S S S INSIDE— Issue 1—Advance edition DAI LY PARI Exchanges told Double vision ArticleExchanges Turquoise still to prepare for hidden from 21 ‘badl plagu shake-up es criticises y draft view trade reporting Edhec-Risk chief alert to MTF S challenge the best execution P obligation ed’ J N of MiFID A YOUR REGULAR ISSUE OF THE TRADETech DAILY Non-displayed enthusiasm for Commission hits back at MiFID J criticism B Gaps in the MiFID master plan revealed more dark pools Exchange USP And the challenge winners are… s the MTF model R J A Need commitment? UBS Equities Execution – a partner to rely on Get into the flow with UBS Buy-side present a united front A Get into the flow with UBS 200 DAI LY PARI S DAI LY DAI LY PARI PARI Published by Il THE THE THE TRADETec THE h TRADETechTRADETechTRADETech LY 22-25 AP R The official newspaper of TradeTech 2008—Paris 8 THE TRADETechDAI PARI S Get into the flow with UBS Guiding you through fragmented markets. Pathfinder. 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THE TRADETech DAILY—Paris 2008 Issue 1—Advance edition AES – Don’t be afraid of the dark •Youmaynotrealiseit,butapproximatelyoneineveryfivetradesexecutedthroughAESisfilledonalternativeexecutionvenues. •ThismeanseverytimeyoutradewithAESyoupotentiallyhaveaccessto20%moreliquidity,fasterexecutionandbetterprices thanothermarketparticipants. •CreditSuisse’stwosmartorderrouters(SOR)–AESPathfinderandAESCrossFinder+areintegratedintoeveryordersentto AES,providingclientswithaccesstobothdisplayedandhiddenliquidityoneveryaccessiblevenue. •AllAESstrategiesemploySORtechnologysoclientsdonothavetoselectadifferentstrategytogetaccessorreapthebenefits. •Regardlessofhowmanydifferentvenuesweexecuteon,AESwillsettleoneshapeattheendoftheday.Howevercomplexthe Europeanlandscapebecomes,AESwilldothehardworkandpassonalltheadvantagestoclients. AES volume executed on alternative execution venues 30% 25% 20% 15% 10% 5% 0% November December Source: Credit Suisse, Nov 2007 – YTD 2008 AES ® – The Standard in Algorithmic Trading January February March THE TRADETechDAI 8 200 Il Issue 1—Advance edition LY Published by 22-25 AP R The official newspaper of TradeTech 2008—Paris PARI S post-mifid market execution Venues Double vision plagues trade reporting Exchanges alert to MTF challenge UK traders lose sight of both sides of the deal as trade reporting fractures Across Europe, MiFID proves good in parts N early six months after the introduction of MiFID, the dust is yet to settle on the pan-European directive that is intended to benefit investors by establishing two major reforms: increased competition and greater market transparency. Whether MiFID is on course to deliver on those promises is likely to fuel much of the debate at this year’s TradeTech event in Paris. Already there is an expression of dissatisfaction from several UK fund managers who believe MiFID has actually reduced transparency, rather than increased it. “From a UK perspective, MiFID has led to us going backwards,” comments Tony Whalley, investment director and head of dealing at Scottish Widows Investment Partnership (SWIP). “The UK market is now less transparent than it was pre-MiFID. That’s the thing that one finds disappointing.” Whalley’s downbeat view is echoed by other senior buy-side figures. “The whole idea of MiFID was allegedly about breaking down barriers,” says Daemon Bear, head of dealing, JPMorgan Asset Management. “The key word was transparency. But we are now in the most opaque market conditions I think we have ever been in. It is very, very difficult at the moment.” Another UK head of investment speaking at this year’s event agrees: “Elsewhere in Europe, MiFID is working fine,” he observes. “Whereas in the UK, all the effects have been negative. The market is far less transparent.” State of confusion The area of greatest concern is the impact of segmented transaction reporting. The fact that everybody can report transactions either to the stock exchange or Markit BOAT makes the market far less transparent for the buy-side, and has consequences for transaction cost analysis. Bourses stand firm and fight back against the new wave of competition A t first glance it appears Europe’s incumbent exchanges have a lot to worry about. Chi-X Europe, a pan-European multilateral trading facility (MTF), grabbed 10% of the daily trading volume on the UK’s FTSE 100 share index in early March. Turquoise, another MTF, is hoping to capture around 5% of the European share-trading market when it launches in September. There is also the threat of competition from US electronic communications networks (ECNs) – the rough equivalent of MTFs. NYFIX Euro Millennium, the European version of NYFIX’s Millennium ATS, launched in March. Nasdaq OMX is planning to launch an MTF based on its INET ECN technology. And BATS Trading, another ECN, is considering entering the European market. Market shares “The key word was transparency. But we are now in the most opaque market conditions I think we have ever been in.” Daemon Bear, head of dealing, JPMorgan Asset Management Before MiFID, many European countries required all trading to pass through their national stock exchange, which then fed the information to market data providers. Those countries that allowed over-thecounter (OTC) trading, such as the UK, still required those trades to be reported to a central bourse. Previously in the UK, the London Stock Exchange (LSE) would report the trade and there would be in- stant visibility through Reuters, Bloomberg or the broker. But this has all changed with MiFID, which has opened up competition between exchanges and rival venues for the business of both conducting and reporting trades. OTC trades can now be conducted away from the exchanges across the 30 European countries, while these OTC trades can also be reported any- Need commitment? UBS Equities Execution – a partner to rely on where, as long as the report is carried out within three minutes. Across Europe, there are several rival venues vying for the business of trade reporting. Among the new entrants is Markit BOAT, which has captured roughly a quarter of the market for trade reporting in the UK’s largest equities. Figures released in February by Reuters show that Markit continues page 2 R But, far from quailing at this new wave of competition, exchanges are standing firm, and are even fighting back. Most of the main exchanges in Europe have announced tariff cuts, system upgrades and new services to fend off competition from upstart MTFs. “Competition is likely to lead to some fragmentation of liquidity, but one needs to be careful not to underestimate the response of the incumbent exchanges,” says Lee Hodgkinson, CEO of SWX Europe (formerly virt-x). “It is very unlikely that exchanges will sit back and let their market share be eroded.” For its part, SWX Europe is engaged in a programme of innovation that promises to deliver lower prices and faster technology. And in response to the growing interest in Europe for ‘dark liquidity’, SWX Europe is developing a non-displayed liquidity service. The new service continues page 4 R In today’s complex markets, you need to be able to call on a partner who is committed to dealing with your trades in the most effective way possible. At UBS we are committed to finding the most sophisticated solutions for our clients. Come and visit us on our stand at TradeTech Paris to find out how. When you need commitment, work with us. You & Us. © UBS 2008. All rights reserved. THE TRADETech DAILY—Paris 2008 Issue 1—Advance edition page 1 contents Q continued from page 1 BOAT has made substantial inroads in the publication of trades space once occupied exclusively by domestic exchanges. In each of the three months following the introduction of MiFID, the value of European equity trades reported by Markit BOAT was the third highest after Euronext and the LSE. Markit BOAT also published the second highest volume of European shares, behind only the LSE. But this fragmentation of trade data has created a major headache for the buy-side. While acknowledging that transparency has improved significantly in countries such as Germany, where many trades were not visible before, Whalley believes that the requirements in the UK are far more lax than they used to be. “As a result, we have got situations where trades in the UK are sometimes not printing for three days. It’s confusing in terms of working out your post-trade analysis,” he says. “We are seeing trades reported T+2 and T+3,” adds Bear. “I have even heard of a T+4, which is actually a day after settlement.” Another TradeTech delegate reports instances of one side of the bargain being reported on the LSE and the other side on Markit BOAT, each with different sizes and prices, leading to an inaccurate figure on volume. “You are not getting both sides of the deal reported through the same place, and they are not getting reported accurately nor in a timely fashion. You cannot get an accurate figure on volume.” Conference l Looking beyond the first wave of change . . . . . . . . . . . . . . . . . . . . . . . . 7 l Turquoise takes centre stage . . . . . . . 9 l Liquidity gets a makeover . . . . . . . . 10 l Is SOR proven technology for Europe? . . . . . . . . . . . . . . . . . . . . . . 11 l MiFID makes TCA a more exact science . . . . . . . . . . . . . . . . . . . . . . . 15 l Are you a leader or fast follower? . . . 17 l Data in an age of silicon . . . . . . . . . . 17 l MiFID rings the changes for electronic trading . . . . . . . . . . . . . . . 19 l Alpha comes at a price . . . . . . . . . . . 20 l Alpha traders keep the pressure on brokers . . . . . . . . . . . . . . . . . . . . 21 l Master class in market evolution . . . 22 Wise after the event Exhibition l The main event . . . . . . . . . . . . . . . . . 23 l NYFIX promotes Euro Millennium . . 23 l Chi-X celebrates its first anniversary . . . . . . . . . . . . . . . . . . . . 23 l SOR and algos top Merrill Lynch’s agenda . . . . . . . . . . . . . . . . . . . . . . . 23 l Linedata connects to research management platform . . . . . . . . . . . 