Ali Curi: [00:00:00] Markets Conversation is a new ION podcast where we discuss topics of importance to capital market participants with product owners, subject matter experts, and industry leaders.

Will Mitting: So in terms of the specific factors we found that was causing difficulties though in attracting and retaining younger talent, we found that the high pressure work environment, a greater appeal of other sectors, and the longer working hours associated with finance were the key factors. 

Bruce Roberts: Technology is definitely a key solution and enabler, I believe, to the talent shortage.

The automation that, you know, can be generated in efficiency for scalability, especially within the volatile events that we've seen over the past several years, is going to allow employees to have a better work-life balance. 

Ali Curi: Hi everyone and welcome to Markets Conversation. I'm Ali Curi. On today's [00:01:00] episode, Bruce Roberts from ION Markets and Will Mitting from Acuiti will discuss how the demand for experienced clearing professionals is surging and how technology can help firms overcome the hiring hurdles and build a future proof workforce.

Clearing services firms face a challenging balancing act. For years, talent has been lured away by trading firms, hedge funds, and sky-high tech salaries. Meanwhile, financial reforms and cost pressures have sunk head count, leaving firms struggling with operational risks and a looming skill gap. Bruce and Will discuss why this is happening and how firms can overcome hiring hurdles and how to build a future-proof workforce.

Let's get started. 

Bruce Roberts. Welcome back to the podcast. 

Bruce Roberts: Hi, Ali. Great to be back again with you. 

Ali Curi: And also a friend of the podcast, Will Mitting. Welcome back. 

Will Mitting: Ali, great to be back. Thanks for having me. 

Ali Curi: And for our new listeners who have not met Bruce or Will, Bruce Roberts is responsible for Cleared Derivatives at ION, and Will Mitting is the [00:02:00] CEO of Acuiti.

It's great to see you both.

Bruce, let's start with you. ION has once again partnered with Acuiti to produce a very informative report titled Strategic Workforce Development: Talent and Technology, How sell side derivative businesses are responding to the challenges of hiring and retaining employees.

Tell us more about this report and why is it important right now? 

Bruce Roberts: Through internal conversations at ION, we identified that we had a number of individuals who are coming up for retirement over the next 5 to 10 years. So reflecting on this with others in the industry that we work with closely, we started to wonder from a succession planning perspective, who is going to be the next generation of leaders in clear derivatives.

That started a discussion how best to address this transition over the next decade and how are different firms facing this challenge, including ION. This then led us to looking at technology and talent and how we advance the ways of working in the industry. 

Ali Curi: And how did the [00:03:00] industry get to this state with shortages of young talent and retention challenges?

Bruce Roberts: Like many things, there's been a cascading effect over the last decade. The sell side has had to attract and retain talent from more competition. The rise of high frequency trading firms has added to the competition that already existed from hedge funds. We've also seen technology companies increasing their presence in financial services and attracting talent away from sell side firms.

Additionally, post the financial crisis, we've seen regulatory reforms reduce profitability and significantly raise the regulatory burden. The impact has been for firms to reduce their operating costs by reducing headcount through rounds of job cuts and offshoring or nearshoring to lower cost centers.

So this has helped the sales side respond to the competitive pressures, but it has not solved the challenges of hiring and retaining staff in home markets. The impact of these has resulted in the reduction in hiring, which has decreased the pipeline of future talent coming through the ranks and thus [00:04:00] leaving us a smaller, older workforce.

Ali Curi: And what are some implications for firms and the industry if these challenges are not addressed and resolved? What impact does the talent shortage have on operational risk and business growth for clearing firms?

Bruce Roberts: As with everything, it is only until a crisis such as the pandemic that the spotlight is directed back onto people and the challenges to run the business in a volatile period.

It is at these points that the experience and expertise really comes to the fore of the individuals you have in your organization to manage the risk and support your clients. It is also transparent to those firms that have not been investing in their technology infrastructure and who do not have the resiliency.

When you witness trades not being cleared in the market and you're not able to calculate exposure to a client and call for margin, you feel very exposed when your manual processes start to fall over due to volumes. So it's similar to Warren Buffett's famous quote that "In a crisis or when the tide goes out, do you see [00:05:00] who has been swimming naked and not invested in the technology to scale their businesses and manage volatility."

