Tuesday, October 24, 2006

Corporate bond traders, salesmen lose out to automation

Bloomberg reports that due to newfound transparency in the corporate bond market, bond traders and salesmen are witnessing the demise of their profession.

With the advent of NASD's computer price reporting, their previously large incomes withered away. Now, many involved in the corporate bond market are losing their jobs.

One-fourth of all corporate-bond traders, analysts, brokers and salesmen have lost their jobs in the past two years, according to Michael Karp, head of New York-based executive search and consulting firm Options Group. David Hendler, an analyst who covers financial firms for CreditSights Inc., estimates as many as 500 people work in corporate bonds at the five biggest firms.

Since 2002, traders have been required to report trades of registered corporate bonds to a computerized NASD price reporting system known as Trace (an acronym for Trade Reporting and Compliance Engine). This has replaced the time honored dealer market in which customers would call up bond salesmen and survey them on price.

``Technology took a lot of the margin out of the business,'' said Richard duBusc, a Credit Suisse banker who started working on Wall Street 40 years ago when the NYSE closed on Wednesday afternoons to catch up on its paperwork. ``Is that good or bad? It's bad if you're losing your job. It's good if you're paying a tighter bid-ask spread.''

While the changes are considered good for the customers, the newer, regulated system has certainly taken its toll on those who once made their livings in the corporate debt market.

``You have a market that was completely dark for 200 years and instead of letting a little bit of transparency in there, they just opened the windows completely and all the shades and everything, and it was complete sunshine,'' said Jeff Stambovski, a senior high-yield bond salesman at Miller Tabak Roberts Securities LLC in New York until he quit in 2004 with the advent of Trace. ``I saw Trace come in and we just sort of looked at each other and we knew what was happening.''

For more on the changing shape of the bond and credit markets, see Bloomberg's article, "Bond Traders Lose $1 Million Incomes on Transparency".