Buy-side Perspectives Issue 3 | Page 23

Q. What are your thoughts on the increasing levels of regulation faced by the buy-side? David Miller: Regulation will have the biggest effect on our ability to trade going forward – how it will affect liquidity, in particular dark trading. The increasing cost of capital will also become a major factor. Q. How do you feel the new regulatory environment, in particular MiFID II, will affect the trading landscape? David Miller: A shake up is inevitable in trading venues. Dark pools will change the way they operate, and I do expect a reduction in the number of trading venues available to buy side traders. There are aspects of the MiFID II regulation that I see as an attempt to move more trade onto the lit markets, but some orders and stocks really don’t benefit from trading on lit venues. I believe we will see an increase in broker intermediated block trading. As regards small and mid-cap stocks I do not believe there is much, or has ever been much depth in the lit markets, and we will continue to utilise more specialist brokers to source liquidity. Our concern is that those brokers may reduce in number in the future. Q. Speaking of brokers, how do you feel the relationship between the buy-side and the sell-side is changing? Have you considered reducing your broker list? And how do you feel about the challenges facing the sell-side? We have always had an extensive broker list. With regulation, empowerment of the buy-side, automation and unbundling, their (brokers) cost models are undoubtedly under pressure. We very much hope they survive and have no plans to reduce our broker list. Any trader will always argue for more counterparties as there is always the chance that one specialist that you rarely speak to will one day have the other side to a crucial trade. It is entirely possible that there may in fact be additions to our broker list in the future. New additions are now judged on the quality of their flow, and access to liquidity. David Miller: Q. Given the increased regulatory scrutiny on buy-side firms, what steps have you taken to handle due diligence? Q. How do you choose the electronic trading services you purchase, for example algorithms and other trading tools? Is it the case that many trading tools are commoditised? When it comes to choosing an electronic provider, we tend to look for something different, something unique aside from the basic suite functions, such as VWAP, DMA and some other generic tactics which by definition are the same across all providers, and while it is getting harder to differentiate we have found it is still possible. David Miller: Q. The cost of data has been an industry talking point for some years. How do you feel about the cost of data? Do you think the regulator should step in and take a more active role? The cost and quality of data will undoubtedly increase going forward; we hope that future regu ][ۈ