A new era for Janus Henderson… In their own words

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May 22, 2024

Following the news that longstanding equities trading chief Dan Royal will be stepping aside this year, the transition team of Royal, his replacement Hugh Spencer, and EMEA chief Glen Pattison sit down exclusively with Global Trading to discuss the importance of positive change, building a desk culture based on reputation and relationships, and how they are working together to ensure a seamless Royal succession. In their own words…

As is often said, change is a constant. It’s how you prepare and structure for change that helps support your success. As recently announced, change is in the works with the equity trading department at Janus Henderson. This includes the upcoming retirement for global equities trading head Dan Royal, with the appointment and relocation of APAC’s Hugh Spencer for the global spot, the recent appointment of Glen Pattison to oversee the EMEA region, and the upcoming appointment of Ryan Chan as regional head of our APAC equity desk.

All of these moves were made seamless from a business perspective due to the efforts, culture and philosophy of our global equity trading team. There are multiple components to the foundation of our team that support our ability to adapt and evolve. Whether it be our internally curated succession, growth of the business, or innovative initiatives, our flat structure and harmonized global approach facilitates an environment to navigate these things with little or no business disruption. All of these have a common theme: Partnership.

“Trading desks are problem solvers, educators, workflow efficiency experts, and career builders.”

Trading desks sit at the intersection of many components with the industry and the firm. Desks often have one of the broadest swathes of representation for a firm’s footprint to the street, the vendor community, industry peers, and potentially the regulatory aspects of our business. Equally, desks can often be the centralized hub for connectivity and insight to a number of internal departments, in helping establish best practices and industry standards.

The culture and philosophy of the desk will have a significant impact on how a firm is perceived throughout the industry. Internally, the approachability and collaboration with surrounding departments can holistically lift the firm’s level of expertise and innovation. In other words, the culture and attitude of the trading department will have a large impact on the consistency of service levels and executional offerings from the street, regardless of potential fluctuations in commission wallet and AUM.

“It is often overlooked or underappreciated, the complexity that lives within the trading environment.”

When we think of external partnerships, we try to insert a symbiotic component to the relationship. Aside from the direct economics of involved, as measured by commissions or subscription fees, we attempt to strengthen that partnership more broadly. With the broker, we strive to be very collaborative in areas of product development, workflow efficiencies and connectivity of resources across our firms. We hope our efforts around product development with a broker will eventually serve their innovative efforts to enhance their efforts with other clients. We also strive to facilitate broader and stronger relationships across our firm’s key resources in a courteous manner. Among our vendors, we attempt to facilitate and accelerate innovation that yields more efficiencies and better outcomes.

Knowing that development resources can be limited and client requests can be diverse in nature, there is often a bigger picture component to the direction of our efforts. Vendors and brokers are certainly more interested in devoting development resources when the end result serves a larger subset of their client base.

Internally, the desks wear many hats. Generally, beyond our efforts of enhancing the investment process, through best execution, managing market events and team communication. Trading desks are problem solvers, educators, workflow efficiency experts, and career builders. It is often overlooked or underappreciated, the complexity that lives within the trading environment.

Combining the extensive variability of order flow, through a complicated matrix of systems into a dynamic market environment, while achieving the best outcome for the client, generally occurs very smoothly. Yet the nuances of that complex workflow often require a strong partnership with surrounding departments to properly develop and support the environment that facilitates operational success. Those partnerships are critical to a successful ecosystem throughout the firm.

At Janus Henderson, two foundational pillars of our equity trading team are global harmonization and a subscription to the notion that partnerships are critical to our ongoing success. Throughout the team, we recognize the importance of enhancing our partnerships both internally and externally. We move forward as a global team, where everyone’s contribution and attitude is critical to our firm’s success. With that in mind, the notion of succession and opportunities presented within the team is an organic step taken in stride for us.

Santander Asset Management joins Eurex for FX

By

Lucy Carter

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May 22, 2024

Imanol Urquizu, head of derivatives, Santander Asset Management

Santander Asset Management has joined Eurex as it expands its FX futures business, and plans to establish an options business on the exchange.

