While the UK Government's Foresight panel, which was assembled to study the implications of high frequency trading (HFT) on the economy, said the number of human traders employed in the financial markets is set to fall dramatically over the next ten years, I wouldn't write off all front office traders just yet. Even the best algorithmic trading set-ups need people with front office P&L responsibility to actually have a view on the market, to set the parameters and oversee their algos activity. It is important that someone owns the responsibility of ensuring the right practices are being followed. Granted, we can expect inventory and market responsibility for individual P&L owners to broaden given machines' ability to cope with more, and, as a result, there may be less traders on a given sector- or market-focused desk. However, the future will certainly not be empty trading floors.

The reality is that traders with knowledge of their markets and the right mindset to trade each day will evolve in line with the growth of machine capability. An e-trading maturity model looking at product type would suggest traders in vanilla markets will cease to be actively involved in each and every trade. Instead, they will move to controlling a holistic view of their risk, letting the machine handle the minutiae of individual trades in seeking to accomplish its human-fed goal. This isn’t a massive leap from what's been going on over the past ten years with algo and retail desks, but for structured and complex products, which carry huge risk, that's still quite a long way off.

The observation that Dodd-Frank, and other regulations mandating electronic execution, is pushing the swaps markets in the direction of machine-only execution is right in one sense. Participants wishing to continue trading are now forced to build and use e-trading infrastructure which could ultimately scale to support that vision – evolving just like cash markets which are becoming primarily electronic. But, in some of these markets there really is a lot of infrastructure to build first; from real-time client pricing to risk management, including pre-trade consideration of clients’ ability to clear the trade they are requesting. In addition, once critical trade-level focus to clear completes, the financial need to optimise collateral on a portfolio-wide and potentially cross-product basis is a real requirement that will establish new trading roles in collateral trading and collateral optimisation at the sell-side.

Does the increasing head of steam from buy-side about the co-existence of HFT in execution venues indicate that a machine-only future is not perceived as a positive outcome? Could this lead to regulatory direction constraining types of activity in specific execution venues? It's increasingly clear that one size does not fit all in terms of market operation in any market. So, will we see capital markets fragment further in order to best serve different client types and product types? Is it a possibility that machine-to-machine superhighways will be established for those in the technology arms race, and separate, "safer" B roads will operate for real money and investment business? On the plus side for the regulators, specific rules about the type of activity allowed in a venue will make each venue, and any interoperation it has with other venues, easier to navigate, and of course to regulate.

It’s clear that the next ten years will dramatically change the trader’s role – and fundamentally change the trading landscape. There may well be a decrease in the number of humans required to trade particular markets, but new opportunities will also arise, so trading as a whole will not become a machine-only role. While there are certainly still better controls required to constrain the scope for human rogue trading, and these will be machine enforced, at this point it’s obvious that any attempt to leave the machines in control without any human interaction will lead to some pretty strange results- have you seen these AI robots interacting? http://www.youtube.com/watch?v=invgqeawT0Q 

David Holcombe is a specialist in trading at Rule Financial