J
ames Hilton and Matthew Cousens
have been co-heads of AES sales
Europe at Credit Suisse since 2012,
Over the last ten years, they have seen
the rise of MiFID, and now are focused on
preparations for the post-Brexit yet MiFID
II-compliant world of 2018.
“We’ve had a period of uncertainty,”
said Hilton. “That’s starting to change.
The structure under MiFID II is starting
to clarify. It’s better understood. We
are beginning to see more innovation
emerging from providers and trading
venues.”
Credit Suisse was one of the top algorithm
providers named by the buy side in K&KGC’s
Buy-Side Perspectives survey of global
buy-side traders earlier this year. According
to Hilton and Cousens, there is potential
for more innovation in complex trading
strategies – and particularly, in how to
automate these. For example, Credit Suisse
is in the process of launching new products
focusing on delta one products, indices and
custom swap baskets.
“Regulatory change brings changes in
market micro structure,” said Cousens.
“That means more complexity at the
smart order router (SOR) level. We have
invested heavily into the evolution of
electronic trading – for example, we
have hired a number of additional
quant analysts and developers this
28
year. As a result, we have a number of
products coming through, including
new algo strategies. We have a new
Implementation Shortfall model going
into beta testing, and we have revamped
several existing strategies including
Guerrilla, VWAP and a new Dynamic
Inline.”
One of the possible effects of new
regulation is increased equity market
fragmentation, particularly due to MiFID
II rules that force broker dark pools to
reclassify themselves as either a multilateral
trading facility (MTF) or a systematic
internaliser (SI). All MTFs are required to
accept any participant that meets the
minimum entry criteria, while the SI will
be obliged to publish quotes, effectively
turning it into a lit market. In both cases,
the regulator is essentially stripping away
the ability of the pools to use discretion and
discriminate between participants, in the
name of greater equality.
“The problem for the buy side is the
market will look pretty chaotic, some
broker pools will be classified as SIs,
some won’t,” said Hilton. “There will be
lots of competing SIs and there could
also be new participants registering as
SIs. The buy side will have to invest more
in their own technology to understand
this environment. The market is going
to produce more data, and that data is
www.buysideintel.com
likely to come in various different formats.
Buy-side traders will also have to work out
how best to trade stocks that have been
constrained by the MiFID II dark pool
caps.”
Credit Suisse is already registered as an SI
and the Crossfinder dark pools functions
under that banner. However, this does mean
that aspects of the way it operates will have
to change. Under MiFID II, traders in SIs will
trade against displayed liquidity, and the
concept of matched principal is unlikely to
be allowed. One of the difficulties that this
creates for Crossfinder is the dark pool’s
Alpha Scorecard.
“In Crossfinder, our Alpha Scorecard
was designed to profile every individual
strategy and client to allow our clients
choices about the types of flows they
interact with,” said Cousens. “Under MiFID
II that may not be possible. The discretion
is effectively removed. We use the Alpha
Scorecard as an education point for
clients, to help them understand the kinds
of flow they will be interacting with. If
that is removed, then the buy side choice
is reduced. Sadly, it is unlikely we can
continue that.”
Nevertheless, there are also positive aspects
– in particular, new venues that are a direct
response to regulatory changes. These
include Turquoise Block Discovery and
its merger with the Plato partnership, as
December 2016