Conference Dailys TRADETech Daily 2019 - Wrap-Up Issue - Page 18

THETRADETECH DA I LY highlights THE OFFICIAL NEWSPAPER OF TRADETECH 2019 THETRADETECH DAILY highlights THE OFFICIAL NEWSPAPER OF TRADETECH 2019 TradeTech 2019: THE HIGHLIGHTS Did you miss any of this year’s panels or couldn’t decide which stream to sit in on? Get stuck on the exhibition floor while waiting for a coffee? Not to worry, The TRADETech Daily has you covered, with panel discussion and interview summaries, as well as the results of the audience polls spread across the two-day event. DAY ONE MARKET STRUCTURE LEADERS PANEL: The paradigm shift - how are changes in market structure, liquidity and new products altering the way you interact with your counterparts across the value chain? • The biggest impact of MiFID II has been seen in systematic internalisers and unbun- dling, according to the audience poll. Though panellists believe it’s not one big standout impact, it’s lots of little things. • A lot of time and resources are spent on liquidity sourcing, connecting to SIs, looking at periodic auctions and how to navigate the liquidity that they provide. Unfortunately, the outcome is the channel shift has been fairly muted based on the percentage of business that has migrated. • A lot of banks and brokers spend time, effort and resources on TCA, but some are seeing the converse in action, demand for TCA from clients becoming less. • There is a big alpha shortage, so ways of improving those outcomes for everybody in a fast-changing world is key and unbundling is at the heart of the challenge. KEYNOTE BUY-SIDE ADDRESS: Leading the way through change – how has BlackRock created a dynamic team structure and trading strategy that encourages constant innovation and adaptability to growth on a global scale? • BlackRock has placed a firm emphasis on developing flexible, technology-driven trading personnel in order to stay ahead of evolving market conditions, building a cul- ture that ensures trading desk staff are armed with a diverse set of skills that can be utilised across its execution channels and technology resources. • An iterative, proactive approach to new technology, improving workflow processes throughout the trading order lifecycle and consistent dialogue with other market partic- ipants is absolutely essential to achieving this. • Regulatory change is creating regional liquidity pools that require a new approach to trading workflows, which is where technolo- gy developments around automation and data can be utilised. Q What has had the biggest (positive or negative) impact on market structure since MIFID II? (Multiple answers) Sample size: 188 Periodic auctions Dark cap limits Systematic internalisers Risk capital Central risk books Research unbundling Other 0% 18 25 THETRADETECH DAILY 50 75 100 ALL STAR PANEL: How have market makers, SIs and alternative liquidity sources advanced in light of more robust pre-trade transparen- cy, improved price efficiency, rigorous best execution demands. Are the buy-side asking their brokers the right questions to remain compliant?  • Increased use of systematic internal- isers (SIs) is a consequence of regulatory intervention. One of the attractions is the transparency element, allowing buy-side and sell-side market participants to see and assess transaction cost analysis (TCA) on fill rates achieved if a broker routes to SIs.   • Some market participants are sceptical of SIs due to the complexity introduced to the market and the cost to the end investor of dealing with that complexity.  • MiFID II has brought about more frag- mentation, but that fragmentation means competition is thriving with no single dominant primary exchange; many secondary trading platforms and other trading protocols are competing for business. ALL STAR PANEL – BUY-SIDE & SELL-SIDE IN- SIGHT: Evaluating the difference between key liquidity providers – how to build an effective plan to determine who is best to use, when and why? • Electronic liquidity provider systematic internalisers (ELP SIs) are becoming a more important part of the market structure now that MiFID II has had time to bed in and the industry has adapted to these new partici- pants. • Brokers will play a key role in the growth of ELP SIs going forward, although they too are getting used to their place in the market. • Although there is lingering confusion around how ELP SIs operate and differenti- ate from each other, the growing amount of data coming through from these venues is Q Are the new ELP SIs in the market adding true liquidity differentiation compared to past/more established liquidity providers? Yes 41% No 59% Sample size: 116 beginning to create greater transparency and dialogue as to the mechanics of ELP SIs. • However, audience polls found that this sentiment may not be too widespread: 56% of audience members said they are unsure of how ELP SIs differ from each other, 51% said the biggest challenge they faced was un- derstanding who they were interacting with, while 82% of audience members said they did not receive sufficient information on the mechanics of how SIs work. ALL STAR PANEL: A brave new world for capital markets - what does it take to thrive in the ever-evolving global trading environment where innovation, transformation and renewal wins?  For the sell-side, the long-term differentia- tor will be the ability to adapt in the new en- vironment. Institutions need to be prepared to make bold moves, but that can be more difficult for larger sell-side firms which need to build the right infrastructure to govern new data sources born from regulation and technology. The barriers to entry for firms on the sell- side is a huge challenge, in part due to the regulatory burden. MiFID II has seen buy- side firms re-evaluate their broker lists, so the challenge is getting on the list and staying there. Balance sheet and risk also play a mas- sive role in this as demand from the buy-side for access to large balance sheets for credit risk or prime brokerage purposes remains very high.  Predictions on future disruptive factors in the industry include the democratisation and universal access to data, the way in which that data is utilised, outsourced dealing, and potentially new products and services from existing institutions. KEYNOTE INTERVIEW: Creating a valuable business that combines world class execution, technology innovation and operational excel- lence – what’s next in the ITG and Virtu story? • HFT and market maker, Virtu Financial, has completed its $1 billion acquisition of agency broker ITG. Virtu’s CEO, Doug Cifu, explained that the tie-up was driven by ITG’s global reach, technology focus and similar company culture. Virtu Financial will create a combined entity with segregated business lines and efficient safeguards and firewalls to remove any potential conflict of interest. To manage fears of information leakage, Virtu will provide open and transparent commu- nication with clients to ensure that their information is safe. • Cifu added that a MEMX-style consor- tium could potentially launch in Europe. Virtu Financial teamed up with several other major financial institutions to establish a US equities exchange in the fight against a lack of competition in the national exchange space. Cifu said that the mandate of MEMX is not limited to the US, and there’s no reason the consortium, or another similar type of exchange, couldn’t be established in Europe. KEYNOTE FIRE SIDE CHAT: Emerging markets in the future • There are tremendous opportunities for active management in emerging markets de- spite a major uptick in passive management year-to-date coinciding with a downturn in active management. Mark Mobius predicted a change of fortunes, citing recent meetings with investors in the US. • Mobius urged active managers to ‘get away from the index’ claiming the trend to follow the index was one of the reasons he left his famed role at Franklin Templeton Investments. • There are opportunities in India: the amount of IPO activity will soon be the same as China. Mobius also pointed to opportuni- ties in Egypt, Romania, Kenya and Nigeria. KEYNOTE BUY-SIDE FIRE SIDE CHAT: How can you manage the successful growth of a global organisation through technology and agile processing methodologies in a world with ever-changing regulatory requirements and client demands? • Managing growth of a global organisation, particularly in the context of technology infrastructure, is a daunting job and there is a no one-size-fits-all approach that will work for all firms. BNP Asset Management has recently moved from using several technolo- gy providers for EMS, portfolio management and other process to a single provider, to acquire a “common language and global back- bone” across its global operations. • While implementing a single provider technology or system across global opera- tions, firms still need to contend with differ- ing global frameworks, for example, the var- ious research unbundling regulations across the world, and using different technology systems may be the best approach for this. • There may be push back from traders and portfolio managers when implement- Issue 2 TheTradeNews.com 19