Buy-side Perspectives Issue 4 - Page 11

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. 11