First Published: Business Insider/ April 2020
It was unthinkable a little over a month ago: Legions of Wall Street traders navigating the most chaotic market in their lifetimes from the comfort of their living rooms.
With the spread of the novel coronavirus and increasing restrictions from governments to enforce social distancing, they’re doing exactly that. Wall Street firms — which only weeks before were reluctant to encourage trading from home for security and compliance reasons — migrated most of their markets operations to remote work in March.
At Citigroup, more than 91% of the firm’s 2,200 North American markets employees are working from home, including even some of the firm’s essential risk takers, according to people familiar with the matter. Goldman Sachs’ four trading floors in New York typically house thousands of employees during normal business times but by March 19 that had fallen to the low hundreds, according to a person briefed on the numbers.
‘It was not part of our playbook’
This was, quite literally, never in playbook.
Financial giants have long had plans in place to keep operations running in the event of a terrorist attack like 9/11 or a natural disaster, like Hurricane Sandy. But those largely focused on moving key personnel to backup sites. The shuttering of a single trading floor or office would have been unfortunate but manageable — every bank has sites scattered in the suburbs of trading hubs in New York and London, not to mention offices around the world to temporarily relocate staff.
But those continuity plans didn’t take into account a situation that would render nearly all trading floors around the globe unusable and force large numbers of trading staff to work from their homes.
Amid the rapidly spreading Covid-19 outbreak, which has hit New York City especially hard, even splitting employees among backup sites quickly proved untenable. One bank trading executive, who was helping plan his firm’s remote-work migration, likened their contingency site to the set of “The Wolf of Wall Street” — a “cavernous,” boiler-room type facility stacked with desks that “ran afoul of all social distancing guidance.”
Banks were quickly forced to ditch their disaster gameplan and trying something brand new, testing and deploying remote-working capabilities to their vast trading ranks.
“Trading from home has never been done,” a trading at executive at one of the biggest banks told Business Insider, referring to the company’s business continuity plans. “It was not part of our playbook.”
That’s because trading remotely comes with disadvantages and headaches. Some are tangible, while others are harder to grasp for the uninitiated. We spoke with more than a dozen insiders to understand the massive undertaking to enable remote trading, and which qualities of a trading floor are hardest to replicate from home.
“Prior to five or six weeks ago, not only were they not talking about working from home, they were talking about not supporting it for compliance and security reasons,” Tim Carmody, the chief technology officer of IPC, one of the primary suppliers of the trading hardware and software that connects Wall Street, told Business Insider. “And that rapidly changed.”
The efforts at Citigroup provide a window into how one bank responded. The bank’s North American markets division started to test-drive WFH capabilities for traders the first week of March, when the scope of disruption from the pandemic had yet to fully materialize, according to sources familiar with the preparations.
That Wednesday the bank selected a representative group of 20 traders from across the division and sent them home in Ubers with all the supplies they’d need — such as computers, monitors, VPN phones, network cables, monitors.
After the pilot group proved it could work without incident, several days later, the bank identified its most critical staff in sales and trading — the top 10% of the 2,200-person group — and began assembling kits to have installed in their homes. They overnighted the supplies via UPS, though in many cases it took a couple days for the packages to arrive.
The bank meanwhile required every employee in the division to acquire and set up a token that provides remote access to the company’s systems, the sources said, transforming the reception area of one of its newly renovated trading floors into a makeshift Apple Genius Bar, staffed with technologists to troubleshoot any snafus.
Three weeks later, fewer than 200 the division’s employees are still reporting to company offices.
But that number won’t get down to zero any time soon. At Citi and elsewhere, top execs have decided that scores of top traders will need to continue reporting to work.
“Making decisions on key trading situations, how to manage certain books — you still need some decision makers to be on site and to be able to communicate very swiftly,” a senior Wall Street executive told Business Insider.
Turrets are critical mission-control centers for traders
That communication is often enabled by trading turrets — mini-mission control centers that allow traders’ split-second, rapid-fire voice connection to dozens of colleagues, brokers, and clients — that connect directly to a financial institution’s phone systems.
One of the initial hang-ups of moving to remote work was the lack of turrets, said one senior trader, a sentiment echoed by several others. That made trading slower and more likely to take place over chats.
While stocks largely moved toward electronic trading in recent years, other asset classes, such as bonds and options, are still heavily traded person-to-person, over the phone.
“They need to instantly be able to call people to make trades,” a derivatives trader said, noting that before the exchanges recently closed their in-person venues, direct-line turrets were routinely used to communicate with floor index traders.
“Direct lines to other desks, sales, and clients is faster,” added a former sell-side equities trader who now works at a hedge fund. “Also, some might have recording requirements depending on a product, i.e. CFTC rules, so can’t just use cell phones at home.”
