Conference Dailys TRADETech Daily 2019 - Wrap-Up Issue - Page 8

THETRADETECH DA I LY in-depth THE OFFICIAL NEWSPAPER OF TRADETECH 2019 Transforming TCA with Data Science Invesco’s head of trading rules out outsourcing equities trading, saying ‘nobody can do it better than us’ ASSET MANAGER SAYS ITS EXPERIENCE, TECHNOLOGY AND SIZE MEAN THAT OUTSOURCING THE EQUITIES TRADING DESK IS NOT ON ITS RADAR. TCA is evolving – Towards Comprehensive Attribution Diverse trading skill sets essential for the buy- side desk, says BlackRock’s VedBrat BUILDING A FLEXIBLE, DIVERSE SKILL SET ON THE TRADING DESK IS ESSENTIAL TO ADAPTING TO EVOLVING MARKET CONDI- TIONS AND GROWING AT SCALE SAYS BLACKROCK’S HEAD OF TRADING. B uilding a flexible and diverse skill set on the trading desk is essential to adapting to evolving market conditions and growing at scale, according to Supurna VedBrat, global head of trading at BlackRock, during a buy-side keynote interview. VedBrat detailed how the world’s largest Continued from front page. The debate was moderated by Glenn Poulter, head of business development, global markets at Northern Trust Capital Markets, the firm which launched an outsourcing trading service for asset owners and asset managers six months ago. The move made it the first custo- dian to take on buy-side trading functions. Miller’s stance showed how some larger asset managers are wedded to in-house execution, despite the widely-touted benefits of outsourc- ing, such as cost and risk reductions, along with leverage of technology and platforms. For an asset manager with the size and scale of Invesco however, its own capabilities and sys- tems mean it is less likely to seek out outsourc- ing opportunities for equities execution. Miller said it’s “possible that FX could be” out- sourced but was firm on his stance on equities. Speaking from the perspective of an asset manager who has outsourced its execution, Karen Zachary, chief operating officer at CRUX Asset Management, described the benefits of the decision, including the aforementioned cost and risk reduction, access to markets and effi- ciencies during the introduction of MiFID II. “MiFID II impacted us pretty significantly, 8 THETRADETECH DAILY “We’ve got the experience, the technological back- up as well, we’ve got the systems and the support.” DAVID MILLER, INVESCO having outsourced all the trade execution there was support through all that, but the cost of research, external reporting and everything that needs to be controlled, cost has been pretty substantial. Zachary added that it did take a while to get fund managers used to not having a trader sitting beside them. “There is a line between us and the external trading activity and that’s a line that you can’t cross,” she explained. Taking a neutral perspective on the debate, Greg Faragher-Thomas, director at Alpha Finan- cial Markets, believes that the new regulatory environment will force even the largest of firms to at least consider outsourcing. “MiFID and regulations has forced firms to look at what the objective is of the end client – a passive product, an active product, multi-asset products, solutions-based product – you really have to hold yourself accountable to that full lifecycle,” he explained. “That’s where we are seeing, even the larger firms, looking at the entire value chain from fund manager, order generation all the way through to settlement as to the full costs around the process and dealing is no exception to that.” Faragher-Thomas described the decision to outsource or not as an ‘emotional’ one. “If you remove the emotion you can look at how you can measure the value chain. People comfort- able with outsourcing, back-, middle-office and custody. You start to see what’s valuable.” Research from consultancy Opimas in February this year suggested that front-office outsourcing is expected to surge over the next couple of years, as asset managers struggle to keep on top of regulatory and cost pressures. The study predicted that by 2020, around 20% of investment managers with assets under management greater than $50 billion will outsource at least some portion of their trading desks. asset manager is staying ahead of evolving market conditions by building a culture that ensures trading desk staff are armed with a manifold set of skills that can be utilised across its execution channels and technology resources. “We’re not shy about picking someone with “The trader of today and tomorrow is different from the past, where traditionally they would have vertical, very deep expertise.” SUPURNA VEDBRAT, BLACKROCK transferable skill sets and moving them into an area where they might not be a subject matter expert, but they do bring the very essential ‘softer’ skills that are now necessary in order to create a collaborative environment,” said VedBrat. “The trader of today and tomorrow is dif- ferent from the past, where traditionally they would have vertical, very deep expertise. Now, traders need to be able to understand multi asset classes, multiple trading strategies, and multi-regional, global influences.” VedBrat explained that the idea of a trader as bring siloed or purely focused on front-office is less present at the firm now, as a wider view of the entire investment process is required, as well as possessing the ability to interpret data and be fluent in their algorithm options to adapt to different market conditions. “Alongside their execution role, they are also helping us figure out if we need to improve existing trading or if there is a better way for us to be executing,” VedBrat commented. “My traders are looking at the entire investment process, all the way through to settlement.” This approach to building a flexible trading desk means firms can approach challenges in a more proactive way, and for a firm with global operations to such a scale, BlackRock’s starting point to this is through global consistency and standardisation. “One thing we are mindful of is that we have a lot of regulatory change happening globally and that is creating fragmentation,” VedBrat commented. “Fragmentation sometimes leads to pools of liquidity that aren’t global in nature now becoming a little bit more regional, and you have to keep that in mind as you are thinking about how you are setting up trading workflows.”  Developments in automation and data are vital tools to address liquidity issues and BlackRock’s proactive approach to these technologies has allowed the firm to engage in consistent dialogue with its market counterpar- ties. VedBrat said that while gaps in liquidity present issues for all market participants, artificial intelligence and data science are key tools for BlackRock in going forward with these trading challenges. Issue 2 9