Best Execution 10th Anniversary : Alexandra Foster

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October 17, 2018

Global GM, Head of Insurance, Finance, Payments & Post Trade Sectors & Products at BT

Tell us about your career journey? Was this the field you had intended to go into?

Finance has long been an attractive option for me due to my passion for mathematics. I originally had my eyes set on becoming an actuary, having studied actuarial science at university. However, after undertaking work experience in investment actuarial work, I became increasingly intrigued with the idea of becoming a trader.

As a result, I decided to start my career as a sales trader at Paribas, followed by ING Barings and then Macquarie. In 2006, I joined the Equities & Derivatives division of BNP Paribas with a specific remit to build and run the Global Execution Services (GES) product line within the UK and Europe. From 2009, I became an MD of sales at Instinet before joining BT’s Global Banking & Financial Markets division in 2011.

At BT, my role has developed over the years. Initially, I focussed on enabling fintechs to scale up and deploy their tools to the benefit of larger financial institutions. As these fintechs have matured, my focus has moved onto helping insurtechs develop similarly. I continue to love growing smaller firms by linking them with global ones.

How have things changed over the past ten years in terms of diversity and career progression and what does the industry need to focus on today?

Over the last ten years, I have seen equality and inclusivity improve significantly in finance. The number of women working on the trading floor alone, plus the number of female directors, has grown rapidly. The role of business in pushing for change has been crucial. For example, BT set a target to ensure the number of women it employs in senior management grows from 27% in 2017 to 40% by the end of 2020.

However, one particular area that needs to be addressed is the number of women in education participating in STEM (Science, Technology, Engineering and Mathematics) subjects. New technologies underpin every aspect of our economy, so it is critical that more women are encouraged to take STEM subjects at school and beyond. At BT, we hope to support educational change through initiatives such as ‘Step into STEM’ and ‘BT TechWomen’, which are designed to increase the number of women in tech. Going forward, more industry efforts will be needed to bolster the number of women in finance and to advance gender diversity.

What lessons have been learnt and how can managers drive change and retain people?

Encouraging debate is essential to promote change around issues of gender diversity. In addition, it is up to individual firms to take proactive steps to deliver change across organisations.

The best way to promote staff retention is, in short, training and more training. Within BT, this begins with training for graduates and new recruits at entry-level. However, it is crucial that training continues, with firms building a culture that fosters a thirst for knowledge. This can involve specialised training in technical matters, training for emerging leaders, or even training in soft-skills such as methods of influencing people. Overall, this approach will produce a more-skilled workforce that knows it is valued by its employer.

©BestExecution 2018

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Best Execution 10th Anniversary : Rebecca Healey

By

Ian Rycott

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October 17, 2018

Head of EMEA Market Structure & Strategy, Liquidnet

Tell us about your career journey?

My original career plan was to join the Foreign Office but I needed to work during the summer to pay for my degree. Temping for the emerging markets desk on the trading floor provided the diversity of culture and language that interested me. Once qualifying as a trader, I realised that the role of the trader was quickly evolving and becoming much more reliant on advanced technology and automation; so I switched direction to work on selling trading technology rather than trading myself. Moving to the Middle East threw up the next challenge as there was no real electronic trading to speak of at the time, so I switched tack again to write financial services briefing notes for ministers and business leaders for UKTI in Bahrain. Returning to London enabled me to combine the different skill sets from the various careers I had had to date by focusing the role technology continues to play in the evolution of financial services and its impact on market structure.

How have things changed over the past ten years in terms of diversity and career progression and what does the industry need to focus on?

After my first son was born, I decided to work part-time; it took considerable time and effort to convince my then manager of my continued commitment to my career despite working a four-day week. While some employers today are getting better at understanding that the most committed employees are those who work for companies who offer the right work/life balance – there is still some way to go.

The financial services industry has evolved over the last decade with the introduction of technology and the skillsets required have changed as a result. Managing this change requires individuals who are capable of challenging the status quo, who think and behave differently to the traditional alpha male and can act in a more collaborative and communicative manner to move the industry forward. The industry today needs to broaden its approach and focus not only on better opportunities for working mothers, but also for all individuals irrespective of gender, sexual orientation or age.

What lessons have been learnt and how can managers drive change and retain people?

Putting the theory into practice is where it gets tricky, but technology can be a huge enabler in driving change in financial services. The way we communicate and share data also facilitates greater collaborative contributions from a wider group, including those who work part-time or from home – all of which leads to a more diverse workforce capable of greater creative thought. As careers in the future will either be augmented by machines or by those who inform and teach machines, this matters. Increased use of data and analytics improves speed and efficiency in day-to-day roles, freeing an individual’s time for tasks requiring deeper thought. This not only provides opportunity for individual career development but can lead to changes in direction for the firm and the industry overall. As the global financial services industry continues to evolve, the faster a firm can embrace the benefits of technology and deep learning in the digital age, the more successful it will be at driving change and retaining their employees in the process.

