After years of regulatory discussions, it was refreshing to primarily spend time on topics pertinent to improving trading at the Alpha Trader Forum equity debates in Stockholm, Paris, Frankfurt and London in May.
I would like to start with a comment made by a prominent head trader who said “A sell-side high touch trader is not only for Christmas!”. One of the key themes for 2019 is to establish the future of high touch trading in the new MiFID II market. The buy side verified that the liquidity profile of each broker has become the major differentiator and certain high touch traders have gone back to old-school working of orders and delivering mega blocks that you cannot find elsewhere. There are good trusted sell-side relationships out there and the buy side have the choice of supporting such value-added relationships or face increasing levels of ‘juniorisation’. A trusted established sell-side relationship is precious and can neither be easily replaced by another person nor will the buy side automatically start trading with another sell-side firm who acquires this relationship from a competitor.
With trading volumes being down, there are increasingly tougher discussions between the buy side and sell side about the financial return compared to risk for each relationship. These discussions can be complex as the relationship may span across multiple asset classes and geographically across many continents.
Overall the buy side are trading a larger proportion through trading algorithms and crossing networks to gain control of their execution and minimise signalling risk. The buy side at each regional ATF contributed by detailing their current preferred trading algorithm providers by strategy to gain an unbiased benchmark to compare against their existing choices. The best form of ‘thank you’ we received for these research efforts was that, based on the peer feedback, some heads of trading attendees will look to reach out to new algo providers who have previously not been considered.
A large proportion of the discussions concerned the buy side’s relationship with the sell side as well as their internal efforts to improve their performance analysis and how they could enhance interaction with the investment team.
The EU and UK regulatory changes are still impending political changes. Gauging the continental European buy-side’s anticipations post the European parliamentary elections, we are still waiting to hear if anyone believes the Capital Markets Union (CMU) will become successful in turning the declining trend of EU banks competitiveness vs. the rest of the world. The lion share of the buy side’s preferred broker list is currently represented by US originated firms.
The buy side also addressed their dissatisfaction about the long market hours in London with a closing time of 5:30pm. With market information starting to come in at 7am ahead of the market opening, it means that some traders have to work from 6:30am until after the market closes at 5:30pm.
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