The announcement is in line with an underlying trend towards FX business, Eurex said, with an increasing number of market participants using FX derivatives to hedge their portfolio performance. In light of the increased costs resulting from counterparty risk and related regulations, centrally cleared FX futures and options can help to mitigate counterparty credit risk, optimise capital costs and manage uncleared margin rules, Eurex stated.

Banco Santander is supporting the firm as a clearing member, while Deutsche Bank is serving as liquidity provider. The latter enabled the first FX options block trade at Eurex, the exchange noted.

Imanol Urquizu, head of derivatives at Santander Asset Management, said: “We look forward to working with Eurex to expand our listed FX business in Europe. In addition to our engagement in FX futures we actively collaborate with multiple FX dealers to explore the trading of FX options at Eurex. Integrating FX futures and FX options within the Eurex ecosystem unlocks operational efficiencies and enhances our risk netting capabilities.”

Mario Muth, global head of platform and listed derivatives sales and head of fixed income market structure at Deutsche Bank, added: “Trading FX on Eurex enables clients to benefit from the efficiencies of a listed derivatives market, and this is a prime example of how Deutsche Bank partners with clients and trading venues to provide liquidity and solutions in the evolving FX market.”

©Markets Media Europe 2024

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Cboe Europe Derivatives adds Interactive Brokers as trading participant

By

Alex Pugh

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May 22, 2024

Iouri Saroukhanov, head of European derivatives, Cboe Europe.

Interactive Brokers has joined Cboe Europe Derivatives (CEDX), Cboe’s pan-European equity derivatives marketplace.

Interactive Brokers’ clients will have access to CEDX’s range of equity index derivatives and equity options in the current quarter. Interactive Brokers has become a direct trading participant on CEDX and a direct clearing participant for equity derivatives on Cboe Clear Europe, Cboe’s pan-European clearing house and CEDX’s clearing provider.

Iouri Saroukhanov, head of European derivatives, Cboe Europe, said: “We are thrilled to welcome Interactive Brokers to CEDX, which represents a significant milestone in the exchange’s journey to improve the ability of retail investors to gain access to and benefit from European derivatives, particularly options.

“Their participation demonstrates the need for more efficient European derivatives markets, which CEDX is helping to create by offering a simpler, lower cost and pan-European approach to trading and clearing to lower barriers to entry for institutional and retail investors. Interactive Brokers has been a strong collaborator to our successful US options markets for many years, and we look forward to strengthening this collaboration with them in Europe to help improve and grow derivatives markets in the region.”

Milan Galik, CEO, Interactive Brokers, said: “We are pleased to introduce access to CEDX, and give our clients an additional way to trade European derivatives alongside our existing global stocks, options, futures, currencies, bonds, funds and more from a single unified platform. With the addition of CEDX’s extensive European equity options and index derivatives, our clients now enjoy enhanced choice and flexibility, enabling them to manage their European investments more effectively.”

©Markets Media Europe 2024

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Groupama Asset Management and Amundi Intermediation merge desks

By

Lucy Carter

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May 22, 2024

Eric Heleine, head of the buy-side trading desk, Amundi Asset Management

Groupama Asset Management has partnered with Amundi Intermediation, merging the two trading desks to support the development of its execution business.

The decision has been made in order to adapt to evolving market demands, driven by changes to automation and regulation, Groupama said, with the goal of improving its negotiation power, optimising efficiency and more efficiently leveraging the firms’ resources.

“This project is ambitiously designed to provide Groupama’s Portfolio Manager a global extended operability,” the firms told Global Trading. “By leveraging a strong technological backbone, we ensure superior performance across various geographies and asset classes.”

They affirmed that “this partnership integration should be completed by the end of the year. All Groupama traders will join the Amundi intermediation team”.

Outsourcing and co-sourcing are increasingly popular strategies for firms, with Goldman Sachs Asset Management outsourcing its global trade execution processes to BNY Mellon back in March. A number of APAC-based asset managers are also adopting the approach, in anticipation of the North American transition to T+1.

