Wednesday, November 05, 2008

Trading Desks Like JPM Fail for this Reason

I got this headline and article today:

JPMorgan Chase is to scrap its standalone proprietary trading desk, highlighting how the dearth of investment opportunities is prompting banks to retreat from in-house hedge funds that had thrived before the turmoil. People close to the situation said the decision to fold the 80-strong global proprietary trading unit into JPMorgan’s other trading operations could result in job losses.

Institutions closing their internal trading desks.  How is that possible given all their resources? Surely they are always at that intersection of bright minds, leading edge technology, and lots of money, right?  Wrong.  

I argue that the institutions are failing for not keeping up with the latest tools and technology that often exists below their radar and outside the 4 walls of their IT department.  In this sense the individual trader may be succeeding (with tools like Trade-Ideas) where the institutions fail.

Aside from money see how key assumptions about the advantages institutions maintain over individuals stand on a weak foundation.  

Minds Gone to Mush

In these last few months (going on a year or so), the mighty institutions (e.g., BEAR, Merrill, etc.) fall pretty hard and the emporer runs around naked alot.  With the relative parity in access to primary sources of widely disseminated information, it's just as easy as the next guy to put 2 and 2 together and get 4.  Smarter people outside these institutions saw the writing on the wall. I'd say a mix of the 'blinding greed' of executives contributed to these failures combined with the inherent inertia of bureaucratic organizations (i.e., the CYA attitude of many employees, the "if it ain't broke, don't fix it" day by day routine mentality).  This makes finding new technology almost impossible let alone trying to champion its use within the organization.  (How did Trade-Ideas ever land its partners?)

Leading Edge of Blah

I've seen too many trading floors with homemade platforms marketed as the "Ultimate Driving Machine" of applications.  Each of them had their moment of glory and each of them unknowingly saw it go by.  That's because a department of in-house developers and IT organizations make it their job to maintain the status quo.  At this they are very good - but innovate or build from scratch? 

The Value of Small Companies is their Innovation

The cost and effort to develop something internally is staggering in its budget, time to implementation, and constantly changing scope.  Good companies I associate with know its better to buy these applications from the outside and integrate them rather than develop them internally on their own. 

Smaller companies (hey, like Trade-Ideas) fill this gap.  We just keep refusing to go to the dance. In the meantime our customers benefit because it's our niche focus and fast adapting development capabilities that allow us to constantly meet and exceed market demands on what our tools need to do.

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1 comment:

D TradeIdeas said...

Captured from Twitter:

StockJockey @tradeideas they get the groupthink thing going, don't look outside comfort zone was new ideas. IT depts block URLs too.. Sad but true. 25 minutes ago from web in reply to TradeIdeas


StockJockey @tradeideas I frequently get links from buy/sellsiders that are days behind the stuff we link up..they are behind the curve for sure. 27 minutes ago from web in reply to TradeIdeas

TradeIdeas @StockJockey TI survives on the traders outside these institutions - as big as the institutions were/are, they didnt have the vol of traders 7 minutes ago from web in reply to StockJockey