©BestExecution 2018

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Best Execution 10th Anniversary : Cathy Lyall

By

Ian Rycott

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October 17, 2018

Co-Founder, Seismic Foundry

Tell us about your career journey? Was this the field you had intended to go into?

I had never considered a career in Capital Markets. I did my BA in Political Science and English Literature at The Australian National University after swapping away from Economics and decided at the end I would go for a job in Foreign Affairs as I loved meeting new people and travelling. I was accepted and deferred a year to travel around Australia, ending back in Sydney for the last 4 months where my boyfriend was a fixed income bond broker. He encouraged me to get a job as a ‘Futures Broker’ as we would work the same hours, instead of waitressing those last 4 months before heading back to Canberra. So I met him in the pub that evening and he introduced me to several futures brokers and one offered me a job starting the following Monday.

That first day was Monday 19th of October 1987 (Black Monday) and I was thrown in the deep end on the broking desk and then eventually down to the open outcry trading floor, where there were very few women traders or brokers. I was completely out of my depth and it was incredibly busy but I managed to take on everything that was thrown at me and I decided to stay. I loved the intensely busy periods on the trading floor and the very smart and humorous people who worked there. Many were generous with their time and advice and I managed to squeeze in an MA, while still working full time. We worked shoulder to shoulder on the floor and after 12 years many of my colleagues were like a second family.

From there I was able to take the step across to management roles in Exchanges which took me around the world with the CBOT, CME, ICAP, BM&F Bovespa, Nasdaq NLX and Curve Global. Trading taught me resilience, self-awareness and the ability to make quick decisions amongst many other things – and I got the chance to work all over the world. These skills gave me the courage to set up my own consultancy business in 2009 at the nadir of the global financial crisis and to also go after NED Board roles. This gave me flexibility with working hours and enabled me to spend time with my twins when they were born in 2013.

I now work in Fintech investing in early stage capital markets firms and every day I am astonished by the lack of diversity in the space. I am using my past experiences to have meaningful discussions with Founders on what good governance looks like, why diversity matters, and what they can be doing in those very early stages where every penny counts to set their business on the path to success.

Looking back, how have things changed over the past ten years in terms of diversity and career progression and what does the industry need to focus on today?

When I started in markets there were very few women in front office roles and on the trading floor particularly. Most employees were put forward by existing floor traders so the pool was drawn from a small circle of mostly all male (and pale) private schools.

There were a few exceptions (me being one of them), but it was also a meritocracy and if you could prove you could do the job you were rewarded. It was very hard to hire female traders in the 80s and 90s but the advent of electronic trading moved the business upstairs into offices and volumes exploded. This led to more diverse roles associated with trading and more women came into the business via legal, finance, compliance and (rarely) technology. The UK lagged behind Australia and the US on the topic of diversity but the last 10 years has seen more avenues open up for women to move through the ranks into executive management and onto boards.

There has never been a better time to be a female in business. It’s never been easier to open up your own company and consultancy gigs are commonplace. There is a lot more support for women, BME, LGBT and ethnic minorities both within organisations and externally and efforts such as the 30% Club, The Gender Pay Gap Review, DiverCity Podcast and ‘Returnship’ programmes are openly discussing the data and helping navigate challenging issues such as representation on boards and getting your career back on track after stepping out to have a family or looking after sick or ageing relatives. Despite all this I still hear stories almost daily in financial services that shows we still have a long way to go. It is an undeniable economic fact that diversity in your teams, your executive management and on your board are accretive to the P&L.

What lessons have been learnt and how can senior managers, but in particular middle managers, drive change and retain people?

The sticky middle is where much of the diversity coming through the ranks starts to reduce significantly, and without this pipeline there will be a smaller pool to choose from at the executive level. Change in existing structures can only be driven from the top. Exec teams need to speak about and act consistently on their diversity and inclusion policies, and the values and ethics of the organisation should be front and centre in all management and compensation discussions.

Separately the younger generations coming through the ranks are voting with their feet if a company does not offer a good culture. Tone from the top matters but so does work environment. Compensation plans at middle management level should include a set of hard diversity & inclusion (D&I) KPIs that bonus payments and promotions are attached to. Once a team’s bonus is withheld for failing to meet them the discourse internally will start to quickly change. Maternity leave and other extended leave should be paid fully, including pension plan payments, and parents/carers should be able to come back to their careers with extra support from the company without being penalised.

According to the World Economic Forum, 2095 is currently the year when women will be paid the same as men. Technology is disrupting financial services in many areas and if we can’t change the current structure by 2025 many traditional financial institutions will find the best talent is choosing to go elsewhere. If we improve culture, make diversity a core goal of the company and put it front and centre of every earnings call, P&L discussion or compensation plan then we will start to see meaningful change.

©BestExecution 2018

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Best Execution 10th Anniversary : Vicky Sanders

By

Ian Rycott

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October 17, 2018

Co-Founder, RSRCHXchange

Can you please tell us about your career journey? Was this the field you had intended to go into?