Through the mandate, Groupama’s existing technology architecture will be interfaced with Amundi Intermediation’s ALTO ecosystem. Access to Amundi’s pre-trade decision-making indicators and execution capabilities will bypass the need for significant investment and specialised teams, it added, enhancing execution, innovation and investment capacities and supporting its digital transition.

Christophe Kieffer, CEO of Amundi Intermediation, added: “Order execution activities have undergone major transformations in recent years, both to adapt to regulatory changes and to technological innovations.

“[This partnership] will enable us to continue to develop our capabilities and provide Groupama AM with a comprehensive, robust and innovative system to offer end investors the best possible conditions.”

©Markets Media Europe 2024

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FCA fines Citi £27.8m for systems and controls failures

By

Alex Pugh

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May 22, 2024

The UK’s Financial Conduct Authority (FCA) has fined Citigroup Global Markets (Citi) £27,766,200 over failures in the firm’s systems and controls which led to US$1.4 billion worth of equities mistakenly sold across European exchanges.

On 2 May 2022, a Citi trader had intended to sell a basket of equities worth US$58 million but made an inputting error while entering the basket in an order management system (OMS). This resulted in a basket to the value of US$444 billion being created.

While the firm’s controls blocked US$255 billion of the basket progressing, the remaining US$189 billion was sent to a trading algorithm. The algorithm selected was designed to place portions of this total order to be sold in the market over the rest of the day.

In total US$1.4 billion of equities were sold across European exchanges, before the trader cancelled the order. This coincided with a material short-term drop in some European indices which lasted a few minutes. 

Steve Smart, joint executive director of enforcement and market oversight, FCA

Steve Smart, joint executive director of enforcement and market oversight at the FCA, said: “The FCA expects firms engaged in trading activities, including those using algorithmic trading, to have effective systems and controls in place to stop errors like this occurring.

“These failings led to over a billion pounds of erroneous orders being executed and risked creating a disorderly market. We expect firms to look at their own controls and ensure that they are appropriate given the speed and complexity of financial markets.”

While parts of Citi’s trading control framework operated as expected, some primary controls were absent or deficient, the FCA found. In particular, there was no hard block that would have rejected this large erroneous basket of equities in its entirety and prevented any of it reaching the market.

Due to poor design, the trader was also able to manually override a pop-up alert, without being required to scroll down and read all the alerts within it. The firm’s real-time monitoring was ineffective, which meant that it was too slow to escalate internal alerts about the erroneous trades.

SteelEye CEO Matt Smith said: “Citi’s hefty fine today underscores UK regulators’ tightening grip on financial institutions. While SteelEye’s Annual Fine Tracker saw the FCA issue fewer fines last year, its recent proposal to name and shame firms under investigation for wrongdoing alongside this multi-million-pound joint action with the PRA signals a new era of enforcement.

“Despite this new era, regulators remain open to collaboration, consistently demonstrating a willingness to lessen penalties for cooperative firms. This approach is exemplified by the 30% reduction in Citi’s original fine, a result of their agreement to resolve the matter.”

Citi did not dispute the FCA’s findings and agreed to settle, allowing it to qualify for a 30% discount. Without this discount, the amount of financial penalty imposed by the FCA would have been £39,666,000.

On 22 May 2024, the Prudential Regulation Authority (PRA) also imposed a financial penalty of £33,880,000 on Citi following its own investigation into related matters.

©Markets Media Europe 2024

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Byron Griffin leaves Kepler Cheuvreux

By

Lucy Carter

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May 21, 2024

Byron Griffin has left Kepler Cheuvreux after more than eight years with the firm.

Griffin has more than two decades of industry experience, and has been head of market structure and liquidity solutions since June 2022. Before this, he was head of portfolio and electronic sales trading.

Prior to joining Kepler Cheuvreux, Griffin was head of EMEA equities and then head of equities and transaction products at Thomson Reuters, and held directorial sales roles at both Curzon Securities and Barclays Capital.

