There’s a very good piece over at The Globe and Mail that talks about the recent deregulation of the bond market and how it has affected the profitability of bond traders.

“Technology took a lot of the margin out of the business,” said Richard duBusc, a Credit Suisse banker who started working on Wall Street 40 years ago when the NYSE closed on Wednesday afternoons to catch up on its paperwork. “Is that good or bad? It’s bad if you’re losing your job. It’s good if you’re paying a tighter bid-ask spread.”

But is it technology or deregulation aided by technology that has caused this to happen? It seems that the financial gains in bond trading had less to do with lack of inherint technology and more to do with secrecy. I guess you can argue that technology enabled the federal government to insist upon a more transparent system that would have been more difficult to provide in previous generations.

he U.S. Securities and Exchange Commission began to break down the secrecy of the market in 1992 because of concern high-yield, high-risk bonds were being sold based on inside information about future takeovers. Former SEC chairman Richard Breeden’s probe into junk bond trading led to the creation of the Fixed Income Pricing Service.

Arthur Levitt, president Bill Clinton’s choice to succeed Mr. Breeden at the SEC, wanted a database to collect the prices of trades on all registered corporate bonds. That system, now operated by NASD, posts prices 15 minutes after trades occur.

The system, called the Trade Reporting and Compliance Engine, is known by its acronym, Trace.

I remember attending a lecture two years ago by an ex-bond trader turned corporate finance trainer at a major global investment bank. He said at the time that if you are a bonds trader and aren’t willing to change with the times and learn to trade other instruments that you’ll be out of a job. Technology and trading can blur the lines at times, but clearly trading requires an edge and a much different mind than a pure technologist, so I can’t really judge what it would be like. I can see years in advance when a language like C++ is destined to become niche and easily prepare for a transition. Financial markets are different beasts however:

One-quarter of all corporate bond traders, analysts, brokers and salesmen have lost their jobs in the past two years, according to Michael Karp, head of Options Group, a New York-based executive search and consulting firm.

One of Mr. Seifer’s former employees, Bill Fecci, who turned in his carpenter’s union card 10 years ago to become a corporate bond salesman, is back to hanging sheetrock on weekends to make ends meet.

The 40-year-old broker at Seidel & Shaw LLC in New York says his job on Wall Street will be eliminated by the end of the year.

“The future of this business is bleak,” Mr. Fecci said in an e-mail from a building site in Staten Island, N.Y. “Your opponent basically knows your cards and you basically know his. You don’t win very much, nor does he lose very much, and the exchange goes on without a net winner.”

I still suspect that technology will create more trading opportunities in the end than it will destroy, but it will always be a hard thing to truly measure.