In digital era, stock traders tied to desks
Even in outbreak, at-home work mostly impracticable
After spending years enhancing trading desks with cutting-edge analytics, fast access to outside venues and layers of surveillance, banks are finding it’s hard to relocate their human operators, even in the face of the deadly coronavirus.
With the illness now reaching New York, firms are trying to figure out what to do with armies of employees who can’t simply log in from a laptop at home.
“You don’t want your trader trading Microsoft shares from his living room — you just can’t do it,” said Jim Toes, chief executive officer of the Security Traders Association, an industry group. “The systems involved that are available to traders on the floor versus their home, there’s a gap to that. You can’t have them making uninformed decisions.”
The issues are myriad. Home computers and slow residential internet service can’t handle the huge amounts of data and advanced software needed to manage and execute millions of transactions daily. Traders may have trouble tapping into some information or venues. And working remotely opens compliance gaps, moving personnel away from office phones and computers that are closely monitored and recorded by employers for misconduct or excessive risk-taking.
Investment banks already were on edge when news emerged last week that a 50-year-old man working in Manhattan had contracted the virus from an unknown source. Hoping to stave off infections on trading floors, firms had been restricting access to employees only. For their next steps, executives at companies including Citigroup Inc. and JPMorgan Chase & Co. are dusting off more elaborate contingency plans and considering firing up backup trading floors.
At least two big firms are preparing to divide traders into three groups, according to people briefed on the plans. At one bank, the idea is to keep a group in the office, another at a backup facility and a contingent working from home. Yet even as executives privately express confidence that such sites will be ready, considerable logistical and compliance challenges are still being resolved.
Key details include determining how many people can feasibly work at home, how to manage communications between numerous locations and how to separate critically important sales staff and traders, potentially rotating them to limit the odds that too many fall ill at once.
In recent weeks, financial firms have been running war games to practice their responses to outbreaks.
The Securities Industry and Financial Markets Association convened a group to run scenarios testing business continuity. Those sessions have involved the Treasury Department and other financial regulators.
“There are playbooks that firms have developed over the years,” said Kenneth Bentsen, Sifma’s leader.
Member companies are discussing what types of temporary approvals they might need from regulators to let large numbers of employees work remotely, he said. Bloomberg LP, the parent company of Bloomberg News, is an associate member of the industry group.
“If it’s something having to do with a waiver of a temporary license or requirement — where you sit in a certain place when you do your function because that’s the law or that’s the policy — those things in a national emergency will get sorted,” said Margaret Tahyar, a partner in the financial institutions group at law firm Davis Polk. “If it’s something that goes to a core cyber risk, that’s going to be hard to do remotely.”
Banks have long recorded traders’ conversations to document calls with clients and prevent misconduct, such as side bets ahead of market-moving orders. Now firms will have to find alternative
ways to track and restrict communications among sites. One step will be to give some employees mobile phones that can be surveilled when they work remotely.
Companies are adjusting plans by the hour, one senior trading executive emphasized, asking not to be named because the deliberations are confidential. That executive’s firm has been identifying offices around the U.S. that could pick up the slack if its main operations are disrupted or shorthanded. Managers also are looking at office schematics to determine how many people can fit onto trading floors if seats are placed farther apart.
Many banks are in the midst of evaluating how to equip traders to work from home with dedicated computers, an array of screens and high-speed connections. Such efforts aren’t limited to Wall Street operations.
Managers at JPMorgan asked about 10% of employees across its consumer bank to work remotely to test the resiliency of its contingency plan, people familiar with the matter said Tuesday. The effort affects thousands of staff members.
The New York Stock Exchange posted an update for traders last week on its business continuity plans. In the event that its storied trading floor is no longer available, the exchange will shift exclusively to electronic trading. Competitor Nasdaq Inc. said
that it’s prepared to deploy emergency plans and relocate employees if needed.
Even as financial firms dust off playbooks from earlier crises such as the Sept. 11 terrorist attacks, Hurricane Sandy and the SARS outbreak, the threats posed by the coronavirus are proving to be new territory — with many potential outcomes.
“You have to be thinking about ‘What are all the challenges that could cause problems to come up?” said Julie Williams, a managing director at Promontory Financial Group and former acting U.S. comptroller of the currency. “Pandemics have not been at the top of people’s lists.”
The pressures on trading results may appear in a variety of forms, depending on how long the crisis lasts, Fitch Ratings analysts wrote in a note Tuesday.
While recent volatility might boost revenue for a bit, transaction volumes “could taper off once investors and corporates have readjusted their portfolios,” the analysts said. And then “trading activities could also come under pressure if banks have to enact operational changes to ensure business continuity, or if material portion of the banks’ staff have to work from home or from off-site locations.”