Rob Maher : Credit Suisse

By

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June 26, 2008

THE START OF A NEW CHAPTER.

It has been all change at Credit Suisse’ Advanced Execution Service (AES) group. After more than six years at the helm, Richard Balarkas left last year to be replaced by Manny Santayana, previously head of AES sales for the Americas. Meanwhile Rob Maher moved to London only two months ago and plans to leverage his experience in the US into the European markets. He talks to Best Execution about the firm’s plans.

Credit Suisse is considered a pioneer in the execution and algorithm space. Can you please tell me how the business developed?

Credit Suisse’s Advanced Execution Services was launched in 2001 in the US as a result of the changes in market structure as well as regulation such as decimalisation. Initially, the tools we built were for our own internal trading desk but the next year we offered them to our institutional clients. We are now focusing on realising the full potential of our AES product and have access to 60/70 liquidity pools around the globe. We are also growing the brand to include other asset classes particularly foreign exchange, options and futures, along with equities.

Can you expand a bit on your multi-asset class offering?

We have seen tremendous growth in our FX product [AES FX] which we launched last year. Algorithmic trading into foreign exchange represents a significant shift in the institutional mindset. FX is a very different marketplace than equities in terms of risk and price, and the majority of participants are not profit seeking. We have applied the same principles we have used in equities – anonymity, efficiency and smart tools – to find the best liquidity. Although you would expect the world’s largest marketplace to be very liquid, it has many different players and at times can actually be quite a fragmented market. The product enables clients to vastly increase the efficiency of their trading.

We went live with our AES Futures and AES Options products two years ago and we have seen and expect continued growth. Both offerings are available with a full suite of algorithms and analytics on more than 25 exchanges globally.

Do you think that Europe will follow in the US footsteps now that MiFID is a reality?

I would say that Europe is where the US was about two to three years ago. It has been about six months since MiFID was launched and all the telltale signs are there in terms of fragmentation. I think there will be a proliferation, and by the end of the year we could see five to 10 different multilateral trading facilities (MTFs) and then like in the US, there will be a shakeout. However, I do not think that Europe will experience the same type of severe fragmentation as the US. The markets here went electronic about ten years ago and they were more efficient than when the changes took place in the US. I believe the main differences, as well as challenges, in Europe are the lack of a centralised clearing facility and a single consolidated tape*. For example, without a tape, it will make it somewhat problematic for efficient price discovery across markets.

What lessons have you learnt from the US that you will be bringing over to Europe?

Part of the reason I am here is due to my experience in the US. Credit Suisse’s philosophy in the US is that we go out and talk to as many people as we can, whether it is counterparties, alternative trading platforms or investment banks. The same principles apply here. We are neutral as our goal is to find liquidity wherever it resides. This is why you have seen us striking alliances with alternative platforms such as Chi-X and Turquoise. Before we decide, though, we conduct rigorous due diligence and look at the technical aspects, pricing plan and whether we believe the business will fail or succeed in attracting liquidity.

The AES department is very much associated with Richard Balarkas, who has subsequently moved to become chief executive of Instinet. What, if any, impact has that had?

AES has never been about just one person. It has always been a team effort. We have been raising our profile to assure clients that nothing has changed and that we will continue to deliver the same standard of products and services they have come to expect. We have been recognized for our groundbreaking work in algorithms by several industry and client polls and we plan to build upon that success.

What do you think the next generation of tools are going to be?

The most important development to date has been smart order routing, which seeks out the best liquidity across multiple execution venues. This product has become more important in Europe since MiFID and its focus on best execution. The future is less likely to be about the next algorithm that is going to revolutionise the industry but more about helping clients implementing their specific goals. Clients want to have a choice as to where they trade – primary exchanges, MTFs, or other venues, and our job is to offer an integrated service, that includes best of breed strategies.

The ability to customise is also increasingly important. As clients have become more comfortable with using algorithms and measuring what works best, they have also become more forthcoming about what they want. The vast majority would like us to take the complexity out of the trade, and we have developed a global framework which offers building blocks that allows us to do that in an effective and efficient way.

How do you plan to retain your competitive edge?

There is tremendous opportunity in the marketplace but you have to continually re-invest in the business to ensure that you have the best technology, ideas, products, and of course people. That goal is to develop simple, efficient tools that clients can plug into their own networks and systems. This has been one of our main drivers and we are fortunate in that we are able to do this from a financial standpoint.

* Consolidated tape: a US, high-speed system that continuosly provides the last sales price and volume of trades in exchanges-listed securities

[Biography]

Rob Maher is head of European Sales for Credit Suisse’s AES group. He is one of the original members of the AES team and has recently relocated to Europe after spending over five years managing AES sales for the Western US region. Prior to joining Credit Suisse, Mr. Maher was head of E-Commerce and Electronic Trading at Robertson Stephens.

