The world of trading, as generations of traders knew it, is over, and it took a timestamp from Jamie Dimon to make it official: “The battle is more in the tech world at this point than in having brilliant traders.”
And so, in a world in which being a better trader – i.e. outsmarting everyone else – no longer matters as the market is now hopelessly broken by central banks, and instead just speed and the ability to frontrun orderflow is relevant, it is no surprise that JPMorgan was reserved in its Q3 revenue outlook, which while set to rise 10% in Q3 – only due to a base effect – will continue the recent trend of disappointing trading revenue
“We’re not jumping for joy,” JPM CEO Jamie Dimon said Tuesday during an investor conference in New York, quoted by Bloomberg. The 10% gain is only possible because Q3 2018 was very weak; on a sequential basis, the Q3 2019 revenue will be a decline of about 10% versus the already disappointing second quarter, Dimon said.
Other banks are set to be even worse: Citi’s trading revenue is set to drop this quarter amid the brief bout of volatility that gripped markets in August, CFO Mark Mason said Monday; Bank of America’s fixed-income trading revenue will likely be down “a little bit,” while equities trading has done well, COO Tom Montag said.
Over the past decade, Wall Street trading desks have transformed into deserted ghost towns, struggling to keep up with their electronic peers amid an unprecedented shift to cheaper, more efficient passive investing; at the same time struggles among hedge funds and moves to cheaper electronic trading have made banks’ securities units less profitable. According to Bloomberg, the five biggest U.S. banks saw a collective $5 billion drop in trading revenue in the first half of the year after an 8% slide in the second quarter and a 14% decline in the first three months of the year.
This is just the start: according to Dimon, margins will continue to drop across the financial sector as more trades move to electronic platforms, and as “trading” as we once knew it, is no more.