Ali Curi: Great. Okay. Thank you, Bruce. 

Let's dig a little bit deeper into the research with Mr. Mitting. Hi, Will. 

Will Mitting: Hi Ali. 

Ali Curi: Will, this report is a real eye opener. With so many well educated young talent out there, the cleared derivatives clearing business finds itself in a bit of a pickle. Give me your take on this report and its findings.

Will Mitting: So I think the key point we found is that the future of workflow strategy for clearing firms is a mixture of both technology and staffing. The report found that staffing and hiring was coming under pressure from a number of factors that Bruce just outlined, but crucially it's coming under pressure at a time of increased volumes and volatility in derivatives markets.

The reality is that the traditional solution that firms had, that Bruce alluded to, of offshoring headcount in order to solve operational challenges, is probably no longer a viable option, not only because of the challenges of [00:06:00] hiring and retaining staff, but also because the complexity and size of the operational requirements to be in the business is now far greater than previously.

And therefore the key conclusion from the report was the firms to stay ahead and to compete, will have to invest in both automation and efficiency alongside headcount to compete and excel in the market of tomorrow. 

Ali Curi: The report data shows that a third of your respondents said that it was more challenging to hire and retain staff in derivatives, and around half in clearing operations and margin management.

Those are some high numbers in very specific areas. What can you share with us about the data that you found?

Will Mitting: Yes, overall, a third of respondents that had reported increased challenges in hiring and retaining talent said that it was more challenging in derivatives or their derivatives business than other areas of the bank, or just 3 percent said that it was less challenging in derivatives.

There are many reasons for this, but one key factor that was raised by several executives that we interviewed was the fact that for [00:07:00] junior staff in derivatives post trade in particular, the tasks and responsibilities often involve long hours and high pressure working on relatively manual processes, which are a lot less exciting than other areas of roles or other roles in the bank.

And that's inevitable while there's a lack of automation in some of the post trade processes. So again, it goes back to that point of investing in automation and technology is key for the workforce strategy as much as for your technology strategy. A more interesting finding was the fact that 65 percent of respondents said it was equally challenging to hire in derivatives as it was elsewhere in the bank.

And as Bruce mentioned, banks have faced pressure from hedge funds and high frequency trading firms within finance, but what you've also seen over the last decade or so the appeal of other sectors, such as technology or even pharmaceuticals and energy has also increased for graduates. And finance has long been associated with the relatively long hours and high pressure we discussed earlier. Previously, it was able to offer higher salaries than anywhere else, that age is now being eroded. [00:08:00] And the sector needs to respond to that and react to that. It's a process that's underway, but again, the reality remains that you can only get so far if you're not investing in automation alongside your talent recruitment.

Ali Curi: What are the top three areas where the derivatives business has a shortage of talent? 

Will Mitting: So we found that three areas where there was the biggest shortage of talent with regards to post trade for derivatives was in clearing operations, margin management, and trading support. 

Ali Curi: As we know, most of the industry problems don't happen overnight. There's some buildup, some red flags. How far back do you track these challenges arising in the industry? And what does your report show are the top three factors in the difficulty in attracting and retaining younger talent? 

Will Mitting: So I think the issue's been building for some time now, but it's come to the fore in the last four years as volumes have increased and therefore the pressure on teams has grown.

But you can probably trace the origins of this back to the financial crisis, but it's certainly become more acute recently. [00:09:00] Another issue I think is that derivatives volumes and indeed revenues for banks tends to be counter cyclical. For example, at the moment, interest rates have gone up, which provides a strong tailwind for banks' derivatives operations, as we've explored in a previous report.

But it also creates pressures elsewhere and forces banks to be more cautious overall as they take a view on the global economy. So in terms of the specific factors we found that was causing difficulties though, in attracting and retaining younger talent, we found that the high pressure work environment, a greater appeal of other sectors and the longer working hours associated with finance were the key factors.

ION Ad: This episode is brought to you by ION. At ION, our clear derivative solutions automate your complete trade lifecycle and deliver actionable insights, whenever and wherever you need them. We offer execution and order management, post trade processing, and a complete front to back business solution.

To learn more, visit us at: [00:10:00] iongroup.com/markets or email us at: markets@iongroup.com.