23 time off in paris 24 7951 Instinet Global ad_Trade tech:v Although MiFID was intended to throw light on trades that, prior to MIFID, were under no obligation to be reported, the UK market’s diminished transparency was highlighted at the end of February when waste management company Biffa announced that a consortium planning a possible counter-bid to an earlier £1.2bn recommended offer had backed away. As a result of that news, the original bidder, a private equity consortium, raided the market and bought 10% of Biffa’s shares. Most dealers, however, never saw those trades going through. “The business was done off market and the LSE wasn’t used to report the bargains,” says Whalley. “So the first that people got to hear about it was the next morning when it was announced by the regulatory news service.” Much the same happened when the chief executive and finance director of computer game retailer Game Group sold stock worth nearly £5.5m in February. Once again10:06 the trades were 1done off-market and not 17/3/08 Page Gatewayto Global Liquidity Global Agency Broker B 50+ Global Destinations B SmartRouter B SM DMA B Algorithms B ® Chi-X B Global Portfolio Trading B Commission Sharing B BlockMatch B Instinet Alpha B London +44 (0)20 7154 8844 Paris +33 (0)173 03 8686 Frankfurt +49 (0)69 7104 8860 Zurich +41 (0)44 200 4777 New York +1 (0)877 467 8463 Tokyo +81 (0)3 5562 1800 Hong Kong +852 (0)2585 0500 www.instinet.com “We have got situations where trades in the UK are sometimes not printing for three day. It’s confusing in terms of working out your post-trade analysis.” Tony Whalley, investment director and head of dealing, Scottish Widows Investment Partnership reported through the LSE with the result that many investors did not find out about the sales until the company made an official statement the next day. With a single, consolidated source of all trades harder to obtain, some buy-side firms have asked their brokers to report only through the LSE. “A consolidated tape would be a dream,” says Bear. “But there is very little likelihood of that because MIFID has opened up competition.” In light of the trade reporting concerns, Bear believes the regulators should take a tough stance. “In November, the SEC fined a firm for abuse of the trade reporting regime. Regulators need to be as strong as that.” Whalley agrees, adding that the cost of Markit BOAT data is also too high. “It’s the sort of thing that the regulators should have got involved with, making sure that data is freely available at a reasonable cost.” Dealing with fragmentation Indeed, the fragmentation of the marketplace that has resulted from the requirements of MiFID looks set to dominate TradeTech’s post-MiFID focus day, not only in the trade reporting space, but also in the rise of alternative trading venues that has followed abolition of the concentration rule. Bear also predicts there will be great interest surrounding the Q&A session with Turquoise CEO Eli Lederman. “At last year’s TradeTech, Turquoise was just a project. A year on, it is still a project,” notes Tony Mackay, president and managing director, Instinet, whose session, ‘MiFID, Chi-X, dark pools – now what?’ immediately precedes the discussion with Lederman. “It’s not as though we have had hundreds of ECNs or ATSs trying to start up in Europe,” he notes. “It is still very, very difficult to create alternative trading platforms in the European landscape.” Mackay says there has been a favourable response to Instinet’s pan-European MTF Chi-X Europe, with the sell-side getting reduced execution costs, and the buy-side saving substantial amounts versus trading on the exchange. “There is a lot of work to be done on MiFID, but the Chi-X Europe numbers show it has been very good in terms of competition. MiFID may be imperfect, but the proof is in the pudding.” Others are more cautious, however. “Competition via the likes of Chi-X is welcome, but it needs to gather further liquidity,” says Brian Mitchell, head of dealing and portfolio control, Baring Asset Management. “ChiX has been a relative success, but it is only at the very beginning,” adds Bear. Technology, he suggests, will be the answer to overcoming the challenges posed by market fragmentation and liquidity sourcing. “At TradeTech, I will be looking at how both brokers and vendors are presenting the solutions to the problems we face.” Lee Hodgkinson, CEO of liquidity venue SWX Europe, which changed its name from virt-x in March, also believes that technology will be crucial in addressing fragmentation. “It will be very interesting to see the evolution of smart order routing technology,” he says. “At the moment we have technology that is more order routing than smart, but I think that will evolve and will be the key to whether liquidity can actually be moved around venues or not.” In particular, Hodgkinson is concerned by the lack of a single, European-wide, low-cost clearing and settlement venue. The regulatory change actively encourages cross-border trading and, with it, the crossborder clearing and settlement of securities. Having to access multiple venues across Europe only increases costs, while the different clearing and settlement initiatives announced thus far by Turquoise and Chi-X is set to cause further fragmentation. “While we have high cross-border settlement charges and additional infrastructure expenses, it is going to be very difficult to reduce costs on a pan-European basis as opposed to the costs in a national market,” remarks Hodgkinson. Late arrivals and non-starters A further MiFID-related issue still to be resolved is the actual transposition and compliance of the directive by member countries. As MiFID came into effect on 1 November 2007, the European Commission revealed that a third of all countries were still lagging behind in incorporating the directive into their own laws. “Only two countries, the UK and Romania, achieved the 31 January 2008 deadline, when all 30 states effectively had to incorporate MiFID either into local law or the local regulatory handbook, although some others, such as France, have since done so,” adds Mitchell. In February, the EC referred Spain, Poland and the Czech Republic to the European Court of Justice for failing to implement MiFID. Although some industry experts believe this non-compliance does not in itself hinder the effectiveness of MiFID, Chris Skinner, CEO of financial think-tank Balatro, argues that banks in those non-compliant markets could suffer the consequences. “The question is, how will the banks in those countries be impacted by the tardiness of their governments’ transposition,” he says. “If you look at Spanish banks BBVA and Santander in particular, it does potentially damage their ability to succeed. They have got a government that, if anything, is providing a prohibitive view towards European integration rather than a proactive view. You have still got a lot of countries yet to transpose and or even think about how to regulate MiFID.” l To learn more… Fragmentation and liquidity focus day: Optimal strategies for your trading desk and defining best execution in the new regulatory landscape Tuesday 22 April – 09:00-17:30 MiFID, Chi-X, dark pools – now what? Wednesday 23 April – 09:30 In conversation with Eli Lederman Wednesday 23 April – 10:00 TradeTech sponsors Lead sponsor: Principal sponsors: Organised by: Supporting associations: ©2007 Instinet, LLC. All rights reserved. INSTINET is a registered mark in the United States. Approved for distribution in Europe by Instinet Europe Limited which is authorised and regulated by the Financial Services Authority. Instinet, LLC, member NASD/SIPC, branded as Instinet. Instinet Europe Limited is a subsidiary of Instinet Incorporated. THE TRADETech DAILY—Paris 2008 Issue 1—Advance edition page 2 267 mm You need to make your paper portfolio real. But your alpha is fading. And you don’t want to tip your hand. You need deep, diverse liquidity. 396 mm So, where are you going to send your order? A top fund manager looking to improve its trading performance recently began crossing with Merrill Lynch. Tapping one of the deepest and most diverse pools of institutional and private client liquidity delivered immediate results. The fund’s performance versus its execution benchmark improved by 18% over several months. Find out what Merrill Lynch’s liquidity can do for your trading performance. winningsolutions.ml.com ©2008 Merrill Lynch & Co., Inc. Approved for UK distribution by Merrill Lynch, Pierce, Fenner & Smith Limited. 2 King Edward Street, London EC1A 1HQ. The UK compensation scheme and rules for the protection of private customers do not apply to the services provided or products sold by non-UK regulated affiliates. Ad No: 8845 Stat-arb boost Q continued from page 1 has been developed in conjunction with NYFIX, and will be powered by Euro Millennium. SWX Europe is not alone. Other exchanges have launched initiatives to ensure they stay relevant in the face of competition. Examples include the London Stock Exchange’s TradElect low-latency trading platform, NYSE Euronext’s SmartPool non-displayed liquidity service and Deutsche Börse’s Xetra Best MiFIDcompliant trading service. Hodgkinson believes that if exchanges stay on top of their game, they will not be marginalised. “If incumbent exchanges embrace the role of commercial service providers and become more innovative, agile and customer-centric, there is no reason why they can’t continue to be robust venues of liquidity in the years ahead,” he says. “I don’t want to give the impression that there is any complacency, but the demise of exchanges has been greatly exaggerated.” Peaceful co-existence Although much has been made about the battle between exchanges and MTFs for order flow, some clearly do not see the cause for conflict. Exchanges and MTFs are very different businesses, and have different strengths and weaknesses, they argue. Therefore, the two types of venue should be able to co-exist. “I don’t know that I see the ‘versus’,” says Rainer Riess, managing director for cash market development at Deutsche Börse. He believes exchanges have a responsibility for