Home Blog Page 694

Eli Lederman : Turquoise

By
Ian Rycott
-

ALIVE, AND MORE THAN KICKING.

Turquoise_E.Lederman_312x375

It may have seemed like a long time coming, but Turquoise is finally up and running. Expectations are running high but Eli Lederman believes the trading platform can fulfil them. He talks to Best Execution about the reasons he joined and his hopes for the future.

My first question is why did you decide to leave Morgan Stanley after such a long career with the bank?

I had a good career at Morgan Stanley but I thought Turquoise presented a fantastic, as well as challenging opportunity. The timing was also great in that thanks to MiFID, the market environment is changing from being monopolistic to one where there are several commercial possibilities. Our goal is to provide a better trading service with the new technology available and I believe that my experience with Morgan Stanley has helped. I also see Turquoise as a pure play in that it is a small organisation focused on one thing versus a large investment bank which has a portfolio of businesses. However, there are many things from the culture and approaches to work at Morgan Stanley that I am working to replicate.

From the tortoise on your shelf, I know you are well aware of the criticism and the nickname Turquoise was given. Can you please explain why it took longer than people expected to get off the ground?

It takes time to build an entrepreneurial and complex company like Turquoise. In the beginning there were no employers but just part-time people from the nine investment banks who are the shareholders. In a sense it was being operated as a project by a consortium, but last September we decided to reconstitute Turquoise as a company. The foundation had been laid and we then had to go find the right calibre of people to head the different divisions such as technology, operations, legal and compliance. We had to make sure that we chose people with the right backgrounds but who were also dynamic and entrepreneurial.

Who were some of your hires?

We hired Yann L’Huillier (former chief investment officer of the Boston Stock Exchange) as chief technical officer, Adrian Farnham, seconded from his day job at Morgan Stanley during 2007 to work on Turquoise, is now chief operating officer and Duncan Higgins, formerly of UBS, is head of client relationship management. Ian Werner, who was compliance manager of the London Stock Exchange is our head of legal and compliance. Altogether, we have 40 people from different disciplines and we are planning to expand as the business grows.

What do you think are Turquoise’s differentiating factors?

Turquoise will feature both a conventional displayed order book as well as a dark pool for anonymous orders. It will be possible for the dark orders to meet the light orders, which is an important factor because it gives the dark book the opportunity to attract small order flow. The aim is to have high cross rates available to our members which today number over 50. The minimum order for Turquoise’s dark pool is Euro 500,000, which is up to 20 times more than the average trade size. I think traders with large orders, or significant orders in less liquid names, will be comfortable with having them in the dark pool, where they can find the other side naturally and even benefit from crosses against the light orders. Overall, our approach is designed to increase matching rates, improve execution and minimise information leakage. We will offer trading in all 1,267 stocks in the dark pool – but also have an open order book trading for the 270 most liquid stocks.

Another difference is that we chose EuroCCP, (the European venture of US-based Depository Trust Clearing Corporation) as our clearing and settlement partner. Chi-X, NasdaqOMX and Bats Europe have all appointed Fortis Bank to handle clearing, EuroCCP will act as the single pan-European clearing platform for all Turquoise trades. The European market has a very fragmented structure at the moment and I think the combination of us and EuroCCP both offering pan-European platforms will help to steer that fragmentation.

Were you happy with the soft launch?

We prefer to call it limited live trading. This went very much as we expected and wanted it to in that it went according to plan and passed without any real issues or problems. From 29th August we opened the gates on the rest of the share universe and began trading in each of the 1,267 stocks in 13 countries. From the middle of September all of the founding shareholders will have begun market making in the most liquid 270 stocks and Turquoise will have fully completed the launch process.

Does it concern you that expectations are running so high for Turquoise?

I agree, expectations are running pretty high but we plan to meet them as quickly as possible. Over time, I think Turquoise will develop considerable market share in the transparent and dark book, although the dark pools may take a bit longer.
Shortly after we officially launch, I expect to see 5% market share. There are a growing number of platforms but we are also in a market environment where people are looking rather ruthlessly at their technology spend. They have to justify the cost for linking to the front end of a trading platform but also for the maintenance. Users will also be looking at the differentiating factors between the business models. I think our quality of execution, cheaper clearing as well as no membership fees will mean that users will not get a better price on another platform.

There was a lot of hoopla over Turquoise opening earlier than the LSE and Deutsche Börse. What made you change your mind?