Ali Curi: Okay, Bruce. Let's go over to you and talk about how firms are responding to these challenges. What can you share with us about the initiatives or steps that firms have taken to recruit younger talent? 

Bruce Roberts: So firms have been in a battle for talent and attempting to retain key people for a long time. Only so much of this, though, can be done through remuneration, so the ability to offer flexible working of some sort will probably be a distinguishing factor as employees want more flexibility in their professional versus personal lives in the immediate term compared to some of the past trends.

The other is to look at graduate recruitment and other pools of talent that may not have been a traditional source of recruitment for some firms. I would think returning mothers to work. Other industries such as government who may start to downsize in the coming years but have project, [00:11:00] technology and other skill sets that are very transferable.

These are to name a few, but managers should consider their workforce strategy and succession planning. Anticipating the upcoming demands will allow you to better prepare and adapt as the industry continues to evolve and experience the volatility that we've seen and that Will's highlighted. 

Ali Curi: Bruce, do you see technology as a key solution to the talent shortage?

What findings can you share about technology as a key strategy in hiring and retaining talent? 

Bruce Roberts: Technology is definitely a key solution and enabler, I believe, to the talent shortage. The automation that can be generated and efficiency for scalability, especially within the volatile events that we've seen over the past several years, is going to allow employees to have a better work life balance, but also to have more value in terms of the content and the work that they're doing.

And that makes it interesting for them as employees where they're [00:12:00] learning and doing more high end work versus manually re-keying data from one system to another. Some of the strategies in hiring and retaining talent has to involve, the skills that employees can generate by coming into the industry doing high end content work that is interesting and that will allow them to have skills to move into new things and to continue to develop.

Ali Curi: Will, I have a two part question for you. What can you share with us regarding technology investment in trading or post trade technology over the past, say, three years? Is it stagnant or has there been an uptick? 

Will Mitting: So I think what we've found consistently is that investment in post trading derivatives was historically underappreciated versus front office investment.

So people up around from the mid 2000s onwards, really invested significant amounts in the front end in connectivity and getting the trades as fast as possible. And that was clearing into often kind of 20, [00:13:00] 30 year old technology, which was fine for a time. But what we found during the initial outbreak of COVID in March 2020, February and March, 2020, a lot of the post trade systems were overwhelmed by the volume of trades that were coming through as a result of that volatility. And that really highlighted the operational risk that firms have been running through that lack of investment in post trade. So we've seen as a result of that a significant uptick in investment in post trade.

And that, I think, is only going to continue as expectations of higher volumes in the future continue to be prevalent across the industry. 

Ali Curi: And has there been any measurement on the effectiveness of these technology investments? Are there any function areas that stand out as having noticeably improved?

Will Mitting: So I think the key measurement of the effectiveness has been the resilience of post trade operations following that post 2020 investment. Now, clearly 2020 was unique in that people were also managing the shift to remote working, but it [00:14:00] was a technology issue for many firms cause problems. So we've seen higher volumes, we've seen more acute volatility around such events as the outbreak of war between Russia and Ukraine. And the fact that these systems have remained, have prove resilient, I think is testament to the effectiveness of the technology upgrades. I think one key area where investment focused and where you can really point to improvement has been in reconciliations.

This is a, it's a complex area for firms to invest in as it requires data mapping and normalization across often disparate systems across silos within a bank. But it has proved one area where there's real low hanging fruit in terms of driving efficiency and increasing efficiency, as well as reducing manual intervention and fundamentally increasing capacity.

Ali Curi: What has your research shown as to which function areas are firms more likely to invest in to improve automation in clearing, say, over the next five years?

Will Mitting: So I think a lot of the, a lot of the basics have [00:15:00] been done now. A lot of the internal processes with regards to post trade have been addressed and automated to a significant extent.

So now it's the case for firms of looking at front to back STP and front to back automation. And that's what we see at the next phase and within derivatives. And then ultimately we expect that view within derivatives to start looking cross asset to create a single view of risk, for example, at any point across the trade cycle, across asset classes.

So I think it's that front to back automation, the first instance, and then expanding that across asset classes. 

Ali Curi: Great. Thank you. Bruce, what advice would you give sell side derivatives firms struggling with the talent shortage? 