helping finance the economy and ensuring the growth of companies as listing venues. “That is a very important function that exchanges enjoy and that MTFs cannot and are not targeting to fulfil,” he says. Given the appetite for different instruments and different types of trading appli- THE TRADETech DAILY—Paris 2008 “At this stage of the game, many see it as a case of ‘exchanges versus MTFs’… at the moment there is a lot the exchanges could learn from us, particularly on the pricing front.” Peter Randall, CEO, Chi-X Europe cations, the market can support both the exchange and MTF model, says Riess. “It’s more a question of demand and supply,” he observes. “The benefit of an exchange is that it is a neutral, well organised and strictly supervised secondary-market trading facility that is open to all parties,” he explains. “That is something that not all market participants necessarily need or demand.” Far from rejecting the MTF model, some exchanges are embracing it and using the legal structure to their own advan- tage. NYSE Euronext’s SmartPool will be classified as an MTF under MiFID, for example, and the open market section of the Frankfurt Stock Exchange – Deutsche Börse’s main operating entity – is considered an MTF. “An MTF is a very flexible framework,” notes Roland Bellegarde, head of European cash markets at NYSE Euronext. “We are using MTFs as a framework to compete. It is good for the customer, good for the exchanges, good for competition.” What is more, the competitive threat posed by MTFs has spurred the exchanges to review their business model. “It helps us bring more innovation,” contends Bellegarde. NYSE Euronext is following the lead taken by Chi-X in introducing finer tick sizes for a range of European stocks. “Chi-X offered lower latency and we now have similarly low latency,” he notes. “It helps us improve; that’s the real benefit of competition.” Finer tick sizes and low latency trading platforms are attractive to high-frequency traders such as statistical arbitrageurs. This is arguably bringing new liquidity to Europe; stat-arb traders previously shunned the Continent because of the high latency of exchanges compared with the ECNs in the US, but are now showing more of an interest since Chi-X shook the market up and latency started to fall. An increase in trading is expected to benefit all venues, not just the newer, faster MTFs. “For a liquid market such as Xetra, arbitraging is quite beneficial,” says Riess. “We see that whenever the other markets, be it regional exchanges or Chi-X, for example, attract more volume, we usually do more volume as well. The increased competition ushered in by MiFID may also lead to more arbitrage opportunity, and that in turn can be quite positive for our business.” Even MTFs believe exchanges could benefit from their presence. “One of the things we could see play out is that new trading venues attract new strategies and participants into the market and overall volumes go up so much that even the incumbents benefit,” says Eli Lederman, CEO of Turquoise. “In the US, for example, the incumbents have had to lower their tariffs but because volumes have gone up so dramatically, they ended up better off.” European exchanges will not automatically share in the spoils of new liquidity flows, warns Lederman. “In Europe there “Competition is likely to lead to some fragmentation of liquidity, but one needs to be careful not to underestimate the response of the incumbent exchanges.” Lee Hodgkinson, CEO, SWX Europe is a very real question whether some of the incumbents can actually process increasing volume,” he contends. Upgrades in trading technology will be required if the exchanges are to benefit from the same phenomenon, “should it happen,” adds Lederman. Peter Randall, CEO of Chi-X Europe, is sceptical about the pricing and technology improvements exchanges have made Issue 1—Advance edition page 4 to date. “They have not really been cutting costs or changing prices,” he asserts. “They might change the execution price on one level, but then they increase the market data charges. All other things being equal, the exchanges are not reducing prices at all – in fact they are increasing their revenues. There is ample evidence that these are well-worked-out and extant strategies.” And although exchanges contend that they can co-exist with MTFs, Randall believes there is some way to go before this happens. “At this stage of the game I think many see it as a case of ‘exchanges versus MTFs’,” he says. “In a more mature environment, when we and other entrants have reached our natural market share, I think it will be more of a co-existence, but at the moment there is a lot the exchanges could learn from us, particularly on the pricing front.” Competition pending Despite all the talk about increasing competition, however, exchanges are keen to point out that so far, they have not seen much of it. To date, the only true competitor to European exchanges’ central limit order books is Chi-X Europe, and some doubt the impact it has had. “There is a lot of talk and myth out there in the market,” says Riess. “If you look at the facts, a lot of these MTFs haven’t come to life. Often we don’t even know what their market models will be. The only one operating on a pan-European basis at this point in time is Chi-X Europe, and we don’t see much correlation with our business at present.” Even when more competition arrives, it could be limited. It is debatable whether the post-MiFID market in Europe is destined to resemble the US, where a large number of ECNs and dark pools compete with the main exchanges, due to the absence of a single clearing and settlement mechanism in the mould of the DTCC. In contrast, Europe has a number of in- buy-side adVice for chi-x Tony Whalley, investment director at Scottish Widows Investment Partnership (SWIP), has been appointed as a non-executive director of Chi-X Europe. The appointment will not affect his existing duties at SWIP. “If you look at the facts, a lot of these MTFs haven’t come to life. Often we don’t even know what their market models will be.” Rainer Riess, managing director for cash market development, Deutsche Börse digenous settlement and clearing systems, each with its own nuances. This makes it difficult and costly to trade across borders and for new pan-European platforms to challenge the national exchanges. There are other jurisdictional challenges linked to different tax regimes, currencies and the existence of stamp duty in some countries. “If I wanted to offer efficient equities trading in the UK tomorrow I couldn’t, due to the complexities in the post-trade processes,” comments Riess at the Deutsche Börse. “It would be Whalley was attracted to the position because it gives him a chance to have a say in the future of the European trading landscape. “It’s all very well sitting on the sidelines pontificating about various new exchanges, how they’re going to work, what they’re doing well and what they’re doing badly, but to be offered the opportunity to influence one from the inside rather than from the outside looking in is absolutely fantastic,” he told The TRADETech Daily. In the role, Whalley will effectively open a communications channel between the traders and the MTF. “I would imagine that the vast majority of the time will be spent acting as a sounding board from a buy-side perspective, and secondly acting as an interface for anyone from the buy-side or sellside who wishes to ask questions about the way the whole thing is going to work,” he says. Whalley is no stranger to advising trading venues. He is a member of the London Stock Exchange’s institutional advisory group, and has previously served as a nonexecutive director of OMLX, the London-based securities and derivatives exchange. He was also a member of the market advisory board of LIFFE. “I’ve tried in the past to take a fairly active role in the advent of new markets and trading platforms, and this is one where I feel hopefully I’ll be able to provide a positive input on what’s going on.” very difficult to deal with the stamp duty issue. It is extremely complex. Crest [the electronic settlement system for UK and Irish securities] operates differently from most CSDs in Continental Europe and the insolvency rules in the UK are differ- ent to the rules in Germany, which are in turn at variance to the ones in France.” Europe’s challenging post-trade environment can be overcome, however. In the case of Chi-X, for example, a nonexclusive clearing and settlement agree- to learn more… exchanges vs. mtfs: six months post-mifid, where are we in the battle for supremacy? Thursday 24 April – 12:30 ment was struck with the Fortis European Multilateral Clearing Facility. “Clearing and settlement is a big barrier – I don’t disagree with that position,” says Randall at Chi-X. “But it is a barrier that we have stepped around.” Dog eat dog Although much of the focus today is on how MTFs will affect the exchanges’ business, there will also be competitive tensions between rival MTFs. “One thing that needs to be considered is the effect the new entrants have on the business propositions of each other,” says Hodgkinson at SWX Europe. “In this context, the conditions prevalent in the US that have led to the success of many ECNs won’t necessarily exist on a like-for-like basis in Europe.” It is uncertain just how many MTFs the European market can support. At Turquoise, Lederman argues that when competition hots up between trading platforms, profit margins can start to dwindle quickly. “What seemed like a good idea rapidly starts to look like an easy way to blow a lot of money,” he warns. Nevertheless, with MiFID only six months old, the future for European equities trading is far from decided. “The next step is for the firms wanting to launch new initiatives to deliver, and then once they deliver to find out if there is enough success over time to build credibility and stay on the field,” says Bellegarde at NYSE Euronext. “It’s easy to say ‘I have 3% market share’ or ‘I have 5% market share’ but the question is: is it sustainable?” l Imagine an image of a smart, successful looking trader (with glasses), surfing the ferocious tip of a gigantic wave (which symbolises liquidity, of course), and some emotive line about “harnessing the power of our massive liquidity.” or we could just say: Liquidnet’s European liquidity pool averages £15 billion daily.