©BEST EXECUTION

Richard Semark : UBS

By

Ian Rycott

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April 26, 2008

FORWARD PLANNERS.

UBS has already carved a name for itself in the execution stakes, but now that MiFID has finally arrived, the bank is more than ready to meet all challenges. Before going off on sabbatical Nick Holtby, former head of European client trading and execution, and Richard Semark, chief operating officer for UBS client trading and execution within European equities explain the impact the post MiFID world order has had on their business.

For the past year, MiFID has been dominating the head- lines, but the trading landscape has been changing for some time. What would you say have been some of the major changes over the past few years?

Nick Holtby – The introduction of MiFID has accelerated the trends that were already taking place in the marketplace. In the past two years, the buyside has taken more ownership of the execution process and the cost, and this had led to an improved segmentation of the order flows. Fund managers already had choice and could send their orders to an exchange, trade with multiple brokers using their capital, or use an alternative trading platform. Under MiFID, execution has gained a much higher profile and we expect this to lead to an increase in fragmentation of liquidity pools as well as demand for more specialised trading tools and products.

What we have seen at UBS is a different split between what we call low tech, which are orders sent through direct market access (DMA) or algorithmic trading, and high tech, the more difficult, illiquid stocks that require an individual to add value. In the old fashioned world of stockbroking, our flow was divided between about 80% high tech and only 20% was low tech. Today that ratio is about 40/60.

What changes have UBS made as a result of MiFID?

Nick Holtby – We have been investing heavily in automation since 2003, developing our capacity and scalability as well as our DMA, algorithmic and portfolio trading tools. We see execution as a whole package and the different components as being complementary rather than competitive. The most important thing is to give clients the broadest possible range of execution services. This means they can send their orders via algorithms, DMA or we can cross their flow internally on our network. UBS has the largest market share for equities execution globally and on a good day, we see crossing rates of between 15% to 20%.

In the run-up to MiFID, we focused our efforts on building our smart order routing (SOR) technology which connects to the different liquidity pools and these are expected to increase under MiFID. Although other sellside firms are doing the same thing, it is the quality of the SORs as well as the trading tools that will differentiate the firms. We have leveraged our experience from the US, where fragmented markets have been the norm for many years. Our SORs, for example, search for opportunities within the UBS internal liquidity pools before looking simultaneously at the other trading venues, including dark pools.

What is the role today of your sales/trader?

Richard Semark – In the past a client would call in an order and then the sales/trader would go away for about ten minutes and source the best price. Today, our sales/trader is in the same position of knowledge but he does not have to move from his desk. The information is all in front of him through our Fusion system, which not only gives him real time visibility of market flow and UBS positions but also, when necessary, a clients’ current and historic activity. It is a much more efficient way of doing business.

How difficult is it to trade in the current choppy markets?

Richard Semark – One of the greatest challenges recently has been the significant rise in volumes due to the volatile markets we have been experiencing. As a result, it is crucial to not only have the technology but the scaleability, capital commitment and risk management structures in place to handle this increase. It is also important to have algorithms that enable clients to benefit from the different pools of liquidity. Last year, at UBS, we introduced a new algorithm called TAP, which enable clients to balance the amount of trading they are doing with the amount of information they are giving out to the market.

The way TAP works is that clients can grade how urgent their order is on a scale of one to five. At level one, the order will passively access dark pools only while at level five it will aggressively take liquidity without constraint. The levels in between allow clients to adjust their participation in public markets according to the level of urgency. Typical factors determining the final execution venue include the size of displayed liquidity, the probability of detecting hidden liquidity, the cost of sending outsized orders, the effect of the order being routed out to other destinations, the life of the existing quote, and the possibility of price improvement.

Looking ahead, the next generation of algos will become even more sophisticated and tailored to a particular client’s requirements.

How important will transaction cost analysis become in the post-MiFID world?

Nick Holtby – One of the main changes under MiFID is that buyside firms have to not only make more complex decisions about execution but they also have to justify them to their firms as well as their end clients. As a result, I think we will see an increase in the use of quantitative analysis tools which will help buyside traders improve the way they segment their orders.

Quantitative analysis provides insights into liquidity, volatility, momentum and spread – as well as the potential market impact and market risk inherent in trading a particular series of orders. In the past year, we have added to our head count and have hired a significant number of Masters and PhD graduates to explain the different options and strategies available.

What is the strategy behind joining Project Turquoise and taking a stake in Chi-X?