Bruce Roberts: I would echo Will's sentiments in terms of the front to back and the investment in terms of technology and looking really to automate and, focus on, right first time, because again, using key measures of IT and S. T. P. will allow you to measure [00:16:00] how efficient your processes are and how scalable they are. But in addition to that, again, looking at your workforce strategy and, your sources of talent and where they're coming from, but also providing the flexibility to your current employees to, how you retain and develop them and make sure that you're leveraging the experience that they have to develop the next generation of talent is going to be critically important as we move forward the next kind of five to ten years. 

Ali Curi: Now, along the same lines, I want to hear both of your takes on the following question. Bruce, we'll start with you. What is the one big thing you hope listeners will take away from this episode?

Bruce Roberts: So volatility and change are constants in the world. I expect we will continue to see more volatility in the markets due to the market, economic and political events that we've witnessed over the last decade, but to manage these sustainably and the regulatory changes means an investment is required in [00:17:00] technology and the need to move to real time, whether it be clearing and risk management is going to become an increased demand.

So this is also going to become more visible with the new proposed Basel III capital requirements and how clearing firms try to optimize their balance sheets with clients and CCPs. So to highlight, I would say that the following ways of change for sell side firms are the key takeaways are technology investment to scale and manage risks.

Request to call for more collateral from clients, a push more trading into clearing, and then finally the repricing of clients who are not economically profitable. But Will, what are your thoughts? 

Will Mitting: Yeah, I think I totally agree with all that. Okay, I think the problems that we identified in this report aren't going away.

Every time volumes spike, they spike at a higher level than they have previously. And it is that interaction of automation or total interaction of technology investment with staffing that I think will be key to define firms that succeed in that new market. 

Ali Curi: Great. Thank you, Will. Will. And [00:18:00] also where can people find this report?

The ION/Acuiti report that we discussed today, because there's so much more in there that our listeners can learn from. 

Will Mitting: Sure, thanks, Ali. So it's available to download from our website, which is Acuiti, acuiti.io. 

Ali Curi: Wonderful. Bruce, I'm going to come back to you for a sec. I've asked you before on career advice in previous episodes, but my question for you today is, what advice is at the top of your list when you're mentoring someone?

Bruce Roberts: Great question as always, Ali. Mentoring, in my mind, can be official or unofficial in the way it is done. I personally find it very helpful when you're wanting to develop a specific skill or experience you're wanting to improve upon professionally. If you can define that, and it's not generic. That makes the experience with the mentor a lot more valuable.

Sometimes it can feel like you're trying to solve a problem that's a bit intangible when it's not specified or defined. But as an [00:19:00] example, you may have to chair a project meeting or a management meeting each week. Maybe you found this difficult and not been able to stay on topic or complete the agenda set out, or maybe the dynamics of certain individuals are making it difficult for you to gain the input and decisions on a topic, but finding someone in your network or that you respect who, you've seen sharing or running a project meeting or management meeting each week and able to navigate these challenging topics smoothly may be someone you want to reach out to, to ask for input on how you can improve your own skills and experience.

But part of the process for improving is to practice and then seek feedback. So you can then make adjustments and find your own style. And the key is that you need to initiate with the mentor, what you really want to get out of the relationship and defining this, as I said previously, will make it more beneficial for both of you in the time that you put in.

Ali Curi: Wonderful. That's some great advice. And Will, same question. What advice is at the top of your list when you're mentoring someone? 

Will Mitting: Probably [00:20:00] to find a better mentor, I think like Bruce, so that was a great answer. I think the thing about learning at that level is it's about making your own decisions and forging your own way as much as it is just copying what the, the kind of oldies are doing.

I think, so listen, my advice would be to listen to what everyone says, but find your own way of doing things because only by innovation and by trying out new ideas can any business progress. 

Ali Curi: It sounds like great advice, Will. Thank you for sharing. Bruce Roberts, Will Mitting, thank you both for joining us again on the podcast and I look forward to our next time.

Will Mitting: Thanks, Ali. 

Bruce Roberts: Thank you again. 

Ali Curi: And that's our episode for today. You can follow ION Markets on Twitter and LinkedIn. Thank you for joining us. I'm Ali Curi, until next time.