Best practice | The human factor


also prepare traders better for risk-taking than the finite six-month rotational schemes common for graduates today.


Changing the composition of the trading floor could also dampen the worst excesses of testosterone-charged recklessness. Attracting more women and retaining older, more experienced male traders to trading teams – which are invariably young and male – could make for more balanced decision-making, while pulling young male traders off the field, before they reach the end of their winning streak, would give an opportunity for testosterone-fuelled bodies to calm down and reset.


A change of pace


Perhaps the biggest changes needed in banks are in management style and culture, recommends Coates. Macho managers, who rule trading floors by fear and create a climate in which mistakes are likely to be driven undercover, need to be discouraged from leadership roles. Rewards policies that incentivise short-term performance and hiring policies which currently resemble a revolving door, need to be to reversed and stabilised. Two institutions which have started to move in this direction are Deutsche Bank and Goldman Sachs. Deutsche, for example, has announced that bonuses for senior bankers will be paid once every five years instead of annually while the decision by Goldman to end two-year contracts and bonuses for new hires in investment banking and investment management is partly designed to emphasise long term career opportunities, says the firm.


Another intervention open to banks is to change the kind of person they recruit into trading. According to Hugo Pound, managing director of leadership consultancy RDI, this is exactly what banks are now doing. But the move has less to do with any wish to lower testosterone levels on the trading floor and more to do with the changing nature of bank trading since the financial crisis. “First, trading is not seen as an isolated, separate island anymore so banks need people who have the maturity to recognise the complex


Best Execution | Spring 2013


“With greater regulation and capital getting scarcer, banks, keen to mitigate risk, want people who will respect compliance and the law. Certainly the anecdotal evidence from the past is traders didn’t do that.” Hugo Pound


interdependencies across the business and the ability to build relationships inside and outside the organisation. The second thing is with greater regulation and capital getting scarcer, banks, keen to mitigate risk, want people who will respect compliance and the law. Certainly the anecdotal evidence from the past is traders didn’t do that. Now, trust, honesty and transparency are the qualities being emphasised.” According to Pound, the kind of thrill-seeking risk-taker who used to be found on almost every trading desk is now migrating to hedge funds where fewer compliance rules and greater freedom are to be found.


So does that make Coates’ research an


increasing irrelevance for banks, an idea whose time has passed? Coates doesn’t think so. “These ideas are applicable to any organisation taking risk not just banks. And judging from the money banks still make, trading won’t be disappearing any time soon. Even black boxes and algorithms don’t remove the human dimension from trading.” “I just don’t think we can cut our bodies out of the picture and I don’t think we want to. When it comes to decision-making, some of our most valuable signals are our gut instincts.” ■


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