As a teenager, I wanted to be a sports agent but when my university didn’t offer that programme, I started to look at other careers. A fateful email from an alumnus on his bank’s diversity initiative invited women in sports interested in living in London to an information session about trading. I didn’t know much about trading but figured a 3 for 4 match was a good starting point. By the end of the hour I was hooked and had an interview for a summer internship. I loved the environment on the trading floor, but more than a decade later I took another risk by quitting my job to co-found my own company, RSRCHXchange.

Looking back, how have things changed over the past ten years in terms of diversity and career progression and what does the industry need to focus on today?

There have been diversity programmes for over 10 years at the firms where I worked. While those helped progress diversity, what has changed more recently is that the industry has had an ‘honesty moment’. Admitting that women are paid less than men is a significant step forward. The pay gap and the overall progression of diversity will stagnate unless senior management and boards are more representative. For women, in particular, it’s essential to offer career support and formulate a longer term plan to bridge those key years when women have children. Without that, I don’t see how women can be fairly represented in management and board rooms.

What lessons have been learnt and how can senior managers, but in particular middle managers, drive change and retain people?

Most banks are gender balanced at the junior and associate levels but gaps remain at senior management because of the higher propensity of women to leave the industry mid-career. What can be done to retain more women? Longer term career planning within a firm and having a champion are things other women have told me were key for them personally. The other, slightly more provocative, solution would be to centralise the cost of women on maternity. For a small team, maternity leave can make a big dent and this would free up managers from the short term pressures while also involving the firm directly in retaining female talent.

©BestExecution 2018

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Best Execution 10th Anniversary : Julia Streets

By

Ian Rycott

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October 17, 2018

Julia Streets, CEO, Streets Consulting

Which came first, the buzzword or the bandwagon? I’ve always argued that fintech innovation was born in capital markets and it’s been a fascinating ten year ride watching new business models, markets and technologies challenge the financial markets. Under the ever-watchful eye of the regulators, each and every asset class has been challenged like never before.

As the technology has driven change, so too has the demand for data scientists and analysts, blockchain coders and programmers, not to mention cyber-security experts. Competition for technology talent has never been more fierce.

Industry conference floors used to be stalked by heads of trading and divisional heads; today they’re networking with senior tech execs in tow. New models of service continue to emerge. Extending beyond simply ‘software as a service’, these now stretch into ‘AI as a service’, ‘front-to-back platforms as a service’, and even ‘cyber as a service’; many functioning in the cloud as firms embrace the data processing performance that industry innovation now demands.

It is all about gaining that last mile, competitive edge. Business strategies, corporate alliances, embracing innovation and delivering highly effective transformational change as legacy is carefully and emphatically laid to rest.

Against this backdrop, the theme du jour turns to talent, recognising that high-performing teams make all the difference. Ask any agile tech team; the key to success is placing a variety of skills around a central problem in order to build, challenge, test and improve. If your people are too similar, the result will be biased and skewed. This is supported by so much evidence to prove that diversity ultimately delivers a better result.

I continuously hear about the industry’s relentless efforts to find and retain talent, particularly young rising employees, mindful that the firm just down the street, or corridor, is poised to poach. Read the Brexit headlines about the UK’s appeal as a place to work and we must also ask ourselves whether the financial services industry appeals to the much-needed talent, or is it being lured by overtures from other sectors or put off by its entrenched culture and working structures.

I believe that diversity and inclusion can deliver the talented, high-performing teams that the financial services industry needs. And I’m not simply talking about gender. This also includes age. What about ethnic minorities, LGBT talent and disabled talent?

This autumn marks another anniversary, the first anniversary of DiverCity Podcast, talking diversity and inclusion in financial services. In each episode we shine a light on positive areas of progress, call out areas requiring further focus and offer plenty of ideas designed to help drive change. We have interviewed many of the most senior industry leaders to explore how they encourage greater diversity into the industry, each keen to gain a competitive edge.

Looking ahead to the next ten years, I strongly believe organisations destined for greatness will reconsider their organisational structures and cultures. It takes courage to take a long, hard and challenging look, and it is encouraging to see many on this road, mindful that their ability to attract, hire and retain talent will ultimately deliver that necessary competitive edge.

©BestExecution 2018

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Best Execution 10th Anniversary : Seth Merrin on innovation & philanthropy

By

Ian Rycott

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October 17, 2018

Seth Merrin, founder and CEO of Liquidnet, explains how he has leveraged opportunities over the past ten years and more, and how he encourages a strong culture of innovation and philanthropy

Seth Merrin, president, chief executive officer and director, is an entrepreneur, global business leader and philanthropist who has won several awards for his innovation and influence in the financial services industry. He founded Liquidnet in 1999 and prior to that was co-founder of VIE Systems Inchis, a financial services application integration software company. The first company he established was Merrin Financial, in 1985, launching the industry’s first order management, compliance and electronic order routing systems for asset managers which was acquired by ADP in 1996. Prior to 1985, Merrin was a risk arbitrage trader for CIBC Oppenheimer.