There was a misperception in the market. Our plan was that this was always going to be a temporary measure. We were not looking for a competitive edge but doing it because the participants agreed it was a way of helping us to get critical mass and establish ourselves as a competitive platform. Once we achieved that critical mass, we would open at the same time as the LSE and Deutsche Börse and the other European marketplaces. However, we took the decision not to after we encountered threatening behaviour from the established exchanges. They said they would open earlier if went ahead with our plan. It really does not matter in the grand scheme of things and their behaviour makes me more confident about the likelihood of our success.

[Biography]
Eli Lederman is chief executive officer of Turquoise, the pan-European trading platform officially launched in September, 2008. Previously, he had spent 14 years at Morgan Stanley, the most current role being managing director in its sales & trading division overseeing the cash and derivative electronic trading businesses for European equity, credit and interest rate products. From 2004 to 2006 he served as co-chair for the FIX Steering Committee for Europe, Middle East and Africa. Lederman received his B.Sc. in physics from Brown University and his Ph.D., also in physics, from New York University. Prior to joining Morgan Stanley in New York, he was a post-doctoral research fellow at Harvard.
©BEST EXECUTION

Tony Whalley : SWIP

By
Ian Rycott
-

ON A CLEAR DAY… A BUYSIDE PERSPECTIVE.

SWIP_T.Whalley_474x375

Tony Whalley has always been vocal about his views on the direction of the industry. He shares his thoughts about how MiFID is affecting the buyside and what needs to be done in order to improve best execution.

What has the impact been of MiFiD so far for the buyside?

There has definitely been fragmentation. Previously, in the UK, everything was traded on the London Stock Exchange and you knew what the volumes were and therefore, the appropriate benchmarks to use. While the industry expected to see different players in the marketplace, what perhaps it did not anticipate was the impact on the trade data side. There is no mandatory consolidated tape, and under MiFID, trades can be published to numerous venues, including traditional exchanges as well as multi lateral trading facilities, or directly to data vendors. As a result of regulatory changes, there can be a three day wait before we see the trade data. If sizeable trades are not printed, then that could have an impact on the price as it gives traders time to unwind their positions. It also makes it difficult to achieve best execution. From a trading standpoint, we believe we are doing this, but best execution is much more than price. It is a combination of factors including settlement and timeliness.

Do you think there will be a consolidated tape?

This is what the industry is pushing for but I do not think we will get one in the short-term. It means a change of rules for the whole of Europe and that takes time. It is not just about the UK but it impacts all stocks across the continent. It is an expensive proposition. For example, pre-MiFID, the cost of a feed into the London Stock Exchange cost £45 a month per work station but post MiFID, for that money you will not get 100% of the data. However, to plug into all the potential venues will now cost about £214 a month per work station. That is a huge difference. For us, fortunately, the majority of our trades go through the LSE and Chi-X (which provides the feed for free).

How has it affected SWIP?

It has dramatically increased our use of electronic trading whether through direct market access or algorithms. I would say the bulk of our business is going through the brokers’ pipes although we call the shots. The problem, though, is that investment banks are not talking to each other and are trying to internalise as much flow as possible. This makes sense in terms of their profitability, but my concern is ensuring I get the best price for any given stock, rather than lowering the cost of trading which is worn by the broker. My problem with banks internalising flow is there is always a chance I can get a better price elsewhere. I do not want to limit my options. This is why the sellside is looking at developing an independent smart order routng system alongside Turquoise which talks to all brokers’ dark pools as well as the main exchanges and other venues.

What has SWIP done to become MiFID ready?

I think the issues were on the legal and compliance side. We spent massive amounts of time and resources ensuring that we met all the requirements. We also spent two years upgrading our technology not just to meet MiFID require- ments, but to become more effective and competitive in the 21st century.

We installed a new version of OMS (order management software) – Macgregor XIP as well as FIX connectivity. We did not see the need for an EMS (execution management system) because we are long term investors on the systems side and the system we have suits our needs. It enables us to go from fund management to OMS to settlement. I think EMS is more for those who want to trade actively in the markets and are looking for a stand alone system.

Overall, the biggest challenge for us and the industry in general is to ensure that we keep up with the latest state of the art technology and ensure that the technology in question meets our requirements.

What was the reason for joining Chi-X as a non-executive director?

