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never returned to pre-pandemic levels and we continue to monitor this very closely . One might have thought that after the market disconnect , things would have normalised but actually we may have arrived at the new normal .”
liquidity at the touch all but disappeared and traders began to notice unusual trends .
“ The market movements were extreme and trading costs soared to four or five times more than usual ,” Lao says . “ We began to experience things never seen before , like the relative volume curve at the close decreasing as volume moved to intraday , which meant we had to adjust and move our trading strategies .
“ More interestingly , trading costs that increased massively at the height of the volatility remained above average , even during the second half of 2020 . The costs
Liquidity is not always there Buy-side traders have been adapting to various new normals even before the pandemic struck markets . The liquidity landscape has changed dramatically in recent years in light of increased passive investment and retail trading volumes , while automation and electronic trading has altered workflows significantly .
Lao explains that as traders use more low-touch execution channels and quantitative strategies have been fine-tuned , sourcing liquidity has become an even greater challenge for buy-side traders .
“ It feels like liquidity is really tough to source at the moment and the prints you can leave in the market are so high that we are really mindful of market impact in our day-to-day activities ,” she says . “ Liquidity has dried up as trading has become more automated because orders are worked more passively , either at the close or in VWAP . For traditional players like us , sourcing big liquidity is a really hard job to do .”
Europe ’ s bid to improve liquidity and increase transparency with the MiFID II regime is also yet to succeed . Lao says that while the requirements brought about some level of transparency , with that came increased complexity as traders were force to deal with the onslaught of new trading venues types .
“ From the large investor ’ s point of view , we still find that liquidity is not always there and we have a more fragmented marketplace . It was more a deterioration of the liquidity environment ,” she adds .
Buy-side traders are required to keep apace of the ever-evolving market structure . The traders at Boussard & Gavaudan regularly meet with their brokers and algo providers who help them stay up-todate and on top of changing requirements .
With the emergence of new venues and increased electronic trading , the traders have established closer relationships with counterparties , algo providers and the platforms they use to source liquidity . Those relationships became even more crucial during the more volatile periods in 2020 as gaining market structure insights became as important as executing orders .
“ The confidence in our broker relationships is still very much there and we need them for sourcing big liquidity books ,” Lao says . “ But as we trade more low-touch , they don ’ t always have the full picture on
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