to be fed in. “Think of it like cruise control,” said Matt Cherwin, a trading executive at JPMorgan Chase & Co. “It can make the car go 55 miles an hour, but someone needs to decide, ‘well, is that the right speed?’”
Tech whizzes aren’t new to Wall Street. They arrived in the 1980s to computerize the trading floor and program mathematical models that could value new, complex instruments known as derivatives. The code they wrote predicted how a drop in the U.S. dollar might affect corn prices, for example, or how to value a loan to Ferrari if the Italian government raised interest rates.
But these programmers were distinct from—and distinctly subordinate to— traders, who used their models to decide how much corn or Ferrari debt to buy or sell. “Strats,” as they came to be known at Goldman, crunched numbers. Traders made money.
On Goldman’s stock-trading floor in lower Manhattan, strats were relegated to a corner. Today they don’t just sit with traders.
Algorithms keep tabs on the banks’ positions, generate price quotes for clients, match buyers and sellers, and flag unseen risks
Increasingly, they are the traders, licensed and empowered to put the bank’s capital on the line.
Their rise mirrors what is happening in the broader economy. Technology can displace workers, particularly in rote tasks like factory production. But more often, it changes what’s expected of them, thrusting employees once confined to the back office into front-of-thehouse roles and forcing those already there to adjust.
Tax software has automated much of the grunt work for accountants, who are now rebranding themselves as trusted advisers, not bean counters. Architects have ditched their slide rules for computer software, but big buildings don’t get constructed without them.
On Wall Street trading floors, quick thinking under pressure and a deep rolodex are still prized. So traders haven’t been replaced by technologists so much as merged with them— the “strader” hybrid on the rise at Goldman.
“Ten or 15 years ago, the engineers were the ones who didn’t speak to anyone and maybe seemed like they hadn’t showered that day. The traders were the ones that looked like they stepped out of a Brooks Brothers catalog,” said Oliver Cooke, a financial-industry recruiter at Selby Jennings. “That line has basically disappeared.”
It’s not just the fashion. Trading floors were once a cacophony of orders being shouted and phones being worked, and occasionally thrown. Today they’re surprisingly quiet, said Steve Grob, director of group strategy at Fidessa, which sells trading systems to banks. “Much less shouting, and much more thinking,” he said. “If you put someone in a time machine from 2006, they would be amazed.”
At Citigroup Inc., traders work alongside coders from the bank’s quantitative analysis group. But in June, traders themselves were offered a threeday introductory course in Python, a coding language. The offering proved so popular— even veteran traders were willing to be away from the floor for three days—that the bank plans another session in September, and is also considering a hybrid technology-trading training program.
“The tools continue to evolve, and continue to become more sophisticated,” said Lee Waite, Citigroup’s former head of North American markets, who is now the bank’s country head for Japan. “That has us thinking about the future of trading, and what sort of person we need in those roles.”
Goldman started offering free computer-programming classes to its trading staff last year through edX, an online classroom.“Programming is going from a ‘nice-to-have’ to a ‘must-have,’” Mr. Korn said.
An applied math and economics double-major at Brown University, he comes from a family of computer geeks: His father worked at Bell Labs and in the 1980s helped develop the backbone of the Unix operating system. He came to Goldman in 2002 and spent his early years as a strat in stock-trading, among those stuck in the corner on the 50th floor of New York Plaza. That began to change in the early 2000s. The stock market became increasingly electronic, setting off an arms race for code that would give banks an edge. Strats weren’t only building trading models, but entire trading systems.
One early piece of software at Goldman split a big order to smaller pieces and routed them off to different exchanges. They called it “V.I. Joe,” short for Virtual Joe, a nod to the human whose job it did. Today, it’s a standard order-management system, and every bank has one.
As the technology became more sophisticated, Goldman’s traders understood less about what was happening under the hood. A trader trying to fix a misfiring algorithm could do little better than a befuddled homeowner when the WiFi goes out—press reboot and hope for the best. “That created a risk for us,” Mr. Korn said.
The “flash crash” of 2010, when the stock market lost and then recovered $1 trillion of value in minutes, added to the concern.
Across Wall Street, traditional traders were mostly helpless, while the engineers best equipped to explain the whipsaw weren’t in a position to do anything about it.
Some executives are wary of blurring the roles too much, worried that a few lines of glitchy code written by a relative novice could wreak havoc. Firms as big as Knight Capital Group have been brought down by computer snafus.
And remember the rogue traders that cost JPMorgan and UBS Group AG billions of dollars? A rogue coder, deliberately planting snippets meant to siphon off funds to a personal account or blow past risk limits, could be just as dangerous.
“There must be a clear delineation of responsibility,” said Mike Dargan, group chief information officer at UBS. On the Swiss bank’s markets desks, “scrum teams” of traders and coders collaborate to quickly to roll out new functions, but aren’t encouraged to start to do each other’s jobs.
“We want traders to be educated” about how their software works, Mr. Dargan said. “But we want them trading.”
Regulators have raised similar concerns. In 2016, the Securities and Exchange Commission changed its rules to require anyone responsible for designing or overseeing a trading algorithm to become licensed as a “securities trader.” That industry designation separates people who are empowered to put a firm’s capital at risk from those who aren’t, and holds them accountable for positions they take on.
The SEC was trying to limit screw-ups or malfeasance stemming from the knowledge gap between people who write the code and those responsible for managing the market risk that code generates.
Mr. Korn took the required exams, sending his wife and young children on vacation for a week so he could study. He proposed a new role to his bosses at Goldman—strader—and they went for it. That working title has been replaced by the more approachable “traders who code,” and today the bank employs about 200 of them.
Among them: Joe Montesano, whose order-routing job was programmed into “V.I. Joe” back in the 2000s.