† † Based on trade data from 1 January - 31 January, 2008. © 2008 Liquidnet Europe Limited, Liquidnet, Inc., Liquidnet Canada Inc., Liquinet Asia Limited and Liquidnet Australia Pty Ltd. All rights reserved. Liquidnet Europe Limited is regulated by the UK Financial Services Authority. THE TRADETech DAILY—Paris 2008 liquidnet.com Issue 1—Advance edition page 5 EURO MILLENNIUM: THE RULES OF THE POOL fig. 01 fig. 03 fig. 02 fig. 04 fig. 06 fig. 05 RULE NO 1: NEUTRALITY D I V E D E E P I N N E U T R A L WAT E R S BASED ON PROVEN TECHNOLOGY NYFIX EURO MILLENNIUM IS THE NEUTRAL D A R K P O O L O F L I Q U I D I T Y F O R PA N EUROPEAN LISTED CASH EQUITIES w w w. t h i n k l i q u i d i t y. c o m NYFIX International Limited, registered in England, number 05086873, is authorised and regulated by the UK Financial Services Authority FRN 400884 and is a member of the London Stock Exchange. Registered address: 160 Queen Victoria Street, London, EC4V 4BF, United Kingdom www.nyfix.com Boston: +1-646-525-3295, Hong Kong: +852-3180-9230, London: +44-20-7634-5350, Manila: +63-2-750-1111, New York: +1-646-525-3000, Tokyo: +81-3-6202-3291 VieW from the chair Looking beyond the first wave of change The TRADETech Daily sat down with Jeff Wecker, CEO, Townsend Analytics (TAL) and opening chairman of TradeTech Europe, to discuss the issues that he sees as key for the European trading community to confront. J eff Wecker, CEO, Townsend Analytics (TAL), will be bringing a dual perspective to his role as chairman of the TradeTech Europe conference: on the one hand, TAL is a company with a global client base for its direct-access trading platform; on the other it developed the technologies behind Archipelago, one of the ECNs that arguably did most to shake up the US trading landscape. He is therefore well placed to assess the challenges that European traders are now confronting. Wecker also has a personal background in automation. He was appointed CEO of TAL just over a year ago, after its acquisition by Lehman Brothers. Wecker originally joined Lehman several years before that to create the firm’s electronic equity brokerage platform. In addressing the challenges in the European market, he distinguishes between the users and the destinations. “With respect to the users, even those that are local to Europe have been dealing with at least some degree of fragmentation,” he points out. Whether in the form of multiple exchanges, dark pools or simply more algorithms, fragmentation is already a live issue for them. “What is different is that they have MiFID to deal with,” he says. “We’ve only seen the first wave of what is probably the largest financial market regulatory change in the history of the planet.” While some may regard that as a rather dramatic statement, Wecker is unrepentant, pointing to the range of different markets that MiFID affects and the number of providers across those markets. “It compresses into a single piece of legislation changes that the US has managed over 20 years,” he adds. The fact that the significance of the reform has yet to fully permeate the consciousness of market participants is understandable, Wecker believes. “It takes time to appreciate the implications of regulatory reform when it’s that broad,” he suggests. For there to be a pervasive sense of change in the marketplace, says Wecker, there needs to be a ‘tipping point’ in terms of the products and solutions that emerge from the opportunities that the legislation enables. “It doesn’t happen just because the regulators say ‘Okay, this is now effective’,” he contends. Of particular interest in Europe, he believes, is the post-trade environment, given the current fragmentation at a national level and the changes that MiFID will wring in that regard. “It’s been common knowledge for a long time that as you see clearing consolidation and efficiencies from electronification, volume growth accelerates dramatically,” he comments. Needs must Given the extent of the regulatory change in the US over the past decade and the related market evolution, a sizeable proportion of buy-side traders in Europe are probably further behind the learning curve than their US peers, says Wecker, unless they are already trading actively across the pond. “Electronic trading and the assimilation of new execution channels and analytic content alternatives have become part of the US trader’s DNA by force of circumstance,” he argues. In Europe, by contrast, “there’s still a pretty strong feeling among large swathes of fund managers that what worked before still may work okay,” he notes, “There hasn’t been a crowding out of the guys who are slower to jump on the train.” He acknowledges that Europe has seen its share of innovations. “Chi-X and BOAT have made an impact, Euro Millennium has recently launched and there is anticipation around Turquoise, but there really hasn’t yet been a proliferation of MTFs to match the various liquidity venues in the US,” he comments. For those new trading opportunities that do exist, he suggests, a large number of brokers have still to master how to deliver them effectively into their customer base. In Europe, says Wecker, the retail investor is essentially represented by private banks or trust banks, rather “We’ve only seen the first wave of what is probably the largest financial market regulatory change in the history of the planet.” Jeff Wecker, CEO, Townsend Analytics than directly in the marketplace. “You don’t have that community to create a demand for tools that can sometimes jump across into the institutional community,” he says. While the institutional markets may have the reputation for integrating technology into the trading environment, in fact, he argues, “Electronic trading in the US really jumped across from retail into institutions, because the cost pressure on retail hit first.” Data overflow A common challenge faced across the globe is the exponential growth in market data that needs to be somehow either assimilated or consciously ignored. “It’s possible to have more data than you can parse and process and make intelligent decisions from,” says Wecker. “We’re certainly in that state in the US and probably in Europe too.” The buy-side in Europe should be more demanding of its sell-side providers, Wecker believes. “I don’t think that the buy-side in Europe is holding the brokers, the marketplaces and, for that matter, the regulators to as high a standard of transparency as its peers in the US are beginning to demand,” he says. “As that pressure builds, so will the pressure to make more sense out of all this data that seems to be exploding in Europe.” In at least, one respect, however, Wecker sees an opportunity for European traders to overtake their US counterparts. “A large proportion of the velocity increase in European trading is coming from the hedge fund community, which will fuel simultaneous evolution across multiple asset classes in the electronic marketplace,” he notes. Wecker describes hedge funds as essentially strategy aggregators. “The time they take to get going in a new asset class is much quicker than traditional asset managers,” he says. “I think there’s chance that Europe will leapfrog the US in terms of multi-asset class trading.” While equities are somewhat ahead in automation, the gap between asset classes is not as great in Europe as it is in the US, he believes. Those who grow up in a multilingual household may take longer to speak, he says, “but once they do, they are eloquent in multiple languages.” l “[MiFID] compresses into a single piece of legislation changes that the US has managed over 20 years.” You think global & multi asset So do we Come and meet us at booth #91 TradeTech Europe - 23, 24 April 2008 GL TRADE delivers a proven multi-asset front-to-back office trading solution. We work with more than 1,100 clients trading on over 140 markets worldwide: choose us as a true partner More information: marketing@gltrade.com | www.gltrade.com Ad1_TradeTechDaily.indd 1 THE TRADETech DAILY—Paris 2008 7/03/08 17:25:09 Issue 1—Advance edition page 7 2851 Sigma ads Paris_daily_4th:Layout 1 28/2/08 13:34 Page 1 Goldman Sachs SIGMA Europe. Smart Routing, Crossing and Dark Liquidity Access. Improve your execution performance. Providing you with access to diversified liquidity, enhanced execution quality and comprehensive performance analytics. For more information, please contact us at execution@gs.com Goldman Sachs International. www.gs.com © The Goldman Sachs Group, Inc., 2008. All rights reserved. speaker preVieW Turquoise takes centre stage Backed by nine of the world’s largest banks and designed to offer a combined dark and lit order book, Turquoise is arguably the most hotly anticipated execution venue inspired by the MiFID market evolution. The TRADETech Daily spoke to Turquoise CEO Eli Lederman about the planned launch of the MTF, his formula for success and the scope of the platform’s ambitions. Will MTFs be in direct competition with incumbent exchanges for order flow, or will they co-exist and occupy different roles? It’s difficult to predict exactly how it’s going to play out, but for the most part, from a trading point of view, the difference between MTFs and exchanges is fairly academic. In the beginning it will be MTFs versus exchanges, but it’s probably going to rapidly become a situation where it’s as much MTF versus MTF. Right now, there is only one live MTF, at least for continuous trading. But there will soon be two credible, pan-European MTFs competing head-tohead against the exchanges for market share. For Turquoise, competition will be about the economics of trading, providing price improvement and the functional design of the platform. I don’t consider Chi-X our biggest competitor because it still has a very small market share relative to the incumbent