Buy-side Perspectives Issue 4 - Page 10

“Between asset classes some of the senior managers at the brokers know our firm holistically, but down on the desk the equity trader and fixed income trader at one of the banks may not even know each other and they really are more focused on their own asset classes, and not how Allianz Global Investors may use their firm’s offerings in other areas,” said Rossiter. When it comes to selecting the trading venue for equities, there are rarely multiple venues to choose from in Asia, since most countries in the Asia Pacific region are still primarily focused around the national exchange. However, some markets such as Japan do feature multiple venues, and in such cases, Rossiter’s trading desk has to pay attention to which venue it is working orders on. To complicate matters, the presence or otherwise of high-frequency traders can be a significant factor in the decision of where and how to trade. One method to mitigate the risk of being picked off is to use minimum fill sizes 10 for dark fills or some of the PTS. But in reality, Rossiter warns that the trader could be interacting with HFT all day long even on the primary exchange. Under the right conditions, in limited circumstances, then there can be an opportunity to trade without too much risk. “There’s a mentality in Asia to trade at one-third volume by default,” he said. “Trouble is, there are many savvy HFT programs out there that can take advantage of our signals and disadvantage us. It’s hard to pick a standard volume. The fact that HFTs are not present when I’m matching blocks is a great reason to do that, but realistically a lot of the order sizes are smaller. If I have to work in the market, I’d rather be slow. If you’re running at 30% volume you will have market impact but if you’re at 5% at least you won’t make that impact. Slow down where you can. In those cases where I must be trading in the market I try to at least be less predictable, taking breaks here and there, and bold moves between.” “With a smaller sized order where you really don’t have impact then there’s little chance an HFT client could game you, and in that case if a PTS has a better price then why not take it? We’re not against dark pool trading with our brokers but do have some settings in place which we hope help us avoid interacting with some of the more toxic flow found in such pools,” That’s not to say there is no place whatsoever for alternative trading methods in the market, however. Rossiter added. Broker lists are another factor that has experienced pressure in recent times in some parts of the world. At present, Rossiter estimates that nearly 70% of Allianz Global Investors’ trades in Asia can be executed with the firm’s top 10 brokers; however, while there is significant concentration of flows, the tail of the broker list is much longer. It includes brokers that do not have the scale of the bulge-bracket firms, as well as niche brokers that may only have June 2016