THETRADETECH DAILY THE OFFICIAL NEWSPAPER OF TRADETECH 2022
how can trading firms navigate changing market structure and price formation in this market ? Regarding market structure , we on the buy-side need to constantly be on the front foot about what ' s happening . For example , as liquidity sources move and evolve from different venues , we need to be swift to track and acknowledge these changes in our technical infrastructure . Another example would be navigating the new paradigm as the UK moves further apart from the EU in terms of regulation . Generally , everything comes down to information and adapting to it as it presents itself . It is essential that we , as a firm , are navigating what is happening in the most proactive way . In terms of price formation , again , you ' ve got to constantly be evolving your processes to account for the latest changes . For example , over the last couple of years , we ’ ve seen liquidity moving between some of the larger liquidity sources . It is important to make sure that we are accessing the liquidity and prioritising the correct venues through your brokerage options . We need to work with our sell-side brokers to make sure they are sourcing liquidity in the correct venues in a timely way . important topics for both sides of the industry . The balance between best execution and ESG principles is becoming increasingly relevant and this trend will continue . I can envisage a point where broker selection is tied to the counterparties ESG credentials but how we go about evaluating these parameters is still in the early stages . Will the industry move together towards a common goal ? What should the buy-side be demanding for the sell-side ? Questions like these will need to be determined and forums such as TradeTech offer the opportunity to discuss them .
The changing equities marketplace seems to be a focus for this year ' s conference ,
How have you adapted your trading strategies to manage another year of potential uncertainty in the markets ? This year has already seen numerous global challenges , with the invasion of Ukraine the greatest for immediate impact . Although we didn ’ t see the same huge increased spreads and volatility that accompanied the 2020 outbreak of Covid , the February invasion caused increases in both factors , and with liquidity also reduced , the knock-on effect has been execution cost rising . We will also face challenges later in the year as the consequences of the war begin to feed through into financial results and I see potential large daily moves in individual stocks in H2 .
In such circumstances , all trading desks will have to be dynamic in how they handle flow and we are the same . When dealing with larger orders , we must be cognisant of the fact that liquidity offering from market makers may be lower than it was ( as they shield themselves from volatility ), though from our perspective this is not something we have yet to see . It is important to build parameters into these orders to avoid the worst of the volatility . For algo trades , we already have tight constraints in places and regularly monitor for underperformance . That said , we continue to evolve these strategies as required when faced with a changed environment . Adaptability is key .
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