European exchanges. Competition will be most visible between MTFs and exchanges, but clearly the MTFs have to be thinking about one another from a competitive point of view. You can’t do that later – you have to be thinking about that as part of your design. What are the unique selling points that distinguish Turquoise from the exchanges and other MTFs? First, one of the most important things about Turquoise is the manner in which we are going to launch. We are going to launch with liquidity in a broad universe of pan-European stocks – some 300 in total. That is a very important point of differentiation. We are able to do that now because we are recruiting a broad base of members in the UK and Europe who are actively trading across Europe. Secondly, people will have undertaken the work to include us as a destination in their smart order routers. Thirdly, we’ll be launching with the market-making activities of our shareholder banks. Another important differentiator is in our functional design. We have an integrated model: there is a conventional, transparent, fully-lit order book that interacts with a dark pool. This contains orders that are, in MiFID terms, ‘large in scale’. This interaction happens for the 300 European index names. Behind that, for another 1,200 or so names, we’ll have a dark-only order book. We think this design, with the integrated book and the dark-only book with continuous crossing opportunities, is not just a differentiating factor for us but extremely valuable to the market. Finally, an important point of differentiation is our clearing solution. We may not be the only one to use EuroCCP going forward but for the time being we will be, and the economics that we have designed with it are compelling. Recent news reports have suggested you are aiming for a 5% share of the European market on launch. Is this accurate and how quickly do you anticipate getting to this level? The exact words were that we would be disappointed if we didn’t have a 5% share from the outset, but certainly our aims are much higher than that – we want to attain considerably more market share than 5%. We expect that there is going to be a strong appreciation of the value of what we’re doing and that market share is going to move to Turquoise rapidly over a matter of days and weeks. What makes you so confident there’ll be such a rapid take-up? The platform is well designed, the technology and the connectivity to our members are in place, and we have a compelling economic case. When you add that all up, what remains is to make sure people have smart routing in place to connect to you. We are confident that in 2008 people will have that. That wasn’t always the case. But now people have the connectivity to us to make the process of moving liquidity much simpler than it would have been historically. Some observers have expressed their surprise at the relative lack of competition to the incumbent THE TRADETech DAILY—Paris 2008 “We want to attain considerably more market share than 5%. We expect that there is going to be a strong appreciation of the value of what we’re doing and that market share is going to move to Turquoise rapidly over a matter of days and weeks.” exchanges. Why has competition been slow to emerge? I think a number of people looked at setting up an MTF and thought that it had been tried before. They didn’t appreciate the opportunity that today’s technology offers to realise such an ambition. Some of the people who could have done it; for example, the US ECNs have their hands full with trying to be successful in the US. To some extent, people also looked at Turquoise, with the support we have from our shareholder banks, and given the likelihood that we would win, decided that it probably wasn’t worth spending the money to enter the market. the ownership structure. There are various parts of the trading world where we can fill gaps commercially. If you were at TradeTech a year from now, how would the debate surrounding MTFs have advanced? As competition increases you have to continuously find ways to differentiate your offering. By this time next year, I expect people will be talking about MTFs handling more complex order types, more complex routing and serving clients in a more creative way. l to learn more… in conversation with eli lederman Wednesday 23 April – 10:00 exchanges vs. mtfs: six months post-mifid, where are we in the battle for supremacy? Thursday 24 April – 12:30 How well are incumbent exchanges responding to the competition that already exists and the threat of more? It has been a token response to date. There have been relatively minor reductions in trading fees, but you haven’t really seen anything constructive from the point of view of people becoming more pan-European or moving to ‘taker-maker’ rebate economics. You have to assume, however, that the exchanges must be thinking about the impending competitive landscape and seriously considering the steps they will have to take if they’re going to compete. How much room do you think there is for more MTFs in Europe? There is some scope for more, but the commercial opportunity has to look attractive to potential entrants. If you consider the fact that in any given market there’s an incumbent exchange, as well as another viable MTF, it will soon be a very competitive landscape. It may not be possible for three, four or five liquidity venues to make money. Considerable investment is called for to launch in Europe. It requires an investment in technology, legal and regulatory, people, facilities – it’s a significant commitment. You also have to have established relationships with clients. The idea that you can take US technology and airlift it into Europe is a misguided one. Most people believe that Europe won’t witness the same type of evolution as the US, where a lot of alternate platforms were set up only to consolidate later on. There will probably be a more rational structure from the outset in Europe, and it will stay that way. How much does this have to do with clearing and settlement complexities? A lot. It’s a problem end-to-end in Europe and you really have to have expertise in all aspects of it. Expertise about European clearing and settlement requirements is a relatively rare commodity. Chi-X is going global. Are there plans for Turquoise to expand beyond Europe? There’s every likelihood that we will look at different asset classes and geographies. That has a lot to do with the platform we’re building in terms of the technology and Issue 1—Advance edition page 9 Market liquidity Liquidity gets a makeover Will competition between MTFs and exchanges bring fresh liquidity to Europe? T here will be two sides to the debate on the evolution of market liquidity at TradeTech this year. While exchanges and MTFs focus on growing liquidity, buy-side traders will be more concerned with the question of fragmentation and how best to access these disparate pools. The emergence of MTFs and systematic internalisers is causing Europe’s liquidity landscape to be redrawn. But whether the arrival of new execution venues is leading to the creation of fresh liquidity or simply redirecting existing flow to a patchwork of alternate venues is a matter of conjecture, given that MiFID neither necessitates the creation of new liquidity nor obliges traders to access different venues. There is certainly evidence of new entrants winning market share, however. Chi-X, the first MTF to launch has, on some days, captured up to 10% of the total volume on the London Stock Exchange (LSE), notes Toby Bayliss, European head of electronic execution sales at Citi. But is it new liquidity? “Chi-X has been winning order flow that would not have gone to any other venue, making it a creator of new liquidity,” says John Lowrey, head of electronic trading services, Europe and the Middle East, Lehman Brothers. As fledgling execution venues seek to gain a competitive edge through lower trading costs and finer tick sizes, new participants will be attracted to the market, contends Bayliss. There are several examples of fresh liquidity being created since THE TRADETech DAILY—Paris 2008 “Chi-X has been winning order flow that would not have gone to any other venue.” John Lowrey, head of electronic trading services, Europe and the Middle East, Lehman Brothers MiFID came into effect, he says, pointing to statistical arbitrage players who are geared up to profit from small price anomalies. “New liquidity is emerging as markets become more efficient and it becomes cheaper to carry out transactions,” he notes. “Chi-X currently appeals to a specific set of specialist traders using quantitative strategies that seek to take advantage of volatility,” explains Martin Graham, di- rector of equity markets, LSE. In recent weeks, Chi-X’s business in UK stocks has increased as liquidity providers respond to the firm’s financial incentives to post positions, he observes. Exchange innovation The whole market stands to gain from the creation of new liquidity, according to Graham. While Chi-X may be attracting new liquidity, he observes, the LSE is also reporting strong volumes. “The SETS market captures the lion's share of electronic execution and continues to be the price formation venue of choice,” he points out. In January, amidst the market volatility that ushered in the new trading year, SETS posted record levels, with up to 1.4 million transactions on a single day. There is no room for complacency, however. The LSE is already in discussion with members over the next phase of its ongoing plans. Within the next 12 months, it will bring Italian equities onto its new trading platform, TradElect, expanding the liquidity pool for UK and Italian stocks. It will also be introducing a single order book for contracts for difference (CFDs) and equity trades. “We are in discussions with customers and buy-side traders about how their needs are evolving, the issues they face and what new opportunities they can see and how we can help them,” says Graham. Far from succumbing to the threat posed by emerging trading venues, across Europe the incumbent exchanges are starting