I have always been a keen observer of market changes and new entrants. I also thought it was time to stop complaining about the lack of progress from the outside and start influencing from within. I have, historically, held strong points of view regarding Project Boat and Project Turquoise and now I welcome the chance to bring the institutional investors’ perspective to the table.

The whole point in the current market environment is that we do not want one or the other execution venue to be dominant, as in the past, but we want and need them to work together in a symbiotic relationship.

What is your opinion about Turquoise now that it looks like it will be up and running by September?

I think there is more certainty now that there is an independent management structure and they have set a launch date. It has the backing of nine of the biggest global banks and they would like to see it succeed. However, at the recent TradeTech in Paris, one of the questions put to Peter Randall, (head of Chi-X) was – “What is the difference between you and Turquoise?” His reply was simple – “We are up and running and Turquoise is still a project.” I think we will have to wait and see something more concrete before we can say for sure whether Turquoise is successful. However, it looks like it will become a reality.

Do you think Europe will emulate the US in terms of execution venues?

In the US, it seems that you can buy an MTF off the shelf or on eBay. I do not think it will happen in the same way here. Europe is a different marketplace. There will be fragmentation and then consolidation but there is only limited room for a finite number of venues. Again, lack of clarity over data will hold things back until we follow the US example of a consolidated tape.

[Biography]
Tony Whalley is an investment director, head of derivatives and dealing,
and a member of the investment management group at Scottish Widows Investment Partnership (SWIP). He is also the manager of all tracker funds and all derivative-based funds. He joined the group in 1989 from Citicorp Scrimgeour-Vickers, where he was a director of derivative products. He is currently a member of the IMA and London Stock Exchange institutional advisory groups as well as a non- executive director of OMLX and a member of the market advisory board of LIFFE and is currently a non-executive director of Chi-X.
©BEST EXECUTION

Chris Smith : NYFIX

By
Ian Rycott
-

CASTING LIGHT INTO DARK POOLS.

Nyfix_C.Smith_566x750

NYFIX is hoping that its recently launched dark pool will make the same splash on European shores as it has in the US. So far, competition is thin on the ground but that is likely to change over the next year. Chris Smith explains the group’s formula for success.

I know Euro Millennium has recently launched but can you please provide some background.

NYFIX was first established in the US in 1991, and in 2001 the business launched NYFIX Millennium, the US dark pool. Around the same time, we created a presence in Europe. We offer electronic trading software, FIX connectivity and execution services to the global financial community. NYFIX realised the importance of FIX technology early on and bought a FIX connectivity software firm called Javelin which was known as a pioneer in the industry. It had a suite of products including Appia, which is a high performance FIX engine. It was because of this background in technology that we were approached by a group of sellside firms who realised that the US market was changing from the traditional floor-based to a more electronic or upstairs (over the counter) trading environ- ment. They wanted us to create an electronic market system and as a result, Millennium was born.

What has been the impact of Reg NMS and MiFID?

Reg NMS was a key driver for the proliferation of dark pools in the US and although there are different figures out there, on average, the total market share of dark pools in the US is some- where between 5% to 10%. NYFIX Millennium, which matches an average of 50m shares per day, is one of the top dark pools. Trading in dark pools has really taken off. In 2001-2003, there was steady but not spectacular growth but in 2004, people ramped up their use driven both by regulation (like Reg NMS) and an increasing adoption of electronic trading tools and algos. The venues in the US each have their own value propo- sitions and strategies but we are definitely seeing an overall increase in the use of algorithms.

In Europe, MiFID was brought about to foster greater competition and a primary consequence will be the growth of alternative trading platforms including dark pools, although we do not expect to see anything like the number of alternative trading venues (MTFs in Europe) here as they have in the US.
I believe we will also see the buyside seek to take greater control of the way they execute their orders. They will utilise technology to enable them to create and operate different trading strategies for different orders. Market infrastructure innovation and the growth of dark pools as an example will enhance the choices the buyside have when it comes to executing their order flow.

Why was the launch delayed from last year to this past March?

We formed an advisory board of buyside and sellside firms and started meeting once a month from May 2007. From September, we recognised that if we launched directly following the introduction of MiFID, no one would be ready to talk to utilise the pool.

Our advisory board provided us with an invaluable source of product development input and in full consultation with them, we scheduled a Spring 2008 launch to ensure that our service would meet all of their requirements.

