[ I N T E R V I E W
Clients are more focused than ever
on best execution, performance and
configurability because of MiFID
II. Because a lot of the institutional
community is global, these are the
things that are top of mind for vir-
tually all buy-side firms in the US,
which fits our model perfectly
HM: As an advocator of full order
routing transparency, how important
is it for your clients to have a full
view of where orders are being sent?
PM: Transparency around order
routing has become more and more
important to the buy-side. Even
outside of our industry, we have
seen heightened sensitivity in how
personal data is being shared and
used on the internet, for example,
and people want to be aware of
what’s going on. But this is hap-
pening in the institutional trading
industry for a myriad of reasons. A
fully transparent model gives peo-
ple the ability to understand what’s
happening in a way that they can
trust, knowing for sure that when
an algorithm is essentially shopping
for them, it is doing so in the most
effective manner, hitting the right
venues at the right time. And trans-
parency also helps ensure that the
algo is not leaving anything on the
table, so to speak.
The fact that clients can then take
this feedback and then further op-
timise their strategies is also a pow-
erful outlet for people that provides
choice. For example, clients can say
“with these types of orders I want
to use these specific dark pools, or
I want to go to these venues first,
or let’s try to find hidden liquidity
with a bit more finesse.” Ultimately,
transparency enables understand-
ing, and understanding enables cli-
ents to provide feedback that lets us
precisely configure their strategies
and get the very best experience
possible when they’re out there
investing on behalf of their clients.
From day one at Dash, whatever
happens inside our “box”, so to
speak, clients are able to analyse it
through our visualisation technolo-
gy, Dash360. Clients can drill down
into a parent order’s slices and view
the analytics on performance and
slippage and so on. Users can liter-
ally watch an animation on what
the router algorithm did with their
order; where it went, why it went
there and what the market looked
like at the microsecond level. It’s
important information that gives
them full colour of not just what
was going on in the routing engine,
but also what’s going on in the mar-
ket both before and after that order
is completed.
I think when people can see some-
thing with their eyes, it can have a
very different outcome from read-
ing rows of data on spreadsheet. It
really visualises the order lifecycle
and allow clients to analyse it in a
very succinct and clever way, which
truly resonates with people.
HM: How would you solve the
maker-taker fee and rebates debate
in the US?
PM: With the rebate issue, I think
we’re seeing attempts to treat
the symptom, rather than cure
the disease. Reg NMS is 12 years
old now, and at the time it was
implemented there was essentially
two exchanges on the equity side
that were doing all of the volume,
so there wasn’t any real competi-
tion. We’ve gone from that duopoly
in the early 2000s to 2018 where
the equity market is, I would say,
hyper-competitive with over 40
trading venues.
The rebate debate misses the
mark because there’s nothing
inherently wrong with rebates. Say
a client is trading a passive strategy,
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P E T E R
M A R A G O S ]
for example — the rebates that trade
incurs should be passed on to the
client, which is what we do here
at Dash because clients typically
want to take advantage of those fee
structures through the “cost-plus”
pricing model we offer. But I agree
that with all-in pricing there’s the
potential for conflict of interest.
The electronic execution land-
scape is a very competitive business,
with a lot of highly advanced solu-
tions out there. I don’t think that we
should ban rebates because of a po-
tential conflict of interest, because
clients are very savvy about who
they use and why they use them to
ensure they get the best result for
their customers. I think we need to
regulate conflicts of interest outside
of rebates, and you could do this
through order routing disclosures,
which the Securities and Exchange
Commission (SEC) attempted to do
through Rule 606 reporting.
The buy-side is really very savvy;
some of the smartest people I’ve
met work on the buy-side, and I
think they tend to vote with their
order flow when it comes to these
things. So I don’t think we need
to change our market structure to
alleviate any potential conflict of in-
terest because clients can do that on
their own. I do think that Reg NMS
and the Protected Quote rules have
created an environment with mas-
sive fragmentation that’s primarily
benefited the exchanges.
In my opinion that’s what’s also
led to the massive increase in
market data fees, but the exchanges
are optimising for their sharehold-
ers to whom they have a fiduciary
responsibility. For a healthy market
you need all participants in the
ecosystem to be strong – exchanges,
brokers and investors. But most
important is the health of the inves-
tors, and I worry at times that we
are losing sight of that.
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