Friday, February 27, 2009

Weekend Reading: The Social Dynamics Of The Trading Desk



Consider the following descriptions:
  1. No sooner did you pass the fake fireplace than you heard an ungodly roar, like the roar of a mob... the bond trading room of Pierce & Pierce. It was a vast space, perhaps sixty by eighty feet, but with the same eight-foot ceiling bearing down on your head. It was an oppressive space with a ferocious glare, writhing silhouettes... the arms and torsos of young men... moving in an agitated manner and sweating early in the morning and shouting, which created the roar.
  2. It's the size of three aircraft. And the reason for it is that it is a source of pride to the manager. It is difficult to see how traders can communicate shouting at each other across two aircraft carriers. At [Connecticut bank], what you'll find is chaos that looks grand.
  3. The key is [to avoid] social awkwardness. Two traders are talking to each other. A third needs a piece of information. He has to interrupt. "Can I interrupt? Can I interrupt?" The key there is the social cost of interruption. Part of my job is to keep those costs down.
Aside from being the descriptions of three totally different types of trading areas, these are among the environments that author Daniel Beunza analyzes to determine how a trader's immediate environment shapes his behavior, his interraction with others, and by implications his trading strategy.

This fascinating paper out of Columbia University which should be mandatory reading for anyone who has ever worked in a hedge fund or plans to run one, provides a scholarly analysis of just how the different things in a trader's daily routine: from the layout of open screens on a Bloomberg terminal, to the desk layout, to the screaming or whispering to discuss new information, to the social hierarchy implications of stacking monitors more than one level high... and so much more.

Focsuing on trading desks including merger arb, index arb, convertible bond arb, statistical arbitrage, and customer sales, there is something in this paper for everyone.


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4 comments:

TPC said...

Awesome read. Thanks.

Anonymous said...

As someone who helped design four trading desks over a seventeen year period, I found this article very interesting. I will try and add some input on a practical level for I found the article missed some of the obvious, and fundamental problems that environmentally had to be present.

In looking for office space, lack of building support beams were key. You needed to build your desk with total line of sight between your traders. The more traders, the more space, with looking towards growth. Desks were generally built in horse shoe shapes. In addition, high ceilings were a must for the acoustics. The desk had to be elevated to hide the miles of wires.

The placement of traders was essential. Seating two or more of your most productive traders in close proximity, while seeming advantageous, (for their accounts interacted the most) could prove problematic. Generally, the higher the productivity of a trader led to ego problems. Two high producers could lead to verbal or physical problems. I mean fights. To offset this potential danger, we often put a weaker or newer trader between the two hoping to solve this problem. In addition, the weaker trader would hopefully learn by placement.

In conclusion, having spare turrets, phones, screens
chairs, and any other piece of office equipment is very important. They're broken on a daily basis due to vigorous trading activity. If confronted, as to why a screen was smashed, your answer will most likely be-----"THIS BUSINESS SUCKS."

Economics of Contempt said...

"International Securities" is Nomura, right?

The Connecticut bank the one trader makes fun of is obviously UBS, with its monstrous trading floor. Nicely written paper. The authors are very perceptive -- they clearly "get" the psyche of Wall Street, which 99% of academics don't.

Karlie said...

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


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