[ I N - D E P T H
perienced, it
is more import-
ant than ever to
make informed venue
selection decisions.
BS: Jefferies doesn’t have
an execution process that tries
to minimise the cost to us when
doing business for our clients. So,
for us, the consistency of availabil-
ity of liquidity is not a crucially
important factor, but what is
important is the size of liquidity
when we need it. We actually
don’t consider the marginal price
improvements offered to us on the
quotes we receive from market
makers, and that’s because we are
not looking for them to create an
ability to synthetically jump to the
front of the queue by a tenth of a
tick-type price improvement. We
completely ignore that. It doesn’t
even compute in our system. We
are sensitive to the size of liquidity
that is being offered to us, and the
price impact we will see as a result
of that execution.
When we’re talking to the dif-
ferent providers, we are trying to
understand factors like their hold-
ing periods, strategies and unwind
models, and that has helped us to
predict the availability of liquidity
in size and what that price impact
will look like based on what they
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S Y S T E M AT I C
I N T E R N A L I S E R S ]
are describing. By connecting
to a variety providers, not ones
that are very similar to each other,
we also have a diverse range in terms
of the universe of coverage. One provider
covers more of the small and mid-cap range
in continental Europe, an interesting area for us
to explore, and other providers have their primary
business in cash equities, ETFs or options, and the
flow they have in cash is made in the unwind of hedg-
es and those types of trades - but again, it’s a different
profile. We’re looking for that complementary nature
of the universe that comes together. But ultimately we
go to providers and say, “show us more size - I don’t
care if you’re not there as often, but
show us more size”. Or show us
mid-point liquidity, because then it
gets very interesting as we can con-
nect that to a range of additional
strategies that are taking advantage
of mid-point liquidity elsewhere,
from periodic auctions, dark MTFs
and so on.
MM: You have to give yourself
liquidity options. We must remem-
ber that not all execution venues
are suitable for every order type.
No one venue type ticks all the
boxes. SIs will admit themselves
that they are not suitable for every
order type, but they are there for
when you need them. At every
buy-side event I attend, the main
problem we all come up with is
finding liquidity, so having a variety
of good quality liquidity options
definitely helps.
Matthew McLoughlin
head of trading, Liontrust Asset
Management
“When I interact bilaterally, I know exactly who I
am trading against so that I can hold that venue
to account.”
MATTHEW MCLOUGHLIN
JF: The factors that Matt and Ben have covered there
broadly fall into three categories: unique liquidity,
quantity of liquidity and quality of liquidity. Unique
liquidity comes up a lot in terms of what clients are
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