THETRADETECH DA I LY
highlights
THE OFFICIAL NEWSPAPER OF TRADETECH 2019
THETRADETECH DAILY
highlights
THE OFFICIAL NEWSPAPER OF TRADETECH 2019
• Some asset managers have turned to out-
sourcing for cost and risk reduction following
new regulations, access to markets, leverage
of technology and platforms. But outsourc-
ing decisions depend largely on size and
situation.
• One speaker described outsourcing as an
‘emotional topic’, saying if you remove the
emotion you can look at how you can measure
the value chain. People are comfortable with
outsourcing, back, middle office, custody.
• The relationship and communication
between fund managers, internal teams and
outsourcing providers is crucial.
ing changes to technology structures, but
seeking to get the best of human expertise
and machine capabilities is the formula most
likely to succeed – although this is easier said
than done.
• The industry is at a turning point where
automation is increasing and within two
years will be far more commonplace than
it currently is. Those who adapt to this to
address global challenges will be in a much
healthier position than those that fight it.
STREAM A: APPLYING SMART TRADE DATA
ANALYTICS
FIRE SIDE CHAT: Establishing a systematic
trading approach in 2019 – how can you suc-
ceed in the search of quants and put into place
the required infrastructure?
• There is a focus on lowering trade costs,
integrating process with the portfolio manag-
ers, and creating more operational efficien-
cy to the benefit of the end investor. At JP
Morgan Asset Management, good quality data
is key for evidencing the value of undertaking
new technology projects.
• JP Morgan as an organisation now
spends in excess of $10 billion annually on
technology. It’s no longer considered to be
a back-office function but a major part of
the wider business. The technology team is
closely intertwined with the trading desk and
understand what would benefit the traders.
It is a challenge to find talent to expand the
technology team, but building and innovating
new platforms in partnership with the trad-
ers is a key focus for JP Morgan AM.
ious venues such as periodic auction pools,
systematic internalisers, and block trades.
Making it useful for traders will be the next
stage.
DISCUSSION PANEL: What OMS and EMS
type and combination does your desk need to
thrive in a market with increasingly complex
order flows, multiple venues and aggregated
trades?
• The notion of an OEMS has been debated
in the industry for years, with attempts to
merge various systems into a single platform.
The constant need to switch between systems
and a lack of interoperability between OMS
and EMS is driving consolidation among
providers, but providers note that both
systems are different and provide different
functionality.
• The need for an EMS is specific to each
asset manager; it is not a ‘one size fits all’
process. Value add, such as transaction cost
analysis when seeking to implement an EMS,
DISCUSSION PANEL: Intelligent TCA – how are
currently tools being optimised to carry out
more detailed pre- and post-trade data visuali-
sation?
• Transaction cost analysis (TCA) has
moved from being ‘nice to have’ to a ‘need to
have’ product for the buy-side. TCA has his-
torically been used to benchmark traders as
well as brokers, which hasn’t changed and is
unlikely to change in the near future. MiFID
II helped to create more competition in the
space with more focus on broker evaluation
and trade performance.
• Mining data for TCA is maturing, meaning
it can provide more granular insights on var-
Q
What has been the biggest change in trading strategy since MIFID II? (Multiple answers)
Sample size: 169
Reduced broker lists
Increased use of algorithmic trading
Increased use of risk capital
More focus on TCA
No change
0%
20
25
THETRADETECH DAILY
50
75
100
is a key focus for the buy-side, but it comes
down to selecting the product that will fill the
biggest gaps in each firm’s processes.
PANEL DEBATE: Evaluating the pros and cons
of outsourcing when looking to maximise
trading efficiency and desk performance
• When deciding whether to outsource, the
decision to move forward with a partnership
is only valid at that point in time due to the
dynamics of the industry and the continuous-
ly evolving nature of the landscape. There is
a reputation risk when outsourcing, as firms
put certain functions and processes beyond
their control. On the other hand, outsourcing
with an independent third-party provider can
also provide strategic vetting for processes
such as TCA or benchmarks.
• In terms of regulatory compliance, regu-
lators tend not to get upset if a mistake has
been made but more so if you are not apply-
ing the appropriate level of rigour and time
to ensuring regulatory compliance. There are
lots of outsourced providers who are entirely
focused on fulfilling regulatory requirements
to the point that they are considered to be
best in practice.
