operations in a few specific markets.
Nevertheless, some of these brokers
may have a dominant market share in a
particular country or market, and thus
the buy-side needs to have trading lines
set up so that it can take advantage of
liquidity and gain information on midand small-cap stocks.
“You could say fragmentation is a
problem for Asia, which of course it is
if you’re not patient,” added Rossiter.
“But in most cases we can get our
trades done, just that they may take
more than a day or two. On real tricky
trades we usually try to find brokers
who know the company well, have
done roadshows or presentations
lately, or published research. We’ll
also look at which corporate broking
relationships they may have, or who
did their IPO if not that long ago.
We’ll look out for top shareholders
and their publically disclosed stake
changes to see if we could identify
a natural contra, but if not we also
consider facilitation at times. All
this means our broker list has to be
decently wide and provide flexibility
to trade.”
From a trading technology perspective,
the relationship between the buyside and the sell-side is currently
inextricably linked to the dilemma
between high-touch and low-touch
trading methods. Above all, the use
of algorithms is arguably linked to the
level of commission fees paid by the
buy-side to the sell-side. For some buysiders, this can lead to some surprising
conclusions – including a will from the
buy-side to resist further erosion of
broker commission fees because of a
feeling that further use of algos would
undermine the other services provided
by the sell-side.
“I am a member of a discussion group
and last week we were speaking in
detail about algorithmic trading,” said
Rossiter. We found that there may
be 100 algos out there but human
nature means the top three get used,
i.e. in any given year a random trader
really only focuses on a few. They may
tinker with the volume parameters,
but they’re not really using a different
algo. If anything, the proportion of
algo trading we have may be too
much. The commission pool that we
pay our brokers has been shrinking
year-on-year for years. As I recall, 2010
was the last time we had an uptick.
A number of years have seen doubledigit drops. Meanwhile, our AUM has
not decreased so it’s basically a lower
blended rate, and perhaps a little less
active trading. I don’t want the service
from the Street to fall as a result of
lower commissions being paid, and I
don’t think we’ll be using more algos.”
IMPRESSIONS OF HONG KONG
For the 21st century visitor from
England, Hong Kong is a fascinating
sort of place. On the hillside above
the town, there is a zoological
garden with a plaque which
records its opening by the Duke
of Edinburgh in 1983. Given the
seemingly interminable 12-hour
flight that separates the city from
the UK, it seems strange to consider
that at that time, the city was still
a British Dependent Territory under
the jurisdiction and sovereignty of
the United Kingdom. These days,
of course, the city is a thriving part
of China, albeit operating under
the One Country, Two Systems
doctrine that was agreed by the
British and Chinese as a condition
of the handover of the city from
the UK to China in 1997. The deal
essentially specified that the existing
June 2016
capitalist system and way of life
would continue in the city after its
handover for a period of 50 years –
a deal that has so far been largely
respected. The city is also a window
to the international community,
with a diverse selection of bars and
restaurants that includes Chinese,
American, Greek, Italian, German,
Irish, English and Middle Eastern
establishments, among others. The
other surprise is that despite the
city’s deserved image as a builtup metropolis full of sky scrapers,
much of the land between the
airport and the city is still forested
and mountainous. Meanwhile,
some of those working in the city’s
financial institutions are able to
catch a boat to work, crossing from
residential development areas such
as Discovery Bay.
www.buysideintel.com
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