The days of human bond traders seem to be dwindling. Morgan Stanley is focusing on replacing human bond traders with powerful computers. The move is in anticipation of changes in the way bonds will be traded in the future. The number of interest-rate and foreign exchange traders has already been reduced by as much as 20%.
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The fixed-income trading group is considered critically attractive and the firm is trying to boost revenues as well as eliminate costly errors. The move is also designed to help the firm’s strong stock trading business take advantage of interest-rate derivatives markets.
Growing customer demand coupled with new mandates from the Dodd-Frank legislation are focusing the firm in an area in which it has fallen behind competitors over the last several years. The aim of the legislation is to push derivatives trading onto electronic platforms.
The firm’s bonds were downgraded in June, increasing competition from higher rated peers like Goldman Sachs. Morgan Stanley’s customers have been putting pressure on the firm to either eliminate its fixed-income division or overhaul its systems.
The firm said it will scale back trading in riskier areas of the bond markets and focus on interest rates and currencies. Although Morgan Stanley is the smallest of the big five banks, its position as the weakest link can be useful in watching developing trends i
n the marketplace.