K&KGC - Key findings from the ATFs 2nd half 2018
The new European equities market structure has given the buy side a wide variety of choice for block trading methodologies. Even if there are further adjustments expected, at least it seems like the regulatory changes have contributed to a more distributed, varied market structure with more choice. The latest newcomer seems to have various services that use the RFQ protocol which has been met by various levels of excitement among the buy side.
The diligent buy side who are analysing the details, in an attempt to make sense of SI routing practices, are still facing challenges with double prints in addition to the lack of Fix tag harmonisation. It is therefore hard to evaluate the trading performance between venue types and trading methodologies as achieving a like for like comparison is challenging.
With new types of trading services being introduced on the market, a few buy side are signing direct agreements with ELPs for cash equity trading in addition to ETFs. The vast majority of the buy side are taking a more conservative approach letting their SIs determine the conditions that are appropriate.
With a general concentration of flow among major brokers, we also identified which regional brokers still play a role in small/mid cap trading.
The buy side have compared notes and discussed their experiences as K&KGC presented their detailed research of the buy side’s use of various TCA systems and performance benchmarks.
Pre-trade analytic tools are mainly applicable for sub 10% ADV trades and broker relationships are key for any larger or less liquid trades.
The buy-side heads of trading are challenged in their internal process reviewing ‘outliers’ and a practical approach is needed by the firm’s trade oversight committee members. ESMA’s initiative for a consolidated trade tape for equities, aimed for Q4 2019, is a good start so the buy side can benefit from the transparency potentials of MiFID II even if, in its initial phase,it is limited to the 15-minutes delayed data for cash equities only.
As expected, the unbundled dealing commission rate structure has evolved to a multitude of categories. We can see a general structure being formed and the number of categories depends on the depth and complexity of the buy side’s trading focus.
One related area that is a topic of discussion among the buy side is the recent increases in exchange fees, particularly at the close. There is a sense that this is possible as many exchanges have a captive audience with an increased level of trading in certain investment styles.
To date, the banks are paying the bill of increasing exchange fees but the buy side question at what point will these charges filter through to them and what are the alternative solutions to ensure a more competitive market?
Geo-politically, the trading implications of a hard Brexit and Swiss EU equivalence are being monitored closely by the buy side. The general sense among the British buy side is that they feel comfortable about remaining in their current jobs regardless of the Brexit outcome.
Thank you to all the buy side who contributed to the ATF autumn roadshow. The 7th annual Alpha Trader Forum Global Summit on 6th – 7th February 2019 in London will be our next opportunity to discuss these and a few other challenges further. Looking forward to see you there!