to innovate in response to the challenge. “They are starting to come up with new settlement structures and, in some cases, reduced fees and tick sizes,” observes Bayliss. And the more of a threat alternative venues become, the greater will be the reaction from the exchanges, he predicts. Too much choice But offering customers greater choice as to where to execute orders does not necessarily mean they are in a position to make the best decision about where to post liquidity, explains Lowrey at Lehman Brothers. Evaluating the relative merits of different liquidity venues and brokers’ performance in handling client orders is difficult, concedes Bayliss at Citi. Convergence would offer a solution to this, he contends. “Buy-side traders want the multiplicity of emerging trading venues to merge together,” he comments. “They ultimately want to be able to access any liquidity pool seamlessly, without having to settle on multiple venues or deal with multiple counterparties.” Technology has a role to play here. At TradeTech, Lowry wants to focus on the role of dark pools of liquidity and the value of products that match trades automatically at a block level. “Traders need tools to help them decide where to trade.” l To learn more… Accessing and attracting liquidity in the new trading landscape Wednesday 23 April – 08:30 The evolving global liquidity landscape Wednesday 23 April – 11:30 Growing liquidity Thursday 24 April – 12:05 Issue 1—Advance edition page 10 smart order routing Is SOR proven technology for Europe? Can brokers provide what Europe needs? As European markets fragment post-MiFID, smart order routing is being touted as a ‘must-have’ technology. A ccording to a recent report by Tabb Group, taking into account national exchanges, ECNs, crossing networks and dark pools, equity traders in the US have over 55 different venues where they can transact. The speed of execution in these venues is also much faster than that traditionally expected of exchanges. “The average NYSE floor execution time, even going back as little as three years ago, was approximately 14 seconds,” says the report. “Today most trading venues (including the NYSE floor) measure execution time in milliseconds and some in micro seconds.” Speed has become critical. In addition to the trading platforms themselves, the way traders access the financial markets has radically changed, the report explains. “Today more than 63% of shares traded by institutions bypass the traditional sales trader and are received and managed electronically.” These changes have spurred the development of trading tools to support this new environment, not least among them, smart order routing, allowing an order to be routed for execution to wherever liquidity can be found. “Is lack of universal access to dark pools a concern? Can one achieve best execution without interacting with dark pools? These are questions that we will need to address.” Alexandra Foster, head of sales, Global Execution Services, BNP Paribas The European arena As new liquidity venues in Europe begin to spring up as a result of MiFID, traders are looking to the US to source the smart order routing technology they will require. A TradeTech panel on smart order routing will be considering whether that technology has been matching its promise and whether the requirements of the European markets can be met by drawing on the US experience. Given that smart order routing is mandated at market operator level in the US, but not in Europe and that Reg NMS has a heavy focus on best price, does that change the job specification for brokerowned SOR technology in Europe? “There are of course both similarities and differences in SOR technology between Europe and US,” says Alexandra Foster, head of sales, Global Execution Services, BNP Paribas and a session panellist. “In the US, they have to look at best displayed price... that’s the law there now.” Price is important in Europe too, stresses Foster, but MiFID goes further, taking into account not only price but also other possible priorities, such as size, cost, speed and likelihood of execution and settlement. “Brokers in Europe have more discretion about how they define the best source of liquidity and the best price,” agrees fellow panellist, Toby Bayliss, head of elec- “In my opinion it’s still very much a grey area whether there is an implicit requirement under MiFID to be able to smart order route to achieve best execution.” Toby Bayliss, head of electronic execution sales, Citi THE TRADETech DAILY—Paris 2008 tronic execution sales at Citi. That said, he points out, the way that orders would actually be routed would be quite similar. In the US, says Bayliss, an assumption is often made that because it is the responsibility of the trading venues to reroute orders on clients’ behalf, if there is a better price shown elsewhere, brokers actually utilise that functionality. “The reality is that speed is so important in your routing decision that brokers are automatically going to the best price venue at the outset,” he observes. The problem with relying on the market operator to exercise that obligation is the introduction of additional latency. “If you start out at one venue that then reroutes your order, there's a measurable delay,” he explains. Under US regulations, venues have up to a second to reroute incoming orders. “If the brokers want to be hitting liquidity as it appears, they need to be picking the right venues straight off,” he says. Build or buy Advanced functionality does not come cheap and, as with many other aspects of what might be called mission-critical technology, users face a choice of developing their own solutions or buying existing products and adapting them. “A lot of brokers in the US still use independent technology providers to produce their SOR,” says Bayliss. “We at Citi utilised Lava Trading in the US for our SOR and became so reliant on the technology that we purchased the company. We’ve been utilising that intellectual property to create our own smart order routing in Europe.” Bayliss points out, however, that the need for SOR is not universally recognised in the European trading arena. “There’s no universal obligation to smart order route in Europe,” he contends. “I think that’s a very important difference.” While some people are still unaware of the benefits of SOR, others are still sceptical about new venues for liquidity, though that view is diminishing. “To be honest, there are only two new venues that are up and running and having any impact: there’s Chi-X that’s capturing quite good market share and NYFIX Euro Millennium which has just started up,” says Bayliss. “We’re connected to both and we're routing to both on our orders, but there are still people that feel there isn’t sufficient liquidity on those venues.” MiFID will not necessarily force the hand of these sceptics. “In my opinion it’s still very much a grey area whether there is an implicit requirement under MiFID to be able to smart order route to achieve best execution,” says Bayliss. The regulations allow brokers to be responsive to client priorities. “A local broker in a particular market where Chi-X does not yet operate could argue that they do not need this technology at all,” he comments. “There will still be a lot of brokers that will say that they’re already going to the most visible, most liquid exchange since that is still without doubt the primary exchange.” Where SOR is deployed, it is often difficult for buy-side clients to judge and compare its effectiveness. “People are often unaware of how to differentiate the smart order routers: which ones are sophisticated and which ones aren’t,” says Bayliss. “When we talk to the buy-side about how they select their agency brokers, it often comes down to the quality of execution at the brokerage end and who has the best technology. But that’s often a question of who’s providing them with the best price, not on a single trade, but over the long term.” Applying comparative transaction cost analysis over a long period in an algo-driven environment is still very difficult, he suggests. For Foster at BNP Paribas, meanwhile, the changing structure of the market adds to the challenge for SOR technology. The repercussions of non-displayed liquidity and how it affects the displayed markets are not yet clear in Europe. “Is lack of universal access to dark pools a concern? Can one achieve best execution without interacting with dark pools? These are questions that we will need to address,” she says. l to learn more… how smart is smart order routing technology? is it delivering on its promises? Wednesday 23 April – 14:30, Stream A Issue 1—Advance edition page 11 JPMorgan LighthouseSM Finding your way in the dark This material is provided for information only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or other financial instrument. In no event shall JPMorgan be liable for any use by any party of, for any decision made or action taken by any party in reliance upon, or for any inaccuracies or errors in, or omissions from, the information contained herein and such information may not be relied upon by you in evaluating the merits of participating in any transaction. JPMorgan and its affiliates may have positions (long or short), effect transactions or make markets in securities or financial instruments mentioned herein, or provide advice or loans to, or participate in the underwriting or restructuring of the obligations of, issuers mentioned herein. Nothing in To learn more, please contact JPMorgan’s Electronic Client Solutions team: Europe North America Asia Japan Australia +44 20 7779 3366 +1 866 721 2201 +852 2800 8830 +813 6736 1357 +612 9220 1682 ecs-eu@jpmorgan.com ecs-ny@jpmorgan.com ecs-asia@jpmorgan.com ecs-asia@jpmorgan.com ecs-asia@jpmorgan.com jpmorgan.com/ecs these materials constitutes a commitment by JPMorgan or any of its affiliates to enter into any transaction. Clients should contact their salesperson at, and execute transactions through, a JPMorgan entity qualified in their home jurisdiction unless governing law permits otherwise. JPMorgan is the