Institutional Independence for Quants

[Dave Haan]

There is currently movement on the sell-side for quantitative modeling to be configured under a separate reporting line, rather than associated with specific business lines or within information technology.

This is significant, not only as a response to the perception that modelers became captive to business interests, but also in that BFE (before financial engineering) internal research departments were more of a standard within the industry; these were largely folded into biz or tech (or both) during the 90s (partly cost control, partly that internal and external research were mixed and the latter was compromised).

Good news / bad news: while securing the continuing need for quants, it will make any transition into trading more difficult for those who see modeling as a waystation rather than a destination (ntm lower beta).

 

[Subramaniam]

Quantitative modeling might be configured under a seperate reporting line to satisfy regulatory and other requirements. It might be well outsourced to some third party too.

No sell side firm would want to spend on research and make those models public. Anybody in the market will be able to use those models without any R&D spending.

I feel this is how the situation could evolve: you will have 3rd party vendors certifying a sell side firms model output with models that the third party uses. This 3rd party model will be a rough ballpark and will be used for reporting purposes.
The sell side firm will have models more sophisticated that the one the third party uses for thier internal use.

 

[Pulco]

The move from quantitative research to trading will be more and more difficult