Buy-side Perspectives Issue 3 - Page 5

Radical automation and buy-side empowerment Mike Bellaro, global head of equities and listed derivatives, Deutsche Asset Management MiFID II and unbundling represent a fundamental re-alignment of the European investment market that will force the buy-side to redefine the way it does business, according to Mike Bellaro, head of equity trading at Deutsche Asset Management. “This [MiFID II] combined with unbundling could be the most significant amount of change we have ever seen. It’s equivalent to the Big Bang.” “Most have been focused on how to value research but profound change should be expected on the execution front” Where once the buy-side could rely on help from the sell-side, this is less the case today as increased regulatory pressures and capital constraints limit the ability of banks to intervene and provide services to the buy-side trading desk. At the same time, the buy-side is itself being directly affected by a combination of sophisticated technological advancements and cost pressures. “My goal is to create a scalable platform. If I triple my firm’s AUM, I should be able to do it without increasing the headcount. Automation is the key.” We are in our next evolution which will allow us to automate more smarter” “We are one of the most aggressive users of algo trading in Europe.” At the same time we are one of the most aggressive leaders on block trading. We have had record volumes with record post trade performance driven by alpha from using strategic liquidity.” Part of the ethos behind this push towards automation is the conviction that human traders should be reserved for the kind of trades where they can really make a difference. Bellaro is leading an ambitious drive to automate the trading desk as far as possible. Last year, 85% of Deutsche Asset Management’s flow was executed electronically – much of it through customised broker algorithms with no human intervention. These changes can be seen as a disadvantage for the buy-side – but they can also be viewed as an opportunity. For Bellaro, the shifting situation means above all the empowerment of the buy-side, as asset managers take control over their own tools of execution. The challenge, however, is to take advantage of the opportunities on offer without dramatically increasing the buy-side’s fixed costs. 5