Do People Still Matter?

When Waters hired me on the strength of my experience as editor of my hometown newspaper, my awareness of the capital markets was limited, and I’m not sure I’d ever pondered the existence of the technology that underpinned them. But over the last 10 years, I have come to admire the industry for its awesome intelligence, innovation, and truly impressive ability to generate and bandy about buzzwords—from the acronymized STP to CEP, SOAs to SLAs, to my personal, more conventional favorite, big data (it’s data, only BIG). What is possible with technology is truly spectacular—from algorithmic trading and predictive analytics, to setting the speed of light as a benchmark for latency.

But the transition from an industry built largely on relationships and trust to one run by machines was far from easy or smooth. When I joined Incisive Media in 2003, Dick Grasso was on his way out of the New York Stock Exchange and John Thain was coming in with plans to decimate the trading floor and usher in an era of electronic trading at NYSE. Traders and specialists were spooked—having no doubt foreseen their own demise—and warned that the loss of the human intervention in the markets could have drastic consequences.

About Relationships
We can debate whether they were right. But many saw Grasso as a Luddite, who wrangled a massive pay package out of an exchange that was headed for extinction without serious change. Once, at a pre-Sifma panel discussion held at the USS Intrepid on the Hudson River, a panelist prefaced his remarks about the exchange with, “Considering that we’re in a museum …” The audience laughed. 

The over-the-counter (OTC) markets now confront a similar—if more complex—path to automation, brought about by many factors including regulations and client demands for transparency and accountability. But when I raised the topic at our recent Waters USA conference with a fixed-income technologist working at a global sell-side firm, he rolled his eyes and insisted that the OTC markets have always been, and will always be, about relationships—who you know and, especially, who you trust.

In fact, people and relationships matter in the capital markets, perhaps more than ever. In another simple example, the same technologist described how attitudes in different parts of the firm’s mortgage business varied according to whether they could see the names and addresses attached to the mortgages they handled, or whether they had been stripped out in the process of securitization. We are trained to innately value that information for a reason.

With a Handshake
My father-in-law spent his career working in commercial lending in London. He likes to tell me nostalgically that he worked in the markets at a time when people knew and trusted their counterparties, that deals were sealed with a handshake. I think even he acknowledges that a return to those days is as impractical as it is impossible. But this time of year, it’s always a good idea to remember that technology can do a lot of things—amazing, jaw-dropping things—but the human element and those personal relationships, however obscured or abstracted, still find a way to matter.