Alex Clark, Senior Multi-Asset Execution Trader at Aspect Capital, gives us an insight in to life as an execution trader at a systematic hedge fund. As a specialist in Fixed income, FX and commodities, Alex shares his thoughts on how he sees technology innovation changing the buy side trading landscape over the next 5 years as well as his thoughts on algorithms.
I am a Senior Multi Asset Execution Trader at Aspect Capital which I joined in 2013. Aspect is a systematic investment manager that was founded in 1997 by Anthony Todd and Martin Lueck, pioneers in the field of quantitative investing. We currently manage $7.3bn in a range of systematic strategies and also increasingly provide customised solutions for investors. As a firm, we put a lot of emphasis on research and development, to ensure we provide both innovative products and diversifying performance to our investors.
Aspect’s dealing desk handles all execution for our strategies, on a 24/5 basis. The main role of the desk is the oversight and exception management of these trading strategies. We trade over 200 Futures markets globally across approximately 30 exchanges. These include over 100 OTC markets ranging from FX (spot, forwards, swaps, NDFs), Interest Rate Swaps, CDS, Equities, ETFs, Options and more esoteric hard to access markets like Butane and Coal. We have a degree of specialisation across the desk and individuals tend to gravitate towards a particular sector that they have experience in. For instance, my sector happens to be Fixed Income, Currencies and Commodities.
Our desk trades a high number of tickets across various locations globally.
Since we are a small team, we try to automate as much trading flow as possible. Today, around 90% of our trades are executed box-to-box, with traders using our exception management tools to monitor trade flow efficiently and accurately. Each investment programme has its own alpha profile, so an execution strategy is needed for each of them.
Due to the nature of our business, we use execution algorithms where we can to execute our flow.
The algorithms used need to complement the strategies’ alpha profiles. We use input from both our execution research team and the dealing desk to come up with the most suitable algorithm for each strategy’s risk profile. We find that algorithms allow seamless market access with extremely auditable pre- and post-trade Transaction Cost Analysis (TCA).
We use a combination of both proprietary algorithms and broker/bank provided algos.
A trader’s day at Aspect is extremely varied and changes day to day, but the figure below gives a rough idea of how I split my time:
To what extent is your role dependent on data and do you believe that any forms of premium data-feeds are or potentially may become a ‘weapon’ of choice to compete in the future of capital markets?
Data is the new Gold! Our whole systematic approach from signal generation to trade execution is data driven. At Aspect, data is key as we rely on computers to identify investment opportunities. We are extremely diligent with the data that we collect and use: it has to pass through various stages of review and approval (including from our legal department) before it can be used.
Data will continue to be consumed in many forms and will most definitely continue to enhance the investment process. On the trading desk, new forms of data give us better granularity in pre- and post-trade TCA, especially in more opaque markets like FX Forwards, IRS etc.
Thoughts on Algorithms?
There are only a few types of distinct algos out there, currently pegged, time-slice, VWAP, limit based, implementation shortfall and, more recently, basket algorithms. I think that these algos will continue to develop as clients’ needs adapt to the ever-changing landscape, particularly in FX markets. External algos will always have the challenge of having to cater for a wide range of needs and alpha decay profiles for instance, whereas internally developed algos can factor this information in right from the start. Bank algos can be useful when the price of developing in-house or buying an entire Execution Management System (EMS) is too expensive. You will also need to weigh up the cost of manual/naive execution vs the cost of technology enhancements.
The Holy Grail of every market player is to have the ability to reliably forecast the future price at a given horizon. I don’t know of any external algo out there currently who offer this sort of alpha capture. In truth, if they have predicting power, will they pass it on to 3rd parties?
Which areas of technology innovation do you foresee will make a significant change to buy-side trading in the next five years?
It is more and more common to see buy-side firms seeking to eliminate ‘keying risk’ when executing orders and this area will continue to grow quickly. We built our own internal Order Management System (OMS) and EMS a few years ago, but we have now partnered with Quod Financial who will be handling the EMS-side going forward. Maintaining your own EMS systems can be costly and can consume a lot of developers’ time, which could be spent on more important tasks like strategic projects benefitting the firm’s wider objectives. Connectivity craftsmanship is also expensive and time consuming from a research point of view. When creating your connectivity, you need to consider the microstructure and quirks of each venue. This task takes time, is expensive and changes all the time. So, the build vs buy conundrum will continue over the next few years.
Algorithms will continue to improve. Tier 1 dealers have long used real-time visualisations to monitor their own hedging behaviour, plots paid/given overlaid on the primary markets and incoming client orders and hedging trades. I feel such tools are likely to be extended to the buy-side over time to provide clients with a better understanding of algo behaviour.
The machine and trader partnership will continue to expand. Trader tools will become easier to use with the additional help from machine learning and artificial intelligence. Machine learning and artificial intelligence will play an ever-increasing role not only for quant driven strategies, but also asset management firms as well as in our daily lives going forward.
Do you have any recommendations of how TCA or visualisation technologies can be used to optimise execution?
We do our own internal TCA. Since partnering with Quod Financial, we have begun exploring data visualisation technologies further. One example is Elastic’s Kibana software. Kibana makes manipulating the data a lot easier than writing queries and can be done as soon as the order has been completed. We also use various internally developed algo playback GUIs which we can use post-trade.
Benchmarking in different ways gives us more insight on a number of data points such as:
Arrival, Cost to execute immediately, Interval VWAP, percentage of spread
By time of day, days to expiry
Incremental value of adding additional Liquidity Providers (LPs)
How do you see the counterparty landscape evolving?
One word, consolidation. We have seen consolidation across pretty much all industries. I believe that investment firms will be working more closely with their key partners going forward rather than having 20 LPs and that the number of Electronic Communication Networks (ECNs) will diminish. You can see the consolidation in the FX rankings and recent news articles about ECNs/platforms. I feel this theme will continue.
How did you get into the trading role at Aspect Capital?
I started my career in the late 90’s at ED and F Man, better known as Man Group these days. I worked my way around Man on various trading floors and broking desks. After completing a few trading exams and the SFA Registered Representative exam (as it was known then) I joined one of the Financial Futures executing broking desks within Man. The busy desk executed Futures and Options on behalf of Hedge Funds, Banks and Pension Funds and provided trade ideas. From there I moved to the systematic hedge fund within Man, known as AHL, where I spent most of my time on the FX and FI execution desk. After leaving Man, I joined ICAP for a brief period and from there I made the transition to Aspect Capital where I have been working on the execution desk for the past 6 years.
Who is Alex Clark outside of your senior buy-side trading role?
This is a little bit cliché but the bulk of my time outside of the trading role is spent with my family. My wife and I are kept very busy at weekends ferrying our two boys to football matches, athletic clubs and so forth. I enjoy all sports and try to stay in shape in order to keep up with my two very active boys! I was an avid squash player pre-children, playing in various leagues and for various clubs, but I just play recreationally these days about 2/3 times a week. I’ll dust off the golf clubs every now and then and when the boys get a little bit more independent, I’ll try and get my handicap down to the level it was pre-children. I enjoy sports science books and how data and analytics has improved sporting achievements over time, and who doesn’t love the odd boxset binge these days?