JP Reis has maintained dialogue with senior technology executives in Investment Banking about the challenges they face and the solutions they are using to operate during the lockdown. Pandemics were always on the risk register but a relative lack of planning for traders working from home for an extended period is very understandable. As a result, banks are working from different starting points to create hybrid solutions. There is no one-size fits all but there are consistent trends.
Trading in Lockdown: The Next 18 Months
Realistically, we are not approaching the point where life can return to normal. In some Asian markets, workers who had returned to trading floors are already working remotely again. Executives with global responsibility have explained how it was operationally more challenging to send people home the second time around. The Asian experience will help to create policies if banks face similar circumstances in the West. Most trading floors are active but with workspaces reorganized to achieve physical distancing. Disaster recovery sites are also active and many users, including traders, are working from home; a concept that would have been unthinkable just four months ago. Technology executives are working in a variety of home and office-based situations. Preparations are being made for an 18-month period during which traders could either remain dispersed or alternate between working on the trading floor and remotely.
Trader Voice Endpoints
Home-based traders are using a variety of solutions including hard turret over VPN (with advice on how to keep that secure), soft turrets supplied by new and current vendors, and cloud-based voice services. As predicted, most banks experienced limitations when traders started working away from the trading floor. In the disaster recovery context, there has been user acceptance of these new set-ups. However, it is yet unknown if this level of acceptance will remain as weeks extend into months. As seen in parts of Asia, acceptance levels may diminish when traders return to the floors, remember what they used to have and are then asked to work remotely again.
In most cases, remote traders are working with reduced functionality, regardless of what their employers initially planned. Having confirmed that the lack of capacity would undermine the performance and stability of trader voice platforms, including soft clients, the number of available lines has typically dropped from the hundreds to fewer than twenty, no matter what type of endpoint is being used. Speaker channels have on average dropped from twenty-four to eight.
Faced with an extended period of disruption, senior managers hope to achieve higher-capacity remote set-ups. This will include boosting up the back end to provide the bandwidth required for users to operate remotely with more functionality and direct dials. So far, vendors have not taken leading rolls in meeting this aspect of the challenge.
Cloud Voice Services
Many banks had cloud-based community voice solutions in place for commodity traders pre-virus, but department heads had remained skeptical about rolling them out for other users until the crisis struck. In a watershed moment for the concept, they remain skeptical but roll-outs have increased hugely and user feedback has been generally positive.
Senior managers agree that the ease and speed of provisioning is great, and the sound quality is fine but, they have issues. These include the endpoint taking up screen space, the button module taking up desk space, the insular nature of the community concept, the lack of extensibility, barge in and cross-lamping (everything has to be forked). There is also unease amongst compliance and security teams about cloud hosting, the governance of voice recording and the lack of testing of TLS encryption. The feeling early on is that this crisis won’t be a tipping point for industry-wide adoption in investment banking. Even in institutions where the roll out has been for 50% of traders, it has been strictly delineated along types of user group. However, necessity is the mother of invention and, if disruption does continue in line with the longer-term estimates, there may still be time for a combination of testing, familiarization, and product development to close the gap.
Third Party Applications and Regulatory Compliance
It is expected that new working conditions, especially in the most remote circumstances, will see increased use of mobile phones and third-party apps like Zoom and WebEx by traders. In some cases, these apps are being used unilaterally within the parameters of newly drafted policy, other banks have rolled out informal video conferencing apps like Zoom for defined user groups and control the environment as far as possible. Strategic managers acknowledge the risks of building multivendor accounts; quick roll-outs limit the time required to validate security, in the medium-term the costs become unsustainable, and the biggest challenge of all could be the post-crisis removal of services that have become institutionalized. Some hope that a ramping up of regulations as business gets back to something more recognizable may force the issue and facilitate a return to more homogenous set ups.
For now, with UK regulators asking traders to make notes about conversations and email them in, we have clearly moved into a less regulated, higher risk period and there is already talk of price manipulation in FX markets. Banks have to keep their regulatory reporting up, regulators may accept some gaps but there must be no complacency. Most department heads are prioritizing compliance and striving to engineer new solutions that maintain the standards required before the relaxation of regulations.
Voice Recording and BYOD
As IT leaders try to achieve a BAU level of control while avoiding any new technology that increases risk, the speed of engineering and implementation mean that in some cases, the increase is inevitable. A widely shared challenge, especially in the US, is the widening of mobile voice recording [MVR], that isn’t required by Dodd Frank for office-based traders to the extent it is by other regulatory frameworks. One stop gap solution is to have a bridging provider performing automatic, centrally captured call recording. It is far from perfect due to degradation, but it permits some retention of control. Across all data capture for trade reconstruction, by phone, mobile or soft client, the location of stored data is critical and is driving workarounds in some cases.
Banks are performing mobile data capture primarily for voice as there isn’t a suitable application to capture across all apps. They are trying to implement governance around BYOD without contravening privacy laws, it’s a tough challenge in the current environment but is being pursued aggressively. Luckily, on a global basis, there is valuable MVR experience available.
For all the challenges of operating Trader Voice and other trading floor systems in the current environment, at least the basic work practices stay the same. Other areas of the business have had to completely transform their processes. Internet conferencing is exploding and senior managers are having to reevaluate SBC strategies as such unprecedented traffic is being routed through them.
There is a lot of clear and pragmatic thinking at the trader communications frontline and there is expert consultancy where required. Initial solutions have been more successful and better received than expected; there have been disappointments too, although very few surprises. As teams scramble to integrate and roll-out solutions on a day to day basis they still have an eye on long term strategy and global transformation programs that are on-ongoing.