If you enjoy the thrills of trading and are fully aware of the risks involved, then treasury/ capital markets should be your choice of career.
This is the division where financial products such as equities, bonds, currencies and other exotic products (known as derivatives) are traded. These are financial instruments that imply a value to the holder. For example, an equity share implies an ownership in the company while a bond implies that you have given debt to the company.
Institutions that mainly deal in these markets are banks (such as HDFC Bank, ICICI Bank, Citibank, SBI etc.) and brokerage firms (such as India Infoline, Motilal Oswal, Anand Rathi etc.). These players are on the ‘sell side’ as they sell financial services.
You may be aware that if you wish to buy foreign currency for travelling abroad, you cannot buy the currency directly from the market.
You have to go through an authorised dealer of foreign exchange. Similarly, as an individual if you wish to buy or sell stocks, you have to go through a broker who is authorised to deal in stocks.
Even corporates — exporters and importers — who need to sell or buy foreign currency, can do so only through an authorised dealer.
Other large players in these capital markets are Mutual Funds (such as Axis Mutual Fund, ICICI Pru, Templeton etc.) and insurance companies such as LIC. These players invest money collected from individuals into these capital markets. These participants are on the ‘buy side’ as they buy financial services from the ‘sell side’ participants.
Roles & responsibilities
The roles in these institutions can be broadly classified into Front office, Middle office and Back office roles.
Traders and Sales people are part of the front office. Traders are involved in evolving trading strategies and executing trades on their own behalf or for their clients. The former is called client trades and the latter, proprietary trades.
This involves quick decision- making skills and the temperament to withstand the ups and downs in the market — essentially the ability to bear losses. This is not for the faint hearted.
The sales people interact with clients and take orders from them. They also advise their clients on the trades to be undertaken based on market conditions.
For mutual funds and insurance products, the sales activity is outsourced to a group of distributors or sales agents.
The sales role requires good communication and customer interaction skills, and the ability to understand customer needs and their risk profile.
Research analysts and risk managers are part of the middle office. This is a great choice for Chartered Accountants.
Research analysts evaluate investment opportunities and provide input to the front office. This requires good analytical skills and the ability to interpret data and pay attention to detail.
Risk managers must ensure that the front office does not exceed or violate the trading restrictions imposed on them. This could be in the form of loss limits or trading volume limits.
Limits are imposed after taking into account potential market scenarios and movements.
It involves a lot of statistics, mathematical modelling and simulations. Given the increasing focus of regulators on managing risk, this division is a key responsibility in an institution.
Finally, if you are in operations in the back office, you will be involved in the entire process after a stock, bond or currency transaction is done. This includes trade confirmations, payments, reconciliations etc.
This involves the ability to pay attention to detail, and a systematic approach to prevent any errors that may result in losses for the organisation. Again, a great place for Chartered Accountants.
A professional degree like an MBA or CA, is usually a must, especially for a managerial role. It is a good idea to enhance your CV with the necessary training and an industry recognised certification. A well established player in this field is the NSE (www.nseindia.com) with their NCFM certifications. A relevant one is on Market Risk (http://www.nseindia.com/content/ncfm/ncfm_mkt_risk.htm)
A good certification & e-learning program covering all three financial markets (stocks, bonds, currencies) is also available at FLIP (http://www.learnwithflip.com/buy-now/277-treasury-and-capital-markets.html?page=shop.product_area_dtls&sef=c)
Indian Institute of Capital Markets also offers a one-year full time course on securities markets (http://www.utiicm.com/Smp/prospectus_09_10.asp) .
As always, I hope you found this useful – keep your comments coming in!