Derivatives Traders Replaced with Machines

Dealers save by employing computer algorithms rather than million-dollar traders.

Wall Street’s credit-derivatives traders, who before the financial crisis commanded $2 million of annual pay, are being replaced by machines as banks cut costs and heed new regulations.

UBS AG, Switzerland’s biggest bank, fired its head of credit-default swaps index trading, David Gallers, last week, with no plan to fill the position, according to two people familiar with the matter. Instead, the bank replaced Gallers with computer algorithms that trade using mathematical models, said the people, who asked not to be identified because moves are private.

Human Costs

As late as 2005, managing directors on credit-derivative trading desks were being paid an average $250,000 in salaries and $1.75 million in bonuses, Michael Karp, co-founder of executive-search firm Options Group, said in a 2006 interview with Bloomberg News.

Market Share

Dealers are “definitely fighting for market share,” Davis said in a telephone interview. “Once you get plugged, it just becomes operationally easy to trade, so that’s what the rush is to get all these algos out. It’s kind of a race to say who has the best plug-and-play-model right now to gain market share. I don’t think there’s a clear winner or loser at this point.”

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