THETRADETECH DAILY THE OFFICIAL NEWSPAPER OF TRADETECH 2022
enforcement .
Second , market data is a mess . Fragmented exchanges operating a variety of protocols and experiencing issues with outages , data quality and accountability . In theory , some aspects of blockchain should make markets more transparent but in practice the evolving matrix of exchanges and opaque derivative products makes institutional quality trading and best execution a fascinating , but very solvable , challenge .
Finally , the area where there appears to be most progress is the institutional operational capabilities , especially custody . This is not an issue for retail investors , where self-custody or co-mingled exchange custody is acceptable , but institutions require asset segregation and security at a significantly higher standard . Lots of very smart people are working hard to provide solutions to these pain points . None of them are insurmountable and I am optimistic that we will continue to see the barriers to institutional adoption fall .
How have you adapted your trading portfolio in light of the rise of index / passive investment ? The biggest impact of passive investment strategies has undoubtedly been the migration of liquidity towards the closing auction . As a trading desk at an active asset manager , we respond to liquidity opportunities whenever they occur , and we are interacting with the closing auction in an opportunistic way and will source extra liquidity if the uncross price looks favorable .
Another impact of the rise in passive / index investment is the lack of turnover / liquidity in some of the index heavy names . Index holders generally don ’ t sell their holdings unless there is a rebalance event and therefore the available float in these names tends to be lower than what is indicated .
“ I think there are still several pieces that need to fall into place for true institutional adoption of cryptocurrency investment .”
What is the impact of the growing retail segment on institutional investors and how have you adapted your strategies to adapt to this ? In Europe , retail remains a small part of the liquidity landscape ( 7-10 %) relative to the US ( 20 %) and it can be difficult to interact with this liquidity directly . There are various mechanisms being developed to make European retail volumes more accessible to institutional investors , and we remain alert to all new initiatives that would enable us to source unique liquidity for our clients .
Overall , institutional investors would prefer to engage with the growing retail liquidity . At times , the retails flows can represent “ inaccessible liquidity ” so getting a better understanding of true retail activity would allow institutions to manage their liquidity consumption more accurately . Additionally , retail activity can create undue volatility forcing institutions to consider whether price dislocations are real or transitory .
Issue 1 www . thetradenews . com 19