©Markets Media Europe 2024

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Cut costs and complexity to boost Europe’s sluggish options markets

By

Alex Pugh

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May 21, 2024

A lack of retail trading and market structure fragmentation has led to stagnation in Europe’s options markets in recent years. This has led Europe to trail the US.

Increasing retail participation, promoting on-screen trading, reducing cost and complexity, and market structure enhancements would all help Europe to boost its options markets, according to a new paper from Acuiti and Cboe Europe Derivatives. The findings are drawn from interviews with senior executives and trading heads at 57 firms operating in European and US listed derivatives markets across the hedge fund and proprietary trading markets.

FIA data shows that trading volumes for European equity options in 2023 were 798 million, a significant drop compared to the 1.2 billion recorded in 2012 (although 2023 did represent an increase from 2022’s 769 million, the market’s lowest level since 2004).

By contrast, US equity options recorded 11.2 billion trades last year, representing more than 250% growth from the 3.5 billion traded in 2008 and more than double the 4.9 billion contracts that were traded in 2019.

The costs of trading as well as other considerations are also a factor, the research found. Nearly three-quarters (71%) of respondents say they would prefer to execute their options trades on-screen but are prevented from doing so due to prevalence of liquidity in OTC markets. On-screen exchange-trading would increase Europe’s attractiveness to external sources of flow, such as the US and APAC, the research suggested.

Nearly two-thirds (62%) said Europe’s fragmented market structure had impacted their trading strategies in European options, with 50% allocating more to other regions as a result. Cost was also a factor, with 88% of respondents saying US options were significantly or somewhat cheaper than European options due to wider spreads associated with European options.

Looking ahead, one fifth of survey respondents expect a contraction in European listed equity derivatives markets over the next five years.

To understand the disparity between the two regions, analysis has focused on the lack of retail participation in Europe compared to the US where individuals take a more active approach to their wealth management. In place of options, retail investors in Europe trade alternative products such as CFDs and warrants. While CFDs offer a simple way for retail investors to access exposures, many national regulators have taken action to restrict the promotion and distribution of these products to retail investors, which could drive retail investors towards listed derivatives where both spreads and counterparty risk are significantly lower.

Fragmentation was the second most important factor for the lack of growth in European derivatives markets. In the words of one US portfolio manager running a volatility fund: “Because of the fragmentation, European options markets are too small, and the fees are way too high.”

In order to trade exposures across Europe, firms are required to onboard to multiple venues and clearing houses, develop the infrastructure to handle multiple pre and post trade workflows, as well as pay market data fees and post collateral across multiple venues. Firms also raised concerns over the cost structure and the fragmentation of European CSDs, with settlement charged on a per ISIN, per day basis.

Regulatory fragmentation is also a barrier. Despite a mooted Capital Markets Union, creates friction between local rules and market structures in areas such as payment for order flow, which is currently legal in some countries but not in others.

The paper also suggested increasing interoperability in the clearing of exchange traded derivatives (ETDs), which would allow derivatives exchanges to compete through technology, functionality, and product innovation while increasing post-trade efficiencies and choice. Additionally, open access to CCPs would reduce friction and increase competition but there is also scope for European CCPs to pursue cross-margin agreements between positions at other CCPs to promote capital efficiencies when investing in European ETDs.

©Markets Media Europe 2024

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EXCLUSIVE: abrdn’s automation journey sees no-touch jump

By

Lauren McAughtry

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May 21, 2024

Louise Drummond, global head of investment execution at abrdn, discusses the firm’s path towards workflow automation – an achievement that has been almost a year in the making, with 35% of government bonds in passive funds already no-touch and credit and equities now on the horizon.

Last summer, abrdn’s dealing desk started work on developing a new trading strategy, focusing on automating low-value trades that didn’t depend on dealer expertise. It’s the first time the firm has looked at automating trades on a no-touch basis – and so far, it’s been a great success.

