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Human Factor Niche Resurging in Block Trade

Human Factor Niche Resurging in Block TradeHuman Factor Niche Resurging in Block Trade

Machines may be taking over the world, but in at least one corner of the markets, humans are beating back the robots.

Sales traders like Citigroup Inc.’s Samantha Huggins are in demand because they are proving more adept than computer programs at trading big chunks of stock, dubbed block trades. While finding a buyer or seller and completing a transaction by phone is more expensive up front, Huggins says her 18 years spent navigating the markets gives her an edge in avoiding the pitfalls of letting some software slice the trade into tiny tranches over hours or an entire day, Bloomberg reported.

“Ultimately sales trading reduces their trading costs,” Huggins, a managing director at the bank, said in a conference room on Citigroup’s Canary Wharf trading floor. “If it didn’t reduce investors’ trading costs, we’d be a bunch of dinosaurs.”

So far, their niche is resurging amid an onslaught of technological evolution. In the US, sales-trader execution of single stocks rose to about 51%—the first increase since 2011, according to Greenwich Associates. In Europe, the number is 55%. And their ranks are swelling. Banks have been ramping up hiring of high touch sales traders in the last six to eight months, says recruitment firm Armstrong International. That’s especially notable when banks in the US and across Europe have slashed tens of thousands of jobs in the last few years alone.

  Human Touch

The bespoke service isn’t for everyone. At banks like Citigroup, the biggest clients are the ones pining for the human touch. That’s because they’re only getting bigger and so hold ever larger positions. For example, assets under management at global investment firms have been rising since the depths of the crisis, and gained 8% to a record $74 trillion in 2014, according to data from Boston Consulting Group.

Handling a mammoth trade presents hazards. Algorithmic trading programs try to avoid detection by drizzling out trades little by little, but traders have become adept at sniffing out those patterns and will drive prices the other way. Another risk is that news could break, whipsawing the value of the stock before the transaction is completed. Those risks are why big investors would prefer to avoid expensive mistakes and are willing to pay higher fees to make a trade in one big swoop.

So called “high touch” sales traders like Huggins specialize in those transactions, and they’re expected to know all about their customers, including what’s in their portfolios, how they like to transact and what kind of news is important to them.

Financialtribune.com