Equities
NAVIGATING THE EQUITIES
JUNGLE
Matt McLoughlin , head of trading , Liontrust Asset Management
Matthew McLoughlin has had an interesting and varied career . Now head of trading at UK-headquartered fund manager Liontrust , he started out as a credit and rates junior before joining AIG Asset Management , where he was active on the portfolio management side of the business . He then moved to the hedge fund RAB Capital , seeking to become more involved in trading , before joining Liontrust in September 2015 . “ I ’ ve seen the industry from many different angles ,” he said . “ There ’ s so much more involved in successfully trading a block nowadays . I think both the buy side and the sell side are recognising the need to be more patient in order to find the right liquidity and are doing a lot more research in selecting the appropriate venues in which to find it . We use a combination of dark pools , cash desks and conditional order books to find block liquidity , as well as dedicated block crossing platforms .” In a market full of constant changes , one of the first questions is which developments are useful . McLoughlin is a big supporter of conditional order books . For example ,
Liontrust uses the new Bats LIS service , which describes itself as a large-in-scale IOI negotiation and execution platform for block crossing in European equities . “ The willingness to trade in larger size is largely driven by the confidence we have in the relevant venues and some of the new block trading order books are definitely of interest , especially with MIFID II around the corner ,” he said . “ Conditional order books are attractive to us because they allow us to avoid missing out on other flow , which would otherwise be a risk when resting an order in a dark pool for example . Depending on what percentage of LIS you have to rest in a conditional order book , you can still actively trade in the market , but at the same time get access to the possibility of a block . Reversion rates have been good on the conditional orders that we have seen .” However , the new opportunities are not without potential obstacles that will need to be overcome . For example , should a conditional order be rested in one pool at a time , or in multiple pools at once ? If it is the latter , McLoughlin fears the outcome would then boil down to whichever platform has the lowest latency , potentially triggering a latency war which “ would not be in the interests of anyone ”. In addition , there are regulatory issues that could impact the trading desk too . For example , the LSE ’ s Turquoise trading platform currently has a threshold order size at 25 % of the large-in-scale pre-trade transparency waiver under MiFID , but that figure will have to increase to 100 % by the time MiFID II takes effect in January 2018 . Whether this will impact liquidity remains to be seen . The relationship between the buy side and the sell side are another area of focus for McLoughlin . Recent years have seen many buy side firms reducing their broker lists – a process which he believes makes sense on the algo side of the business but which should not be pushed too far , especially when it comes to high-touch relationships . While the global regulatory push for investment firms to understand and be able to explain their algorithms has provided a push to reduce the number of algos , there may well still be room for hightouch relationships where these add value , particularly for small and mid cap stocks .
10 www . buysideintel . com March 2017