Can you provide a bit of background about how you started in the industry and how things have changed?

My first company was Merrin Financial and the aim was to change the role of the trader, who at the time behaved more like a clerk. They had more of an administrative role for execution because trading was a manual process which used paper tickets which were then entered into back office systems. We invented the order management system (OMS) in 1987, which enabled portfolio managers to input their buy and sell orders directly into a computer programme which then connected to their traders. Today, the OMS is now adopted by just about every investment manager around the world and it opened the door for electronic trading globally.

We started Liquidnet in 2000 and at the time the only way institutions could trade a block was via a human being, but the internet was beginning to change the business model. Retail brokers such as E-Trade and Charles Schwab were enabling retail traders with information and technology that put them on par with professional traders. Meanwhile, institutional traders were still picking up the phone. I believe that one reason they were reluctant to change is because once you introduce technology it reduces the mystique of Wall Street. However, it was an inefficient way to trade so we decided to link all these institutions together and launch a buyside-only platform for anonymous block trading which meant they did not have to go through the sellside to access liquidity. We have since grown our member network broadly to 46 equity markets.

You had a particular culture that you fostered, has that changed since the financial crisis?

The biggest issue of building any company is finding the right people and developing the right culture and that has not changed. In addition to having to be smart, they have to be able to fit into the culture of our organisation. We are very particular about who we hire. Our attrition is less than 5% a year which is a very low turnover rate and our offer acceptance rate is 92%. When we started out we had titles but we eliminated them because we wanted everyone to have a voice. When companies have titles, people often aspire to the next title. Rather than aspiring to having the next title, we wanted them to aspire to having greater responsibility. We continue to be strong believers in continuous learning and development and to that end launched Liquidnet University – which partners with New York University’s Stern School of Business to offer courses and training.

There has been the so-called tsunami of regulation after the financial crisis. How has that impacted your business?

It has been a significant change. Dodd-Frank in the US and Basel III constrained the capital usage of banks which in turn changed the entire market structure of fixed income markets which had been entirely facilitated by dealer capital. Most of the money they had made was in fixed income but the market structure for trading bonds disappeared. This created an enormous opportunity for us to create a centralised order book for corporate bonds in the US and Europe which are two of the largest markets.

The other trend that we are seeing is a move from active to passive investing and questions are being raised as to the value of an active manager. As a result, there is a need for active managers to change their processes and look for alpha in different segments of the market over the short as well as long term. Technology can help them do that in a much more efficient manner.

And to that point, can you explain more about your new Virtual High Touch service?

Under MiFID II, as well as other worldwide regulations, clients have told us that they spend 50% of their time searching for liquidity while the other 50% of that time is spent on administrative and compliance-related matters. Our mission is to leverage technology to better source liquidity and streamline as much of the compliance and administrative work as possible and to provide intelligence to help generate alpha. Virtual High Touch (VHT) is the next stage of the trading technology evolution and is an integrated solution that intelligently sources liquidity via either algorithms or by keeping orders within Liquidnet’s own pool. It also gives traders the right tools and technology like Targeted Invitations which allows traders to source liquidity much more efficiently. Orders are not sent out to the entire trading universe, as technology can help them find where the invitation should go and do it automatically.

The past ten years has seen the emergence of artificial intelligence and machine learning. What are you doing to deploy the technology?

We want to upscale the responsibility of the trader and give them the capabilities and trader intelligence tools to add alpha to the portfolio manager and the firm. We acquired OTAS in 2017 to leverage their AI and big data analytics platform. We recently launched Liquidnet Discovery™, which automatically alerts members when there are events that might influence the liquidity or direction of that order. By integrating it with VHT, it also provides the liquidity sourcing and execution tools that are best suited to take advantage of that information, with an audit trail of decisions made. This gives traders actionable insight on all orders synced with Liquidnet directly without disrupting the workflow.

Philanthropy is an important part of your culture. How has the ethos changed over the past ten years?

Liquidnet’s philosophy is to take on big, difficult problems that most people have avoided in the industry and the same is true for our philanthropy. We do not believe in simply getting out our cheque books but rather in leveraging our best assets for good. Through Liquidnet for Good, we support promising models in education, energy, and food security. Our signature project is the Agahozo Shalom Youth Village (ASYV) in Rwanda. Through healing, education, and love, the ASYV empowers orphaned and vulnerable Rwandan youth to build lives of dignity and contribute to a better world. Through our Liquidnet for Good Fund, we provided seed capital to Ignite Power, a Pan-African developer and financier of safe, clean energy solutions for rural communities.

Finally, we recently launched a so-called “blended finance” pilot programme in Ethiopia to provide low-interest loans to smallholder farmers. We offer a package of drip irrigation, fertilisation, and new types of super seeds combined with expert training to help improve the farmers’ yields and livelihoods. Each of these efforts serves as a demonstration of the effect of mobilizing private capital for public good.