• Dealing with the legacy aspect is a chal-
lenge when processes have been done a cer-
tain way for a long time. Implementing new
technologies requires a political shift within
the business in order to get that type of
project on track. It is easier for firms starting
with a blank slate, but for institutions with an
existing process or system it can be difficult.
STREAM B: EXPLOITING NEW TRADE EXECU-
TION TRENDS
Q
they are connecting and why
DISCUSSION PANEL:
Are those involved in
they are connecting. Pre-
How can leveraging
trading and execution
and post-trade analysis
alternative data sources
services engaged directly in
is crucial and can give an
help you make more
the use of AI tools?
indication of liquidity.
profitable business
• Smart venue analysis
decisions and who are
Yes 36% No 64%
brings out deeper discus-
the companies offering
sions with the buy-side to
true innovation?
Sample size: 96
understand better what their
• Alternative data can
strategies and, performance goals
be social media, blogs, reports
are under different scenarios.
from websites, dark web, IOT
• The buy-side are keen to collect a lot of
devices - anything that’s not in that
data themselves and run the analysis them-
traditional set. Most of it is unstructured. It is
selves. Approaching a collaborative/consult-
essentially big data that can be used by asset
ing approach; the more knowledge providers
managers to maintain informational edge.
can get from discussions with the buy-side,
• When searching for alpha post-financial
the better they are able to trade for them.
crisis and looking at how you create alpha,
alternative data can be a differentiator. The
information is out there where you can create OXFORD STYLE DEBATE: Outsourcing your
execution services is the most time and
an edge from others.
cost-effective way to ensure best execution
• Most firms have tonnes of data they are
and compliance in today’s trading landscape –
not accessing or leveraging, so some of the
For and Against
greatest enhancements are allowing you to
gain insights from that data. Every day inter-
actions with customers can be valuable.
• Regulation and standardisation need to
overcome challenges, with some of the ac-
tions around ESG being used as a benchmark
for where alternative data should look for
inspiration.
DISCUSSION PANEL: Smart venue analysis –
how can you discover a deeper understanding
of order routing and rationale to improve
access to liquidity?
• There is no longer a ‘one-size fits all’ or
one particular strategy that can find liquidity
across every venue. Firms need to look at how
DISCUSSION PANEL: How has the transparen-
cy, safety and efficiency of the European ETF
market been impacted by MiFID II and what
does this mean for your trading strategies?
• In order to ensure best execution, buy-
side entities would turn to tools such as RFQ
platforms, and using those tools they could
put sources of liquidity in competition with
each other – this is what the big change on
the ETF side was under MiFID II.
• RFQ platforms then became MTFs, so
these lines got blurred between an exchange
and RFQ MTF. The winners from MiFID II
have been the RFQ platforms – the buy-side
are pleased with better execution from these
very quick and automated RFQs; a much
more competitive and automated way for the
buy-side to trade ETFs.
• When volatility increases: more people go
into ETFs to use it as a market access vehicle.
In challenging times ETF trading has been
increasing. While people worry that everyone
will redeem and fallout, people are seeing op-
portunities to buy as well, and an ETF allows
you to express your view.
STREAM C: LEVERAGING AI AND AUTOMA-
TION
OUT OF INDUSTRY INSIGHT: AI – who is actual-
ly using it and where is the real value seen for
trading desks?
• The application of artificial intelligence
tools in financial markets holds significant
potential but firms must be cognisant of the
areas this kind of technology most benefits.
Risk management, tactical allocation, pricing
and execution are all high-value processes
that benefit from the use of AI.
• Building a team of AI specialists is a cru-
cial element in the successful use of AI and
diversity is a key aspect of this; programming
specialists, technology engineers and data sci-
entists can all be utilised, but other scientists
(such as biologists, chemists and physicists)
can also bring something to the table.
• AI will not take over the industry any time
soon, despite the prevalent fears that human
traders will be replaced by machines. AI can
provide incremental improvements in target-
ed areas, but firms must do their homework
and identify specific problems they want to
address in order to realise tangible benefits.
Issue 2
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