Richard Semark – The big issues in the post-MiFID world, are where to trade, finding the right balance between market impact and risk, and source liquidity but also minimising information leakage. Our goal is to connect to as many viable liquidity pools as possible. With Turquoise we have an interest as one of the owners and also have a minority stake in Chi-X.

However, not all pools are created equally and the market impact can differ from one to the other. As a result, we assess each trad- ing venue individually to ensure it is consistent with the best ex-ecution requirements under MiFID. We will evaluate every opportunity because as a shareholder we can influence how these platforms are developing. We are pro-competition and platform neutral as for us, the end game is to improve the market structure and reduce the costs which should improve liquidity.

Obviously, UBS is not the only bank developing its post MiFID offering. How do you keep your competitive edge going forward?

Nick Holtby – We are all in a technology arms race and in today’s complex world, the barriers to entry are high. The quantity and quality of your liquidity pools is crucial as is your ability to innovate. Investments in risk management processes will also be key especially if markets continue to be volatile. UBS is in a pre-eminent position as being a leader in all three execution channels and we think this position is sustainable. (The bank has won awards as top broker for direct market access and algorithmic trading). It is not just about your technology, though, but being totally client focused and tailoring products to meet their specific needs.

[Biographies]

Richard Semark joined UBS london in June 2004 as a managing director responsible for UK sales trading. He previously worked at AXA Investment Managers and UBS Asset Management for 15 years, where he was a key member of the UBS unbundling team responsible both for strategy formulation and marketing to clients. In 2007, Semark became chief operating officer for UBS client trading and execution within European equities with responsibility for execution client relationships, strategy and marketing.

Nick Holtby, who is currently on sabbatical, joined UBS in 2004 as head of European client trading and Execution responsible for cash trading, sales trading, portfolio trading and direct execution services. Holtby was also a member of UBS’ cash management and investment banking boards as well as chairman, wholesale markets group, London Stock Exchange. Previously, Holtby worked for O’Connor Securities, an options market maker, where he started his career in 1989.

©BEST EXECUTION

Alasdair Haynes : ITG

By

Ian Rycott

-

April 25, 2008

BLAZING THE EXECUTION TRAIL.

For the past ten years, Alasdair Haynes of ITG has been extolling the virtues of transaction cost analysis and crossing networks. The buyside have been slow converts but the momentum is gathering pace now that MiFID is a reality.

ITG has been preaching about best execution and TCA ever since it landed on these shores. Do you finally feel vindicated?

When ITG first opened in Europe in 1997, the whole idea of using crossing networks and transaction cost analysis was seen as an American phenomenon. It has been amazing to see how the market in Europe has changed. The market structures are so different now than just a few years ago. Today, there is a choice of crossing networks, direct market access (DMA) and algorithms. Technology has been the driver but regulation has allowed companies to be innovative and entrepreneurial with their solutions. I see MiFID as the watershed moment in our business, and it endorses our business model. Article 21 outlines requirements for best execution and an “obligation” to look for all forms of liquidity, such as ‘blind’ or anonymous crossing with counterparties at the mid-point of the bid/offer spread. In the past, traders went to the stock exchange to get the underlying price, which was an inaccurate way of doing business.

But, people must understand that best execution is a process and not a safe harbour price. It involves the optimal way to trade. The difference today is that asset managers have a much greater choice in terms of how, when and where to trade – and this is expected to only increase under MiFid.

How have things changed for ITG in particular?

When we started we were a single product company and now we have developed a multiple, integrated product offering, which aims to provide end-to-end trading solutions. We realised clients want the whole package – pre-trade and post-trade analysis, trading products and services, and portfolio analysis. Our main focus, though, has remained the same throughout the years – the quality of execution. I like to compare our technology with the satnav (satellite navigation system) in a car. It tells you how to drive in a more effective and efficient manner, points out which roads to take and how long it will take you to get to the final destination. For example, our pre-trade systems will tell the trader which market to route to and what costs will be incurred in the process while real-time analytics will allow for alterations in market conditions, just as a satnav system will guide a driver around accidents and traffic jams.

The last nine months has been difficult for the financial services industry. How has ITG fared?

For the short term, I think it will have an effect but if you take a five year view, the impact will be minimal. Take the Asian crisis. There was a delay, but companies stayed on track and continued to invest. For us in Europe, 2007 was a great year, with revenues rising almost 60% and profits increasing by nearly 70%. Looking ahead, we are doing what we have always done – looking for the opportunities and then positioning ourselves to take advantage of them. We have several new products in the pipeline such as more algorithms, smart routing solutions and additional global trading products.”

You made the headlines last year with your “dark pool” product, POSIT. Can you tell me more about the latest addition launched at the end of this past February?