©BestExecution 2018

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Best Execution 10th Anniversary : Peter Randall on innovation

By

Ian Rycott

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October 17, 2018

Peter Randall suggests that the challenge for the financial services industry is to turn customers into its unpaid employees, and offers a practical guide to achieving this.

Peter Randall serves as SETL’s President and Founder he was CEO from 2016 until 2018. Credited with revolutionising the equity exchange market in Europe through the establishment of Chi-X Europe Ltd, Peter led the company’s growth as founder and CEO, from an unknown multilateral trading facility to become one of the top 5 trading venues in Europe by volumes traded. Prior to Chi-X, Peter was COO at Instinet Europe Ltd, and Executive Director of FIX Protocol Ltd. Peter was educated at the London School of Economics and the University of Oxford.

The themes of the past decade continue to play out and still have the power to surprise. Perhaps the most significant theme has been the continued intervention in the market place by regulators. Whilst this is welcome on consumer protection grounds, the net effect on the quality of markets and liquidity will only be seen in the next crisis. It appears that in the interests of making us all safer the regulatory response to the last crisis was to concentrate risk in clearing houses. The assumption being that additional collateral would somehow reduce risk. In real terms increasing the insurance premium doesn’t make risky behaviour any safer.

Central clearinghouses are not the only risk. There are two new major problems, cybersecurity being one of them, which have recently garnered attention due to the interconnection between major payment systems and global messaging platforms. This also signals a key shift in how financial services firms, central market infrastructures and market participants review risks. There appears to be a decisive shift away from the ‘hackathon’, open source, and ‘all will be well’ spirit that previously inspired market participants into a more considered and risk assessed process involving proper due diligence and adherence to standards such as ISO 27001.

The second risk, whilst often unremarked, but seemingly becoming more germane is the thorny issue of behavioural economics in an environment where interest rates, which have been close to zero for the last ten years start to edge up again. It would appear that the future of many of the ‘new economy’ fetishes such as crypto-currencies and ICOs (initial coin offerings) will disappear as fast as snow on a barbeque. The destruction of so much perceived value as participants head to the door will present real matters for policy makers to consider. This is because there is now a large number of participants in various markets under the age of about 33-35 whose ‘base line’ is zero interest rates.

These both interact to amplify the existing and traditional risks that have always existed in the markets around instrument selection, venue stability, financial probity and regulatory imprimatur.

Lessons learnt

The past decade has not been without its own highlights and needs to be set into its historical context to fully understand its significance. Essentially, it can be observed that about every decade something new has come along in markets and market technology that has changed both the economics of the market and its practices. In the 1970s the story was SWIFT, which revolutionised the interbank payment practices of the industry and offered the opportunity to move away from tested telexes and associated processes. During the 1980s the principal innovation was the dematerialisation of many traded assets away from paper and onto electronic ledgers. The lacuna in that exercise was that nearly every asset was recorded in a different way on many different ledgers and standards took time to emerge. The final decade of the twentieth century saw the conception, establishment and operation of many of the leading central market infrastructures such as the DTCC, Euroclear Bank and CLS.

The first decade of the twenty-first century could be characterised by the technology that was deployed into the front office processes of the broader market. This was enabled in part by the rapid take-up of FIX Protocol and the ability of various participants to be able to connect to counterparties electronically in a conformant way. Perhaps the most inspiring example was the foundation in May 2000 of a company in Atlanta Georgia, which less than 150 months later took over the venerable and storied NYSE. Of course ICE is the stellar exponent of combining technology, customer service and connectivity.

On the basis that every decade or so sees a new focus emerge, it would appear that there is a strong case that the second decade of the twenty-first century will see a shift from improving the process flow of the front office to reforming the terrible mess that is ‘post-trade infrastructure’. Complex and expensive siloes and monopoly or quasi-monopoly providers vie to introduce complexity, cost and confusion. This is then made even more significant by the introduction of a robust regulatory regime which is not averse to fining market participants for compliance breaches that in many cases are a function of the very complexity that the current system exhibits. Combine this with the global requirement for increased collateral and pressure on capital utilisation and you have an almost perfect storm. Notwithstanding that much of this exercise just creates bigger and more concentrated risks, mainly because they have shifted from bank balance sheets to market infrastructures.

Add together the potent mixture of regulatory fiat, further systemic complexity and technological innovation and it becomes clear that the resolution of many of the post-trade infrastructure problems will assume increasing importance over the next part of the cycle. Many market participants are looking to technology solutions to help ameliorate these dependencies. The most frequently mooted are those that are predicated on financial services finally embracing the digital promise and turning their customers into ‘unpaid employees’. Blockchain has been at the forefront of this evolution.

When we started SETL these themes were uppermost in our minds: speed, capacity, cyber-security and privacy. We saw them as the minimum requirements for the successful deployment of infrastructures needed to dis-intermediate and disrupt the incumbent providers. We strongly believe in the need for permissioned ledgers as opposed to the ‘in the wild’ services promoted by other providers. This is because regulated financial market participants have to be able to do KYC (know your customer) and AML (anti money laundering) properly, and need to satisfy themselves as to the identity of their counterparties.

