THETRADETECH DA I LY
in-depth
THE OFFICIAL NEWSPAPER OF TRADETECH 2020
on execution performance. “Technology
teams are co-located on the trading
desks around the world. This enables us
to develop using agile methodologies:
we now deploy multiple new releases per
week,” he says.
Growing up
These changes make for different
requirements on - and relationships with
- the sell-side. Trust in the ability of an
individual sales trader to find liquidity has
given way to a more forensic, data-driven
approach.
“By 2010, broker relationships based
on personal franchises and networks
were already eroding. In light of MiFID
II’s unbundling and best execution
requirements, these relationships are
now highly strategic, based on compatible
approaches to electronic trading,” says Carl
James, global head of fixed income trading
at Pictet Asset Management, noting a
broad-based increase in transparency.
“The buy-side has had to grow up. In the
past, there was a tacit understanding that
the sell-side would supply infrastructure
and other execution-related services. Today,
if you want it, you pay for it.”
Sales traders have had to change just
as much as their buy-side counterparts,
according to Mark Goodman, president of
UBS MTF: “Today’s electronic sales trader
helps the client to navigate the market,
advising on how to get the best outcome.
This role was only just emerging in 2010,
when the priority was just getting the
trade done,” Goodman observes. “A strong
relationship is not going to get broker A the
business if the data says broker B can get a
better outcome for a particular order.”
Accordingly, provision of data, analytics
and other decision support tools is as
central to serving the buy-side today as
access and liquidity. Progress has not
always been smooth. In an era of low
margins and high transparency, it is
harder to justify the more labour-intensive
services still valued by the buy-side, such
as research, market colour and capital
commitment.
Highly-automated central risk books have
been developed by larger brokers, whilst
some buy-siders are paying high-touch
prices to maintain access to sector-specific
insights, despite executing via low-touch
channels. As such, today’s sell-side service
model is based on execution choice and
support. Known primarily for its buy-side
liquidity pool, Liquidnet’s offering has
expanded over the decade, for example,
encompassing a broad, flexible set of tools.
“We may be seeing the emergence of a
mid-touch sell-side model, where trader
expertise and experience in certain sectors
is allied with services that provide insight
through data-driven analytics,” says
Jackson. “And as buy-side desks reengineer
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THETRADETECH DAILY
“In the time it took to pick
up a paper ticket when I first
started, time stamp it and
pick up the phone to a broker,
you can now hit a single
button that optimises the
execution strategy.”
GREGG DALLEY, GLOBAL HEAD OF TRADING,
SCHRODERS INVESTMENT MANAGEMENT
their processes to achieve better outcomes,
we need to have the skills and analytics to
support them.”
Revolution
If the central story of the decade is one of
buy-siders levelling up with brokers and
HFT firms, enhancing technology and skills
to improve the efficiency and accuracy of
their trading activities, two caveats are
necessary.
Schroders’ Dalley insists the human
element is still important, from generating
liquidity in mid-market names to
observing etiquette to preserve long-term
relationships. At Pictet, James says the data
revolution has barely begun.
“We won’t recognise the front office in
three-to-five years’ time. We might not
have seen much change yet, but the hiring
of data scientists is the start of a journey of
discovery. Traders will increasingly oversee
trading operations, becoming portfolio
strategists,” he says. “If one considers the
fundamental changes in how investment
ideas are generated, it’s clear that the old
model is dead and we’re now in an exciting
new phase.”
Some things changed even less. Despite
MiFID II’s measures to bring more trading
back onto lit trading venues, off-exchange
volumes have stayed remarkably steady.
The battle between exchanges and brokers
that first opened the door to HFT goes on.
Barely a week after Sarao finally learned
he would not serve jail time, the European
Securities and Markets Authority unveiled
proposals to reform MiFID II. Plans to
restrict dark trading and periodic auctions
and increase SI pre-trade transparency are
designed to ease the introduction of the
consolidated tape, still much desired by the
buy-side.
But they are also seen as a response to
political dissatisfaction at MiFID II’s failure
to boost on-venue volumes. As Rosenblatt
Securities noted, “Exchanges on the
continent will likely push for SI restrictions
and further limits on dark trading, while
banks and buy-side firms will fight to keep a
more diverse competitive landscape.”
Plus ça change!