marketing name for the investment banking activities of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. J.P. Morgan Securities Ltd. and J.P. Morgan plc are authorized by the FSA and members of the LSE. ©2008 JPMorgan Chase & Co. All rights reserved. database language performance productivity database language performance productivity Fast, powerful processing with a clear, expressive language. kx.com best execution & tca MiFID makes TCA a more exact science Last November, MiFID came into force, obliging firms to offer clients best execution. Bob Giffords1 assesses how they have fared so far W hile best execution has always been the goal for traders, the abolition by MiFID of the concentration rule, combined with its multifactor approach, the rise of dark liquidity pools and high velocity trading, has turned this familiar concept into a challenging objective. “People focused last year on getting their MiFID paperwork in order,” says Robert Kay, managing director, GSCS Information Services, a transaction cost analysis (TCA) data provider. “Now they’ve received calls from the FSA for visits in Q2 and Q3, which has prompted them to look again and consider what best execution really means. Those who don’t already have TCA, such as many hedge funds, are now reconsidering what they should do.” Jean-René Giraud, director at EDHEC-Risk and opening speaker on the TradeTech ‘Fragmentation and liquidity focus day’, believes more firms may need to review their cost monitoring strategies. “Many European buy-side firms claim to use some sort of TCA,” says Giraud, “but our 2006 research suggests that two-thirds of them did not capture the necessary time-stamps to draw useful conclusions.” He believes TCA has often been more of a marketing exercise. “Everyone claims to do best execution,” he says, “but there is still no consensus – either in the industry or in academia – on what that means.” ments to our processes over the years.” For many firms with advanced TCA practices, MiFID has brought little change. “MiFID best execution has actually not really impacted us at all from a trading perspective,” says Steve Wood, global head of trading, Schroder Investment Management, “except that we’re seeing TCA questions in more requests for proposal (RFP) and the trading desk is now a regular stop on client visits.” Other firms are now taking the TCA plunge. “MiFID gave us the justification to formalise our existing process-driven approach, both internally and externally, and complement it with TCA analysis from Abel Noser,” comments Betsy Anderson, head of centralised dealing at Resolution Asset Management (RAM). “It brought into sharper focus the importance of broker selection and access to venues in the decision-making process.” This is particularly important to ensure reconsolidation of liquidity across fragmented and dark pools. In RAM’s quarterly TCA review, Anderson works with compliance to highlight those parts of the process that are more or less efficient and to help them improve across the whole investment cycle. This complements an intensive appraisal of every execution immediately after the fill and a significant amount of internal communication across the team, the fund managers and clients. Performance at the core Which benchmark? Increasingly, however, firms are focusing their TCA efforts on performance management. “An important component of any post-trade analysis is the ability to attribute performance to multiple factors, such as trade scheduling, order placement, or order constraints,” says Brad Hunt, managing director and head of Goldman Sachs’ electronic trading in Europe. “Optimising execution performance is to a great extent dependent on choosing the right algorithm for a given order and instructing it properly,” he says. “The post-trade analysis review should incorporate this analysis.” While Baring Asset Management began using TCA back in 1995 for quality improvement, the firm now uses it increasingly to assess broker performance, venues and algorithms in a much more quantitative and objective way. “TCA is not just about a simple execution price,” says Brian Mitchell, global head, dealing and portfolio control, at Baring. “It’s about evaluating the whole trade implementation cycle from portfolio construction through trading strategy planning and risk-adjusted execution. We’ve continually made refinements and improve- There are real rewards to be reaped from a methodical approach. Chris Marsh, head of AES trading and product development in Europe at Credit Suisse, notes, for example, that, “We’re seeing an average of 1.8bp improvement on Chi-X over the main exchange at the touch and by comparing clients in aggregate, there is a marked improvement for those that use the new liquidity pools." If, however, there is some convergence on the objectives of TCA, there is much less on the choice of metrics. “There is a wide use of different benchmarks, such as VWAP, implementation shortfall, closing price and arrival price,” says Robert Boardman, head of algorithmic trading for ITG in Europe. “There is no right answer. It depends on your investment process, trading style and market conditions.” Another source of variance is the reference data used to populate the benchmark. Do desks draw on their own trading experience or that of third parties, and, if the latter, which parties? “Although we’re one of the few to provide data from BOAT and Chi-X,” says Kay at GSCS, “most of our clients have asked us only to include the main exchange in the benchmark for the time being.” GSCS “[MiFID] brought into sharper focus the importance of broker selection and access to venues.” Betsy Anderson, head of centralised dealing, Resolution Asset Management THE TRADETech DAILY—Paris 2008 “Everyone claims to do best execution, but there is still no consensus, either in the industry or in academia, on what that means.” Jean-René Giraud, director, EDHEC-Risk reports on the other venues separately. “We might need to review this if Chi-X, Turquoise or other venues start to be more actively used by our clients,” says Kay. In general, Baring assesses all trades against an appropriate benchmark in the context of pre-trade momentum considerations, post-trade net returns and market impact. “The benchmark is typically implementation shortfall,” confirms Mitchell, “but we might use VWAP, for example, for large-cap, non-momentum trading in nonvolatile conditions. It depends very much on the original rationales for trading.” Schroders, by contrast, only uses implementation shortfall as a benchmark. “VWAP is the measurement of mediocrity,” adds Wood dryly. “We don’t use it at all.” His interest in peer benchmarks is limited to its use for aggregate analysis. For normal performance improvement and responding to clients and regulators on specific trades, Schroder looks at absolute costs. “Over many years we’ve developed three benchmarks depending on the strategy,” says Mat Gulley, global head of trading at Franklin Templeton Investments in the US. For very large blocks that trade over multiple days, the firm uses a volumeweighted added-value benchmark; for smaller same-day orders, implementation shortfall based on a theoretical cost estimator; and then implementation shortfall based on the morning’s price, where the cost estimator is less applicable. Dealing with outliers An issue that taxes all buy-side desks undertaking a trade performance assessment is how to choose the outliers for detailed review. “Besides the aggregate analysis, we focus on the few trades that look expensive, at least relatively, against the benchmark peer group adjusted for difficulty, and then analyse why they are outliers,” says Mitchell. TCA provides the first filter but there are others. A second-level analysis may be conducted, based on the strategy bias or market conditions and trading or client constraints. Any exceptions are then reviewed quarterly with dealers, senior fund managers and compliance. Recommendations for process improvements are circulated. For Wood, it is not so much a matter of the best trade as the right trade for each situation. “A good benchmark helps you to find outliers and provides a broad comparison with your peers,” he comments. “For detailed analysis, you need to look at trades in situ and compare them to net marketadjusted returns to see if they were right.” Wood believes it is important not to get bogged down in too much detail. “We look at the high- and low-cost trades and compare them against the benchmark which takes account of their relative difficulty,” he says. “Usually we can explain them quite easily, but sometimes it takes more time.” He does not tend to compare them to pretrade estimates, as that would suggest a benchmark based on historic data without adjusting for current market factors. “We need to get below 1% as a reasonable goal for outliers, all of which are, in some sense, significant,” comments Professor Michael Mainelli, executive chairman, Z/Yen. He notes, however, that this requires taking account of the current market conditions of the trade, which most TCA does not do. “You also need to use artificial intelligence (AI) to highlight anomalies in a multi-factor world,” he adds. Instead of fixed rules, Mainelli observes, people are deploying AI techniques such as correlated, weighted statistics to find an efficient frontier, using methods like support vector machine mathematics. “These statistical techniques are either embedded inline in the trading algorithm or off-line in the analytics,” he explains. A moving target Does all this bring the goal of best execution any nearer or does it simply help to establish a baseline for performance? “The role of MiFID is not to force people to get the best, but rather to improve transparency and exclude those with unacceptable practices,” contends Giraud. “But without objective benchmarks, that could be difficult to address.” EDHEC has proposed an Estimated Best Execution (EBEX) metric focusing on total cost. “This can’t be gamed like VWAP,” says Giraud, “but until we have a consolidated tape it may be difficult to deploy. TCA vendors