We also believe that the need for an external agreement covering all the operations of the system and the service is essential. That is because resolving disputes between market participants will ultimately be a job for the lawyers who opine as to the meaning of contracts not to the effects of ‘valid Java commands’

To the commentariat – that describe block chain as a solution in pursuit of a problem – there is only one observation. The problem is the ‘cost’ of the current system and just as previous technological imperatives – as detailed above – reduced complexity as well as cost, so blockchain will be added to the roster that will make a real difference to the operation of the global financial markets.

©BestExecution 2018

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Best Execution 10th Anniversary : Haytham Kaddoura on partnerships

By

Ian Rycott

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October 17, 2018

Haytham Kaddoura, CEO of SmartStream explains how the financial crisis changed the vendor model.

Haytham Kaddoura has been the CEO of SmartStream Technologies Group since May 2016 after serving as a member of its Board of Directors since 2007. He started his career working with leading management consulting firms, including; Accenture, Booz Allen and Hamilton, PricewaterhouseCoopers and BearingPoint. In early 2004, he joined a Dubai Government initiative to establish the Dubai International Financial Centre (DIFC) and subsequently helped found DIFC Investment, where he managed part of the quasi-sovereign wealth fund’s portfolio. Kaddoura holds a Masters Degree in Finance and International Business and a Bachelors Degree in Computer Sciences.

What has been the impact of the collapse of Lehman from your perspective?

It has had a profound impact on the financial service industry in terms of regulation and technology. A vast number of new rules have come out over the past ten years covering a wide range of issues including consumer protection, segregation of client money, greater transparency of fund structures, and others. Ten years ago it would have been normal to allow for three or four days to get the liquidity reporting from the diverse geographies of a global institution. There is no way that would be conceived today. It has to be as real time as possible. However, banks at that time were flush with liquidity and were under no real pressure to cut costs or streamline operations There had to be a real change in mind-set and this led them to look for the first time at utilities and shared models as well as new technology.

It has disrupted the IT budgets of most financial institutions. Although there was a lot of effort devoted to internally driven initiatives and significant investments in technology, there was no real time pressure and the attitude was very wait and see. However, after Lehman there was a realisation that banks could not just hold things together with glue and that you needed much more than just a band-aid fix. It meant implementing real systems and infrastructures that could meet the operational requirements in an efficient manner. This was and still is one of the biggest challenges mainly because many institutions including some tier 1 banks are still running processes on pre-Lehman legacy systems.

How have banks been addressing this challenge?

We work closely with banks to convince them that they needed to upgrade their existing cash and liquidity management, reconciliation and reference data systems and implement technology that could be used for the long term. This also entailed changing their perceptions about IT vendors and how they operated. It was no longer about us saying this is what you need and handing it over but more about creating a strategic partnership. It has also changed the technology acquisition process. In the past around 40% of the negotiation was over price versus value but today the process is being driven by end users who want to understand and be comfortable about how the technology works and the functionality it can bring. They want much more detail and solutions in action before making any decisions. What has your experience been with partnerships?

When we first set up The SmartStream Reference Data Utility (RDU) with three top tier banks (Goldman Sachs, JP Morgan and Morgan Stanley) it was a real eye opener in terms of how the banks came together to share the value proposition with a vendor. They pretty much drove the roadmap for the reference data business in terms of what it delivered, the asset classes services to be covered, how to raise the profile of SmartStream RDU and the required investments in the expertise. Their input was invaluable. What we found is that often they did not necessarily want to reinvent the wheel but wanted standardised solutions and processes that could leverage economies of scale.

Big data has become a major theme over the past ten years. What have been some of the biggest challenges?

The wealth of information going through financial institutions continues to grow in tandem with the advances and spread of technology. The ability to make sense of the data was originally perceived as a ‘nice to have’ by many institutions and was mainly driven by the rollout of CRM systems and the desire to better serve clients. This soon evolved to be an existential prerogative for many financial institutions. Today, the ability to understand and leverage big data is critical to any bank’s ability to preserve its competitive advantage, understand its clients’ needs, and address risk management and regulatory and operating requirements. The importance of reliable and clean data is paramount to any financial institution. High quality data is also a prerequisite for any institution wishing to leverage Artificial Intelligence.

It may have started out as hype with several initiatives that did not have real life uses but that is changing. AI is heavily dependent on the data coming in and while in the past, some banks were hesitant releasing their data there is a realisation they need to contribute if they want to benefit from AI. This will require a retooling of the skillsets of financial services and will have a massive impact on the overall educational system in terms of offering courses on these subjects.

How have these trends impacted SmartStream?

Our solutions have naturally evolved over the years to handle the greater processing powers and the transaction volumes at financial institutions. This evolution resulted in our solutions’ ability to analyse and reconcile millions of transactions a day, to seamlessly identify exceptions, and to disseminate the required information to its users. Our new Artificial Intelligence offerings, will further enhance our solutions’ abilities to address the above, and provide the machine learning capabilities that would flag data anomalies, and learn what mitigating actions users undertake.