The involvement of our Advisory Board ensured that we would not fall into the same trap as many firms do, when they fail to recognise that subtle cultural and market differences can impact the success of bringing a service to a new market.
Our advisory board includes Allianz Global Investors, Baring Asset Management, BNP Paribas Securities Services, Citi, CA Cheuvreux, Credit Suisse, DWS Investments, Goldman Sachs, Insight Investment, JPMorgan Asset Management, JPMorgan, Merrill Lynch, Resolution Asset Management, Schroder Investment Management and UBS.

What, if any will be the differences between Euro Millennium and NYFIX Millennium?

We built the Euro Millennium service based on NYFIX Millennium technology, drawing significantly on our heritage and experience in the US . With both services clients can place orders which reside in the pool until they are matched, or they can choose to send pass-through orders, which sweep the pools for a match before being routed to another source of liquidity. In the US, this other source of liquidity is typically an electronic trading network or exchange. A major difference with Euro Millennium is that the other source of liquidity can be a preferred broker dealer. We made this enhancement based on feedback from our Advisory Board.

How do you see the Europe an developing markets in the wake of MiFID?

There are some clear parallels to the way the industry developed in the US initially, using the timeline I referenced earlier; I believe the first three years of fast growth seen in the US could be consolidated into a single year. We are going to see a revolution in the market in terms of trading with national sentiment slowly diminishing. We are already seeing that happen with the success of Chi-X, which I believe has been a trail blazer. Overall, there are likely to be a smaller number of pools because Europe was already an efficient marketplace. However, one critical potential inhibitor to development could be the lack of a central clearing and settlement system. There is movement happening on this front in Europe and I believe that the growth of the multilateral trading facilities (MTFs) will help to force change in the clearing and settlement infrastructures in Europe.

Although it is early days, how been the response to Euro Millennium?

The response from the market has been exciting and we are seeing a great deal of interest in linking to the service. With all new services of this type, it takes time for clients to adapt to the functionality of the service and build the appropriate tools to allow their traders to reach the pool. This has taken some time although it is now accelerating. The main reason has been technology resourcing with the buyside upgrading their order management and execution management systems. We are coming to the end of the tunnel and in the meantime we have been developing our product offering.

In addition to our success with Euro Millennium, we are also very excited about our recent acquisition of FIXCITY, a UK based specialist in web-based electronic trading and liquidity discovery solutions. Its flagship product is iodine, which is known for its IOI (indications of interest) analysis, filtering, and alerting capabilities. NYFIX plans to combine its IOI workflow expertise with FIXCITY front end technology which will enhance our client’s search for liquidity. The system is already being used in Europe and we plan to roll-out to other regions later in the year.

Can you give us more detail behind the SWX deal?

About a year ago we developed our business plan for Euro Millennium and one of our goals was not to be a club for a particular segment or platform. We see the Euro Millennium service as a truly open and complimentary venue to that of exchanges and other MTFs. SWX Europe was very interested in our vision because they were looking for innovative solutions to add and create new liquidity. We announced a deal whereby NYFIX Euro Millennium will power the Swiss Block service offering non displayed liquidity trading for Swiss blue chip securities. The service is expected to be launched in the summer of this year.

[Biography]
Chris Smith is head of Euro Millennium and director of NYFIX International. Previously he was with SWX Europe as a consultant and vice president of Trade Web. He started his career at Fidelity Investments as manager, transaction support before joining Thomson ESG as director, global strategy, planning and marketing, and then Reuters as manager, straight through processing.
©BEST EXECUTION

Rob Maher : Credit Suisse

By
Ian Rycott
-

THE START OF A NEW CHAPTER.

CreditSuisse_RobertMaher_400x375

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
-

FORWARD PLANNERS. 

Richard Semark of UBS

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
-

BLAZING THE EXECUTION TRAIL.

Alasdair Haynes Chi-X

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

By
Creating Digital
-

Advert place 4

By
Creating Digital
-

Advert place 2 trading show and ap fix event

By
Creating Digital
-

Advert place 3 thomson app studio

By
Creating Digital
-
1...693694695Page 694 of 695

Global Trading is an industry-leading news service for the global equities capital markets: providing information, education, insights and analysis for senior professionals working within trading and execution across Europe, the UK, North America, APAC and other emerging markets. With a focus on the intersection between the buy and sell-sides, Global Trading covers all industry elements from technology and trading strategies to regulation, best execution, market structure and liquidity.

Copyright © 2024 Markets Media Europe Ltd.