to provide greater clarity on the detail required to assess ‘ fairness ’.
Neil Bond , equity dealer at Ardevora Asset Management , argues that OTC traded products should be subject to the same level of accountability ( and the same metrics ) that non OTC products are subject to ; “ while this may not be easy , we need to evolve to do this effectively ,” he says .
UBS ’ s Richard Semark says that , historically , the challenge has been how to assess best execution with limited market data to have any form of benchmark .
However , he says things have now changed .
“ With a broader focus on process rather than just the outcome , I think it will make it easier , to some extent , to apply best execution to OTC .’
“ There is more clarity around whether the broker is assuming that the client has visibility of the marketplace or whether the client is expecting the broker to look around the marketplace themselves ; I think it is definitely helpful to remove gaps between the two sides there ,” he adds .
EVALUATING SERVICES Bond believes that sell-side services will have to be evaluated entirely without concern for research .
However , he adds that there are many other levels and aspects of service from the sell-side that can be taken into consideration , some of which are easy to quantify such as performance against benchmarks and others which are more qualitative such as reliability , quality and size of flow .
“ When evaluating sales traders , the ones who understand your trading style , who are familiar with your holdings and know your objectives and limitations , are the ones who are most valuable ,” he explains .
“ For the lower touch services we really appreciate when we get a higher service level and bespoke algos . Also , with so much going on in the regulatory environment , having a good market structure team will make you stand out .”
Semark argues that while historically TCA has been one of the areas used and has been useful , it can also be problematic when you have a small sample : “ the client might have executed two or three trades with us in large cap stocks in a particular European market and that ’ s not a statistically significant sample ,” he says .
“ What ’ s important for all parts of the industry is to have a feedback loop in place so there is evidence that analysis is being performed and this is having a positive impact on the choices that are being made .”
SMART ORDER ROUTERS Semark says the bank constantly refines the way smart order router works and he likens it to a Formula 1 car :
“ If you set a car up for Monaco and it goes out and wins and your next race is at Silverstone , you will still want to reassess the car to understand why it performed in the race at Monaco and which areas can be optimised for the next one .’
“ That ’ s as well as the fact that you are seeing innovation come through in venues , so we have seen Turquoise Block Discovery , periodic auction coming through from BATS and Aquis with its re-definition of flow .
FROM A BUY-SIDE POINT OF VIEW , I THINK THERE IS THE NEED TO DEMONSTRATE THAT THE REASONS FOR CHOOSING AN EXECUTING BROKER ARE BASED ON BEST EXECUTION .
RICHARD SEMARK , HEAD OF EUROPEAN CLIENT EXECUTION STRATEGY & HEAD OF UBS MTF
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