How do you see the industry developing in the future?

I was at a conference recently and there was a great deal of buzz about several new initiatives. When you see a seasoned banker talking to a 24 year old entrepreneur it is a good indication of how things have changed over the past ten years. While I suspect a lot of these initiatives might wither away over the coming few years for one reason or another, I do believe that the industry should have a responsibility towards mentoring and nurturing the disrupters. Funding innovation is important, but it is not necessarily more important than supporting entrepreneurs in gaining access to new markets, developing their skill sets, or giving them advice on operational challenges. We work with Overall, I think we will see new and disruptive technology that will continue to fundamentally change the way we work. I wish I had a crystal ball but I am very optimistic about the future.

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Best Execution 10th Anniversary : Robert Barnes on Turquoise

By

Ian Rycott

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October 17, 2018

MiFID I helped open the door to alternative trading platforms, and Dr Robert Barnes, Global Head of Primary Markets and CEO of Turquoise, London Stock Exchange Group recalls the genesis and development of one such multi-lateral trading facility.

Looking back ten years, what do you recall about the collapse of Lehman and its aftermath?

One aspect that stood out during the 2008 crisis, as liquidity dried up in many asset classes, was that cash equities requiring physical delivery, the most regulated of asset classes, performed well from the perspective of trading, clearing and settlement – in fact achieving all-time record values traded.

In particular, our industry innovations of CCP interoperability worked seamlessly throughout the worst periods of the crisis. By the end of 2008, two live implementations were the full working interoperability model of what today are LCH Ltd and SIX x-clear, serving the Swiss and UK markets: the pan European virt-x platform primarily trading core Swiss Exchange blue chips, and London Stock Exchange UK shares and International Order Book Depository Receipts.

Turquoise launched its pan-European offering at the height of the 2008 crisis with just one CCP. Since then, led by UBS MTF adopting CCP user choice in July 2011, many more cash equities platforms have adopted the same to their member firms. Today, the majority of equities trades that happen in Europe are processed via platforms that feature some form of interoperable CCP user choice. Turquoise is among those platforms that offer members one of three – LCH Ltd, EuroCCP NV and SIX x-clear – to consolidate post-trade flow for economies of scale at clearing and settlement levels and provide significant efficiency gains throughout the value chain.

What lessons have we learnt since and still need to learn?

A key market structure insight is that efficient trading requires optimisation of multiple variables along the value chain, including the post-trade model.

Similarly, it is important to remember that introducing barriers to a working post-trade innovation, which like CCP interoperability has taken years for industry members to adopt across countries in Europe, including UK and Switzerland, can significantly reduce efficiency of the ecosystem, impact member functional access, and add material costs throughout the value chain reducing liquidity at trading levels on both sides of that barrier.

What were your key milestones between 2008 and 2018 and why?

While a few of us initiated the idea of CCP interoperability in 1999 – with virt-x being the first implementation in 2003 – it wasn’t until 2012 that it became the rule rather than the exception for post-trade processing of cash equities in Europe. A year later, Turquoise branded its periodic random uncrossing execution mechanism Turquoise Uncross™ – today Turquoise Plato Uncross™ – with analytics firm LiquidMetrix quantitatively measuring the industry-leading quality of execution and low price reversion of the Turquoise innovation.

2014 saw senior management focus more closely on best execution, prompted in no small part by the publication of Michael Lewis’ book ‘Flash Boys’. The topic was raised at a senior industry event in Berlin where a key buyside panel called for electronic block trading in Europe, nominating Turquoise as a trusted partner.

2015 set a new start line for Europe. In January the announcement that the Swiss National Bank was removing its Swiss Franc cap to the Euro caught everyone by surprise. This coincided with the introduction of quantitative easing (QE) in Europe; a consequence of which were negative interest rates in parts of continental Europe, Switzerland and the Nordic region. This in turn ushered in a renewed focus on equities.

Like Japan, which has had almost two decades of extremely low interest rates, much of Europe is faced with an ageing population and an increasing reliance on private sector pensions. With investment returns near to zero, and no short-term prospect of rates increasing significantly, the cost of slippage to the end investor is magnified, hence the focus has to be on trading efficiency to minimise cost and enhance long-term investment returns.

By 2015, buyside asset managers, like AXA Investment Management, BlackRock, Deutsche Asset Management, Fidelity and Norges Bank Investment Management, had increasingly published views about the role of exchanges in well-functioning markets, calling also for innovation in electronic block trading. That year, led by a number of these global buyside asset managers and sellside banks, there was an intensive selection process from 20 firms, which narrowed further to seven, and then to three before Turquoise was selected as the preferred partner for Plato Partnership, a not-for-profit company comprising asset managers and broker dealers collaborating to bring creative solutions and efficiencies to the equities market place.

