Buy-side Perspectives Issue 9 | Page 10

SEIZE THE OPPORTUNITY, THE BUY-SIDE TRADING DESK IN FOCUS Eric Heleine, Deputy head of trading desk, Groupama Asset Management O ur priority for the year 2017 naturally revolves around the implementation of MiFID II. The regulation is driving profound operational changes. It is obvious to me that the trading desk is at the heart of this transformation process which will have major impacts on the structure of the markets for equity and fixed income instruments, currencies, and commodities (“FICC”). The requirement to take “all sufficient steps” to obtain the best execution imposes us to review our trading practice. Clients are already including questions about the firm’s execution capabilities in their Request For Proposals (“RFPs”) which clearly indicate the client’s interest in the firm’s best execution efforts. MiFID II will transform the market and the trading desk will be instrumental in delivering the intelligence on how to capture short term alpha opportunities in the new environment. The subjects unbundling of research, selecting the tools for the tracking of research consumption (face-to-face and written research), setting up the research payment accounts (“RPA”) and regulatory reporting (RTS27 and 28) reduces the time given to the recurrent activities of the trading desk. But this profound transformation of our industry represents an opportunity to evolve and improve the trading capabilities of the buy side. More granularity in the data and an improvement of our TCA are assets to give to traders more responsibility and better tools. 10 A major share of my time as a deputy head of trading is currently prioritised around adapting to the upcoming regulatory changes; coordinating with people, reviewing processes, researching and implementing new technologies and trying to establish how we will interact with counterparties and venues. This means that a major part of the day to day trading activities need to be delegated to the trading staff. The trading desk and processes The obligation of best execution requires us to review our trading process. For example, on equities we are working on a better segmentation of our flows by flagging low and high touch. The objective is to group together flow that is similar in characteristics. The process of grouping is based on different characteristics like liquidity, spread and volatility. The fragmentation post MiFID I has added complexity for the trader to understand the behaviour of brokers’ Smart Order Router (“SOR”), the nuances between various strategies but also the implementation differences across brokers. One simple and effective solution for the low touch flow is to create an automated execution wheel to randomize the flow between different brokers after that trader has defined the executions objectives. www.buysideintel.com Summer 2017