[ I N T E R V I E W
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N I C K
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Nick Wood, head of execution at Millennium Global Investments, talks to The TRADE about
the important role analytics tools play throughout the trade lifecycle, particularly when it
comes to achieving best execution.
What technologies are currently
of most importance to help you
achieve best execution on a consis-
tent basis?
Nick Wood: Best execution is a
process which ensures that, from
origin to the settlement of a trade,
the outcome is the most optimal
it can be for the client. By virtue,
this will include many important
components.
Focusing on execution, these
components include transaction
cost analysis (TCA), pre-trade
analytics and the various execu-
tion tools which are available. If
we break these down, TCA is vital
for validating your process and
highlighting scope for improve-
ment. Any significant costs and/or
potential for improvement should
be identified through TCA.
It is then the outcome of this val-
idation that poses questions, such
as “Do I need a better understand-
ing of the trading environment?”
and “Is my style of execution
optimal?” This is where pre-trade
analytics become vital.
Thirdly, you need to be able to
action any conclusions by being
able to execute through whichev-
er method is ideal to the trading
environment you are facing. So, all
these points are key to achieving
best execution on a consistent ba-
sis because each one will enhance
the others and help to improve the
overall process.
I would also suggest that if one
of these elements is weaker or is
missing from your workflow, then
this area requires particular focus
and will be the most important
aspect until any weaknesses are
remedied.
It’s also important to be mallea-
ble, as the reality is that for each
area of focus there are several
different products on offer, each
proposing a variation of a similar
theme and with the continual
evolution of technology, what is
pertinent now may not be in 12
months’ time.
Why are pre-trade analytics
becoming such an important com-
ponent of the trade lifecycle?
NW: Some of the key parameters
which need to be observed for
optimal execution are volatility,
spread, liquidity and hit ratios.
The importance of the parameters
will also depend upon whether
the trade is low touch, where
arguably hit ratio and reject rates
rank higher, or high touch, where
liquidity and spreads are more
critical. It’s stating the obvious but
executing 1million EUR/USD is
completely different to executing
50 million GBP/USD in terms of
liquidity and therefore the market
information that must be assessed
is different.
The tools, which are increasingly
available, give a greater insight
into live market volumes, depth
of market and spreads. These are
powerful in forming an execution
decision. Having said that, quite
a few of these indicators are still
lagged and therefore the trader
needs to be adaptable. Market
environments can and will change
and maintaining a static approach
if circumstances have changed
won’t necessarily produce an opti-
mal outcome.
When incorporating new technol-
ogy into your execution workflow,
what are the key characteristics
you should look out for?
NW: I think the first and most im-
portant characteristic you should
consider is “Does this improve my
current process?” whether that is
better compatibility to (or consoli-
dation of) existing systems, great-
er access to liquidity providers or
an improvement to your execution
tools, the addition should demon-
strably improve your workflow
“In a fragmented market such as foreign
exchange where access to data is expensive,
ensuring you access the most complete price
tape for spot and forwards usually means
having to utilise a third-party provider. So,
the first standard is accuracy of the price
data points.”
Issue 62 // TheTradeNews.com // 57