This led to the launch of Turquoise Plato™ in 2016 in co-operation with the buyside and sellside communities. The effect was to change industry behaviour towards increasing Large In Scale (LIS) orders and trading ahead of MiFID II, and demonstrated how the industry can implement market solutions ahead of prescriptive regulation to deliver the best result on a continuous basis – the very definition of best execution.

Then in January 2018 MiFID II went live, and the adoption of periodic lit auctions added a complementary liquidity channel of execution. With the lifting of the Double Volume Caps on a number of symbols in September and surge in the uncapped symbols in Reference Price Waiver midpoint non-displayed mechanisms, the evidence is clear that periodic lit auctions are indeed complementary and not a substitute for midpoint dark pools. This same surge in continuous midpoint matching of trades in dark pools with size below LIS further suggests that investors benefit from access to midpoint dark pools – otherwise they would not use this channel.

European authorities and practitioners operating in anticipation of, and within the framework of MiFID II, arguably have delivered, on a per stock basis, the best quality suite of execution channels, and thus investing environment, available in any region in the world. Perhaps this is the opportunity for the authorities to remove the double volume caps and champion a full choice of execution channels to maintain the best environment for investors?

How has the buyside/sellside/exchange relationship changed?

With increasing capital charges and a focus on client order handling, fewer banks and brokers are price makers in their own right; most are price takers working client orders. Traditional trading skills have shifted to hedge funds with market making, in particular, resurfacing in specialist proprietary firms.

Regulation has empowered investors with choice, and many more buyside firms are active in shaping market structure today rather than leaving this only to the sellside.

In general how do you see your industry developing over the next five years.

With a macro environment of low interest rates in developed markets likely to persist, the search for growth and liquidity will continue, and the desire to scale more with what infrastructure exists will extend investment workflow increasingly into mid and small caps, into companies from countries that do not have negative interest rates – that is, emerging market companies – and into private companies. These companies should become more visible and integrated into investor workflows for accessing and managing this risk. Settlement and custody should also evolve to better serve international investors seeking a developed-market customer experience in buying and selling exposure, cross border, into emerging markets.

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Best Execution 10th Anniversary : Charlotte Crosswell

By

Ian Rycott

-

October 17, 2018

CEO, Innovate Finance

Can you please tell us about your career journey? Was this the field you had intended to go into?

My career journey was a little eclectic at first! As I didn’t get on my choice of graduate programme, I ended up working in fashion merchandising in Burlington Arcade for a year!

I quickly realised the City was more for me, and started as a temp on the Goldman Sachs equities trading floor (the old fashioned way of starting in the City) before taking a permanent role in European equities. After three years, I moved to the London Stock Exchange and subsequently NASDAQ, covering many different areas but mostly working with technology companies and internationally. I decided to move into Fintech three years ago as I believe passionately in open markets and competition and have always had a passion for technology.

Looking back, how have things changed over the past ten years in terms of diversity and career progression and what does the industry need to focus on today?

So much has changed for the better. Diversity is now on the agenda in every financial institution and there is mostly acceptance that a diverse workforce fosters different ideas and challenges traditional ways of thinking.

However, I’m concerned that we still have not seen enough change at Exco levels and unconscious bias is still deep rooted in many organisations hindering real progress.

Now industry needs to recognise that there has to be a shift change in working patterns and work-life balance. Technology has enabled remote and flexible working and we have to find innovative ways to keep senior women in the workplace and not lose their expertise. Companies need to also focus on inspiring the next generation of young female leaders and encouraging more digital skills.

What lessons have been learnt and how can senior managers, but in particular middle managers, drive change and retain people?

Retention is becoming a significant issue across many businesses. Millennials are helping to challenge the status quo by showing that they are much more willing to move to another company if their voices aren’t heard. This is going to force real change as it is essential to engage with the younger workforce and understand what motivates and drives them. Companies also need to consider offering training of more experienced employees who may be looking for a new challenge, rather than risk losing them. This has the potential to bring in more entrepreneurial thinking within big corporates which should in turn help them evolve.

We are entering a period of significant change with increased competition, machine learning and artificial intelligence. The most successful managers and companies will be those who embrace that change by challenging their own thinking and encouraging their teams to do the same. This in turn will inspire their employees.

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Global GM, Head of Insurance, Finance, Payments & Post Trade Sectors & Products at BT

Head of EMEA Market Structure & Strategy, Liquidnet

Co-Founder, Seismic Foundry

Co-Founder, RSRCHXchange

Julia Streets, CEO, Streets Consulting

Seth Merrin, founder and CEO of Liquidnet, explains how he has leveraged opportunities over the past ten years and more, and how he encourages a strong culture of innovation and philanthropy

Peter Randall suggests that the challenge for the financial services industry is to turn customers into its unpaid employees, and offers a practical guide to achieving this.

Haytham Kaddoura, CEO of SmartStream explains how the financial crisis changed the vendor model.

MiFID I helped open the door to alternative trading platforms, and Dr Robert Barnes, Global Head of Primary Markets and CEO of Turquoise, London Stock Exchange Group recalls the genesis and development of one such multi-lateral trading facility.

CEO, Innovate Finance

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