POSIT Alert is the latest addition to our POSIT suite of crossing solutions which also includes POSIT Match and POSIT Now. POSIT Match offers scheduled crosses with concentrated liquidity that enable institutional traders to anonymously match orders. POSIT Now provides continuous crossing throughout the trading day. Since MiFID, POSIT is now categorised as a multilateral trading facility.

POSIT Alert will have all these benefits plus the added functionality of an alert system which will notify clients each time there is a natural matching opportunity. The way it works is that POSIT Alert will search for trading opportunities with other clients that have opted to participate. When the system identifies a match, a pop-up message alerts the trader, who can decide whether to trade and in what quantity. The trade crosses at the midpoint price of the underlying market price and there is no negotiation.

I also see you are making a push into Asia Pacific with Triton, the execution management system. Can you expand upon that?

Fund managers across the Asia-Pacific region are facing the same challenges in terms of trading in multiple markets with different exchanges, currencies, regulations and market structures. They are also facing greater complexity as well as more pressure to prove best execution. Triton enables the buyside to trade over 30,000 equities via multiple destinations across the Asia- Pacific markets. They can do this from a single application on their desktop, rather than having to access different multiple exchanges, brokers and algorithmic trading tools individually. Triton creates a single platform for finding liquidity, executing trades, and also for analysing and managing the costs of the entire trading process. We have introduced Triton already in the US and European markets, and the goal in 2008 is to fully integrate the regional systems to deliver truly global trading from a single platform.

What other new products do you have in the pipeline?

This year we will be working on Triton X, a product which will integrate our execution management systems with our order management systems to provide a more effective and efficient service for the buy-side. We will also be working on the next generation of algorithms, which at ITG are divided into three categories – dark, single-stock, and list-based algorithms. In many ways, we have only scratched the surface in terms of what these tools can do and we want to move them to the next level in terms of sophistication and technology.

There are now several competitors in the marketplace jostling for position, do you think you have first mover advantage?

I am not sure how important first mover advantage is. What is important in this ever changing and complex market is to keep running on full and not drop the ball. We know what we want to achieve and have a clear vision of the products and solutions we want to deliver. However, in order to stay a leader, you must also be able to change and adapt.

[Bibliography]

Alasdair Haynes is chief executive officer of ITG International. In 1998 Alasdair joined the company as chief executive officer of ITG in Europe following a 20-year career in investment banking, working in london, paris and Singapore. prior
to joining ITG, he held the position of director and head of global equity derivatives at HSBC and held senior positions with Bankers Trust, UBS and Morgan Grenfell. In 2006 Alasdair was appointed co-chair of the Fpl EMEA regional Committee.

©BestExecution

Advert place 1 WEC and the trade show

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Creating Digital

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September 5, 2007

Advert place 4

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September 4, 2007

Advert place 2 trading show and ap fix event

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September 3, 2007

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September 2, 2007

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September 1, 2007

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August 31, 2007

Advert place 7

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August 30, 2007

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THE START OF A NEW CHAPTER.

Credit Suisse is considered a pioneer in the execution and algorithm space. Can you please tell me how the business developed?

Can you expand a bit on your multi-asset class offering?

Do you think that Europe will follow in the US footsteps now that MiFID is a reality?

What lessons have you learnt from the US that you will be bringing over to Europe?

The AES department is very much associated with Richard Balarkas, who has subsequently moved to become chief executive of Instinet. What, if any, impact has that had?

What do you think the next generation of tools are going to be?

How do you plan to retain your competitive edge?

FORWARD PLANNERS.

For the past year, MiFID has been dominating the head- lines, but the trading landscape has been changing for some time. What would you say have been some of the major changes over the past few years?

What changes have UBS made as a result of MiFID?

What is the role today of your sales/trader?

How difficult is it to trade in the current choppy markets?

How important will transaction cost analysis become in the post-MiFID world?

What is the strategy behind joining Project Turquoise and taking a stake in Chi-X?

Obviously, UBS is not the only bank developing its post MiFID offering. How do you keep your competitive edge going forward?

BLAZING THE EXECUTION TRAIL.

For the past ten years, Alasdair Haynes of ITG has been extolling the virtues of transaction cost analysis and crossing networks. The buyside have been slow converts but the momentum is gathering pace now that MiFID is a reality.

ITG has been preaching about best execution and TCA ever since it landed on these shores. Do you finally feel vindicated?

How have things changed for ITG in particular?

The last nine months has been difficult for the financial services industry. How has ITG fared?

You made the headlines last year with your “dark pool” product, POSIT. Can you tell me more about the latest addition launched at the end of this past February?

I also see you are making a push into Asia Pacific with Triton, the execution management system. Can you expand upon that?

What other new products do you have in the pipeline?

There are now several competitors in the marketplace jostling for position, do you think you have first mover advantage?

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