Drummond identified that in abrdn’s passive funds, there were a percentage of low value trades that could immediately benefit from the introduction of trade automation – and thus the journey began.

“Utilising existing technology and the more advanced trading venues capabilities, those trades can get executed in a more efficient way,” explains Drummond, speaking exclusively to Global Trading.

“I wanted to make better use of the data to enable the dealers to concentrate on the larger, more complex trades where they can add more value, [and] I wanted to balance the amount of time spent on a trade versus the optimal outcome.”

The beginning

In June 2023, Drummond started exploring proof-of-concept across asset classes with her team, analysing trade volumes and the type of trades to see what might fit best, and to ensure there was sufficient trading flow to make the process beneficial. They took the most suitable and liquid asset class– government bonds and explored how best to automate.

“Our existing trading ecosystem had the components to support automated trading, so we leveraged that to expedite delivery – we just needed to build in some additional parameters to realise true Straight Through Processing (STP).” explains Drummond. “Now, if the trade meets the set criteria for no-touch it goes straight from the fund manager to the trading platform. The trade will need to meet the minimum number of quotes and pricing thresholds before being executed on venue.”

What took some time during the development process, of course, was the governance aspect. “We needed to ensure that we had captured the key risks and controls and discussed across the wider business, alongside monitoring this new trading protocol in our TCA to make sure we were getting optimal outcomes,” says Drummond. “

abrdn have incorporated a kill switch into the platform architecture, so that they can stop the automated trading function altogether if, for example, markets are particularly volatile.

The process

The process looks at the suitable trades and classifies them based on no-touch, low-touch, and high-touch. No-touch trades are sent straight out and executed if they meet the pre-determined criteria; if they don’t, the trade will be routed to the standard dealing blotter and the dealer will follow normal trading protocols.

“It makes the whole process so much more efficient. We are reducing market latency for this population of trades which is where the real value add is. Initial observations are very positive in terms of post trade analysis” says Drummond. “That’s really what we’re monitoring. The results. You need to build that picture up over time, making sure that you’re not seeing any differences in client outcomes.”

The result

With testing in progress across the asset classes, the automated platform was launched with government bonds in early April 2024, with plans to expand into credit later in May and then equities a few months down the line. With around 35% of government bonds flow in passive funds now trading using the automated function, the process has been a success so far with robust controls and monitoring in place.

The future

abrdn has no set timeline or program for automation roll-out, which is very much based on how the flow progresses and how the initial roll-out continues to develop.

“We’re also looking at some of the equity programme trades we do, to see if automation is achievable. Some programs are a bit more complex than others, but there is certainly potential there,” says Drummond. “We’re coming into a month now for results on our government automation, so we’ll continue to look at how the end-to-end process is performing and use the data to optimise the process if needed, utilising our execution oversight meetings.

“It’s been a success so far,” confirms Drummond. “We’ll continue to monitor the flow on our passive funds and decide whether to extend the workflow to actively-managed funds to see if they have any eligible orders within their trade universe that might also fit this model.

“The markets are evolving, and we need to evolve with them. We’re in the infancy of automation right now, but we feel strongly there is so much more that can be done in this space. We have no set timeframe for that, we will base our decision on processes that deliver optimal outcomes for our clients.”

Mitali Sohoni and Dina Faenson promoted at Citi

By

Lucy Carter

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May 20, 2024

Mitali Sohoni, head of North American markets, Citi

Citi has appointed Mitali Sohoni as head of North American markets and Dina Faenson as CEO of Citigroup Global Markets (CGMI), according to a source familiar with the matter.

Sohoni is responsible for the coordination of Citi’s North American markets strategy, in addition to her existing role as head of asset-backed financing. She continues to report to Mickey Bhatia, head of global spread products, and now has a matrix reporting line to Sunil Garg, CEO of Citibank North America.

Sohoni has more than two decades of industry experience, 19 years of which have been spent with Citi. She has held numerous roles with the firm, overseeing businesses including asset-backed securities, the asset finance group and CLO/credit financing.