Regulators have relaxed some of these rules in recognition of these unprecedented challenges. The CFTC is offering relief on things like record-keeping and time-stamping for market players including futures commission merchants, introducing brokers, swap dealers, retail foreign exchange dealers, and floor brokers.
And while some traders have been set up with VPN phones connecting their turret lines to their home lines, many people don’t have landlines anymore. Given the crisis at hand, the CFTC has allowed traders to create an email record of a conversation with a client, a reprieve that has expedited the transition, according to Wall Street execs.
Solving the turret headache
In rare instances prior to the coronavirus crisis, traders had turrets installed in their home offices.
“There were very isolated cases, particularly heads of desks with a lot of power, who wanted turrets in their Hamptons home so they could work from home on Fridays,” Carmody said.
Banks in the past month have tried to deploy that once-privileged perk to many more traders. IPC has gotten orders for several thousand turrets in March, an exceptional uptick for a single month, Carmody said. Most of the 1,000-employee global tech company is working remotely, though it has kept open manufacturing facilities in Fairfield, Connecticut.
JPMorgan Chase is among the banks to outfit more of its traders with physical home turrets in recent weeks, according to people familiar with matter. Firms are also testing software turrets.
Software turrets that mimic the same functionality but on a trader’s computer screen have seen an even greater surge of demand, Carmody said.
These soft turrets lack the velocity and facility of traditional turrets — there are fewer speakers, moving between buttons and channels is slower, there’s no push-to-talk or push-to-mute function — but the upfront costs are smaller and the software can be rolled out far more quickly.
“There’s a lot of functionality that the physical turret brings that will always be the gold standard,” Carmody said. “The soft turret gives you a workable environment for this, but probably not a direct replacement.”
Citigroup was testing the functionality of one IPC soft turret last week, sources said, and has secured hundreds of refurbished laptops installed with the software that it plans to send out to personnel.
Soft turrets are also likely to figure prominently in new protocols as banks tear up their old disaster-response plans, according to the bank trading executive who has been helping with his firm’s remote-work migration.
Nothing to replicate real-time interaction
Still, a former trading executive at one of Wall Street’s largest banks said it’s hard to replace in-office intuition.
In normal times, traders, particularly those that transact across asset classes, must be able to see which desks on a large trading floor are busy, call around within the bank at a moment’s notice and in some cases, quickly walk over to a colleague for a simple answer about risk positions or inventory.
“There’s nothing to replicate a salesforce and you talking and interacting in real time,” another trader told Business Insider. “But we’re in strange times.”
Working from a home office or spare bedroom deadens those touch points, the former executive said. While traders might be able to connect by video conference, electronic message, and phone, it can be hard to replace the other intangibles, the small bits of information a trader ingests.
That’s particularly true for some of the markets that have been slower to adapt electronically, he said, citing off-the-run Treasuries, foreign-exchange options, corporate debt, and structured commodities. Imagine the desk is working 10 inquiries simultaneously, and they are coming over voice, and negotiations are ongoing with all of them. In the office, a trader can see and hear and almost feel that activity, he said.
“I want to know where risk is being accumulated, where it might start accumulating, what types of clients are calling or not calling,” he said. “There’s an element of intuition that’s hard to replace.”
The downside to being out of touch is getting flat-footed, accumulating a large position that suddenly suffers losses or letting risky positions build up in some corner of the firm. In such an environment, activity has to slow so that traders can get comfortable with their exposures.
“You can’t be as tactical with a book without that in-person presence,” he said.
Goldman Sachs is trying to approximate the feeling of being in the same room with colleagues by exploring special videoconferencing setups, according to Atte Lahtiranta, the chief technology officer. The setup would have specially arranged cameras and large dedicated screens, and run all day so that traders could seamlessly stay in visual contact with colleagues. Some are already using Zoom in this way, he said.
“You could just put small monitors next to your desk, five of them, and you would see people eye-to-eye, and just turn your face toward them to talk,” Lahtiranta said, describing a future solution. “Those to me are the kind of next steps that, if this really becomes long lasting, you will need to do because people will need that sort of interaction.”
There are real world implications if Wall Street can’t get back to the office. Some have indicated the remote-work dynamic has exacerbated some challenges, including market liquidity. An ETF trader who also worked through the 2008 crisis said this is “the least liquid period I’ve ever traded in.”
Another trader said markets are more uncertain and harder to price, and he worries more about competing algos.
“I don’t think everyone’s at full speed,” the trader said. “Brokers are having a tough time with liquidity and the wide markets make it even harder to price.”