Technologists as Traders: Sitting in the Hot Seat

This week I've been in Chicago for a few meetings, but the main reason I'm here was to chair the inaugural Chicago Trading & Technology Summit, which was held on Thursday. The event is designed to bring together technologists with front-office traders, risk managers and regulators. There will be more of these events coming up next year, including in San Francisco, Boston and Dubai.

You get to hear some interesting perspectives at an event like this. When you just talk with technologists, you here about what traders and portfolio managers want, but you're hearing it second hand, many times.

It's with this in mind that my ears perked up when, during a panel on risk management, Peter van Kleef, managing director at Lakeview Capital Market Services, said firms should require their technologists to work as traders for a brief period. He fully understands the results are likely to be negative...but that's also part of the lesson.

"The guys that are taking care of the systems, they don't understand the business because they're not sitting in the front office. What we've always done is if someone works in the IT department writing strategies and writing risk modules, that person has to trade for a while. We know he will probably lose money. He probably won't be very good at it. It might even frighten him to be in front of a trading screen. He sees real-time P&L ─ he loses $1,000, $5,000, $10,000. At that point, he intimately understands risk and he knows exactly what the guy that sits in front of that screen is feeling when that machine goes crazy or something else happens."

And once he understands how a trader feels, "that improves by a zillion times the quality you get from IT."

Van Kleef also said that you can joke around with a techie and tell him that those funds are going to come out of his salary. Through that emotional experience, the technologist now understands what a negative P&L feels like.

Van Kleef said that large organizations don't have the time, patience or the inclination to help those in IT understand what trading actually feels like. "In my view, big organizations always neglect this," he said.

This got me wondering. In my years here at Waters, I've interviewed hundreds-perhaps over a thousand, if you include conferences-technologists. When I use the word technologist, I use it in an all-encompassing sense. Of course that means CTOs, CIOs, developers and programmers at banks and asset managers. But that also means people inside vendor shops.

How many of these people have actually spent time as an institutional trader and put orders in and watched them turn red? It's an interesting question.

Traders. Portfolio managers. Operations managers. Risk managers. Compliance specialists. Board members. They all realize the importance of technology. Shouldn't the technologists be as well versed in the highs and lows of trading?

We'll have more from the Chicago Trading & Technology Summit posted over the coming days. In the meantime, my colleague Dan DeFrancesco wrote a story on the usefulness of the R scripting language. Enjoy.