As CGMI CEO Faenson reports to Andy Morton, head of market. She assumes the role in addition to her existing position as head of markets counterparty trading and risk.

Faenson has been with Citi for more than 18 years, holding senior positions including head of markets and global co-head of rates and currencies for valuation adjustments.

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Checkmate

By

GlobalTrading

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May 20, 2024

Blair Hawthorne, founder and CEO of LoopFX, on why chess is like trading

Why chess?

My brother Craig showed me how the pieces moved when I was about six and it just stuck. I’m told my Dad came over and started watching me play and I was sitting still in a bit of a trance. My parents run a chain of kilt shops in Scotland, so chess wasn’t their forte, but they quickly took me to the school chess club – with my brother in tow of course! There I met my first chess coach, Mrs Steyn. She was a wonderful, eccentric lady in her mid 70’s who taught chess as well as tagged polar bears for conservation – ahead of her time for the mid 1990’s!

I was obviously quite young when I started playing, but I liked that ideas are taken purely on merit. Age, sex, size, background – none of these things matter. Fast forward a few years and I was in the Scottish team playing internationally against adults. I was a good player, but being honest my chess pals were more talented.

What similarities are there between chess and trading?

Loads. Chess is a brutally honest game. You alone, are responsible for your decisions, you live and die by those decisions. The same is true of trading.

My coach growing up was a 130kg, 6’4 man with gigantic hands called Eric. He had Asperger’s yet went out of his way to teach me to prepare for the unexpected. Often in the middle of a game he would suddenly remove a bunch of pieces from the board, completely distorting the equilibrium of the position and causing me to reshuffle my priorities. While it was annoying at the time, it did inadvertently prepare me for trading.

How can chess help you add value to your trades?

Chess is all about trying to make better decisions. And the same is true of finance. We should all be trying to improve how we make decisions, a little bit, every day.

What’s the biggest life lesson that chess has taught you?

Chess is steeped in a culture of analysis. After every game, you shake hands and review the game together. Both players share ideas, talk through what you were analysing and inevitably one of you says: “Oh, I hadn’t seen that…!”

Everyone has a responsibility to review their own performance and take action to make themselves better.

What is your favourite/signature move?

Well, it’s d4, but some people might not recognise that! d4 is the first move of the ‘Queens Gambit’, and it’s a positional opening. You sacrifice a pawn for control of the centre of the board. You then try to win by putting tiny incremental increases of pressure on top of your opponent. Think grain of sand by grain of sand.

For me, one of the best compliments you can get after a game was your opponent saying “I don’t know where I went wrong…” Grain of sand on grain of sand!

Is it ever too late to learn chess?

You’re never too old to take up chess. I have a growing list of finance chess fans – send me a message and I can connect you.

I get queries from parents looking to introduce their kids to chess too – I really like teaching younger kids, you can get a feel for their personality. Quieter kids playing super aggressive chess, always attacking. Or kids who can’t sit still wanting to keep all their pieces near their king. You never know till they sit down and shake hands to play.

Chess players are generally some of the kindest people I have met. Whether it is a guy I used to play in Washington Square Park called ‘Cheese’, my old coach Eric, Mrs Steyn, or my chess pals, they all love the game and want to share it.

But remember: The first rule of Chess Club is…you DO NOT talk about Chess Club!

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Santander Asset Management has joined Eurex as it expands its FX futures business, and plans to establish an options business on the exchange.

Groupama Asset Management has partnered with Amundi Intermediation, merging the two trading desks to support the development of its execution business.

Byron Griffin has left Kepler Cheuvreux after more than eight years with the firm.

Louise Drummond, global head of investment execution at abrdn, discusses the firm’s path towards workflow automation – an achievement that has been almost a year in the making, with 35% of government bonds in passive funds already no-touch and credit and equities now on the horizon.

Citi has appointed Mitali Sohoni as head of North American markets and Dina Faenson as CEO of Citigroup Global Markets (CGMI), according to a source familiar with the matter.

Blair Hawthorne, founder and CEO of LoopFX, on why chess is like trading

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