‘Paralysing volatility’ means trouble for Wall Street giants

NEW YORK: There’s plenty of volatility, but what happened to the volume? From stocks to currencies and bonds, the upswing in turbulence to start the year is chasing all but the bravest traders from financial markets.

Despite the recent rebound in US equities, volume in the S&P 500 Index is down 23%. Speculative bets on the direction of currencies have also dropped to the lowest in two years, while average daily trading among dealers in US Treasuries is close to a sevenyear low.

Worries about the outlook for the US, Europe and China, as well as mixed policy signals from central bankers around the world, have all contributed to what UBS Group AG chief executive officer Sergio Ermotti called a “paralysing volatility” that’s scaring away clients and caused industry-wide trading revenue to tumble to the lowest since 2009. Yet in some ways, it also underscores the changing nature of the market itself.

Big banks have cut back on trading as post-crisis regulations like Dodd-Frank and Basel III force them to take fewer risks, particularly in fixed-income. Last year alone, Wall Street eliminated more than 20,000 jobs, with trading desks bearing the brunt of the cuts. And while automated traders have swept in to fill the void, some say they’ve made markets more prone to sudden shocks.

Investor concern over the state of the global economy is adding to “the structural pressure that’s been hurting banks for the last few years,” said Paul Gulberg, a banking analyst.