are, however, working on its implementation.” The real outcome of MiFID’s best-execution obligation may, in fact, be a continuous learning process by the traders themselves. “Best execution is a known execution with no surprises,” says Gulley at Franklin Templeton. “For this the portfolio managers need to understand the benchmarks and how the traders work, how they add value. That’s really the goal.” The goalposts may, however, be shifting as TCA threatens to become even more complex. “Over the last six months, trading styles and behaviour have undergone a massive change,” says Boardman. Historic data is much less of a guide than it used to be; the emphasis now is on real-time data. “Instead of analysing spread, size, momentum and volatility over the past 21 days, we’re doing it over the last few minutes,” he notes, “though for illiquid instruments the historic data may still be important.” Hunt at Goldman Sachs argues that algorithms should be adaptive to such intraday movements. “In today’s fast-moving markets, your algorithms need constantly to re-assess the cost of liquidity to decide whether to trade passively or pay for ‘cheap’ liquidity,” he says. “Algorithms increasingly need to interpret market events and dynamically adjust themselves.” Real-time TCA becomes particularly important when accessing dark pools. “We’re seeing a lot of hedge funds out there with huge computing power sniffing around the venues, and we’re hearing growing concerns about disadvantageous trades in the dark pools,” says Marsh at Credit Suisse. “We are using our fair-value modelling capabilities to tap dark liquidity pools on our own terms and remove the potential negative selections that can occur.” Performance attribution is a further step up the learning curve, says Boardman. “It tries to assess the value added at each stage of the process: choosing the broker, the algo, the venue or the actual management of execution. It’s not easy but that’s our challenge at the moment.” Gulley agrees it is a tough call. “By blending the benchmark with an assessment of the trade-off between market impact and opportunity cost, we’re getting closer, but we’re not there yet,” he admits. “Fund managers need to get comfortable with the benchmarks before they accept a split of responsibility.” For Anderson at Resolution, the next challenge lies with portfolio trades and support for 130/30 funds. “For portfolio trades, we do much more pre-trade analysis to decide what is included in the basket and assess the risk constraints,” she explains. “We then put the trade out for tender. We have started to use BidRoute, which allows us to automate the tendering process and score the successful brokers, rather like eBay. We request post-trade analysis from the broker and factor this into the rating, relating it back to the type of basket and the various bids.” When it comes to 130/30 funds, Resolution tends to trade on a single-stock basis. “We would always factor in the cost and availability of borrowing and the importance of not being recalled ‘on-theborrow’ when assessing costs,” says Anderson. “We would hope to use the TCA data to enhance and improve processes specifically relevant to the 130/30 funds, focusing for example on shorting efficiencies, which could be helpful to traditional long-only managers overlaying their traditional strategies with a short extension strategy.” l 1 Bob Giffords, an independent banking & technology analyst, welcomes feedback on this article: bob.giffords@btinternet.com to learn more… fragmentation and liquidity focus day: optimal strategies for your trading desk and defining best execution in the new regulatory landscape Tuesday 22 April – 09:00-17:30 stream b: Volatility, tca and best practice relationships Thursday 24 April – 15:15-17:20 Issue 1—Advance edition page 15 Maximise your global trading efficiency… …with the right connection FIX Gateway message routing service Through a single, high-speed connection, the FIX Gateway connects you to your choice of liquidity pools. No need for multiple connections. Your messages are communicated immediately and with confidentiality. A flexible, open structure means you can use your existing network provider and Order Management System. The FIX Gateway is an invisible 'hub' allowing you to view the real-time status of brokers before sending messages to them. This reduces the risk of message failure and limits potential losses. Most reassuringly, the FIX Gateway builds on our experience in highly reliable trading systems. We offer free testing and 24/7 support to ensure you stay connected. Meet us at TradeTech 2008, Paris Booth No. 126 To find out more, please contact: Tom O'Brien +44 (0) 20 7797 4135 tobrien@londonstockexchange.com www.londonstockexchange.com/fixgateway LSE_FIX_267x396_01.indd 1 03/03/2008 17:54:26 speaker preVieW Are you a leader or fast follower? ‘Where do you need to be in the low latency race?’ The answer, accoring to Mike Powell, global head, Enterprise Information at Reuters, depends as much on an institution’s business model as its appetite for pioneering ‘bleeding-edge’ technology. What are the big latency issues that delegates will be talking about at TradeTech? Where are the latency bottlenecks in the trade lifecycle? A lot of the sell-side and execution-specific brokers were already looking at the quality of their execution prior to MiFID, but certainly the regulation has added to that with its focus on best execution. With new trading venues emerging, the existing exchanges are responding to the threat by speeding up their connections, upgrading platforms and introducing new feed products with less latency. That has put quite a lot of pressure on banks that develop in-house feed handlers to try to keep up with this pace of technology change driven by the exchanges. You get a lot of people jumping up and down, talking about the feed handler latency. But it is absolutely an end-to-end chain – you have all sorts of links in that chain that can add latency. For example, how have you set up your comms connectivity? Have you got the right bandwidth? You hear people throwing around buzzwords like ‘FPGA’ and ‘proprietary hardware’, but you actually need to go through your whole chain and do some fairly mundane things to improve your latency. You could have an application or a poorly configured bandwidth connection that may be adding tens or hundreds of milliseconds. Otherwise you will be throwing money at the wrong places to squeeze out a few microseconds. For whom do milliseconds count most? It depends on your business model. If you are a long-only investment firm, or even a hedge fund that has a long-short strategy, getting the last millisecond out of your execution is not as important as some of your long-term investment decisions. However, if you are focusing on being the best execution provider in the market, or you are an internal prop desk with a high-liquidity trading model, then latency is critical. For those for whom latency is important, you can’t afford to be left behind. Is there a clear ROI to justify the front office investment? There is a law of diminishing returns on investing in low latency technology. Once you start getting down to microseconds and nanoseconds, how much return are you really going to get on your investment? But definitely there are gaps between people who have invested heavily in this area and others who have Are there any downsides to low latency? “It is a balance between squeezing out latency with bleeding edge technology and having a robust and stable trading system in place.” yet to start. That will be where the focus of investment will be: firms who feel they are now at a competitive disadvan- tage to other sell-side brokerage firms trying to catch up in order to remain competitive. Yes, we’ve had some issues fed back to us by a few customers. Let’s say you are a sell-side firm and introduce algorithms into your agency trading on behalf of your customer. You want to automate your trading to take some costs out and you also want to offer low latency in order to win business and stay competitive. But if your bleeding edge proprietary hardware and technology fails, you are suddenly out of the market for the whole day and unable to execute your customers’ orders. Stability is extremely important for certain participants. So it is a balance between squeezing out latency with bleeding edge technology and having a robust and stable trading system in place. Has the explosion in market data led to problems? The rise in data volume, coupled with market volatility, has created a challenge for the industry in terms of coping with the increased volumes. As exchanges upgrade their networks and platforms to handle more liquidity, many are looking to increase their depth of liquidity by generating more quote messages, while the growth in algorithmic trading is creating challenges for the market by increasing the number of trades and associated trade messages. Every time an algo dissects a block trade into lots and lots of smaller trades, it creates a new piece of market data. Whereas five years ago a large block trade might be split into a relatively few different trades, now an algo might break that that up into 100 trades or more – so that creates 100 messages compared to the former five messages. What are the consequences of this? The increase in market data puts a lot of stress on both vendors and banks. Even if a vendor provides all those feeds down to the bank, they still need the infrastructure to be able to manage and distribute that internally. Their applications need to be sufficiently robust to handle that volume of data and that means investing in hardware and other solutions. So it is quite a big industry challenge, and at the same time everyone is trying to do it faster. A lot of people are spending money in this space. I expect volumes will continue to increase and I don’t think this story will go away in the near future. l to learn more… Where do you need to be in the low latency race? Wednesday 23 April – 15:40, Stream C technology for the trading desk Data in an age of silicon Rounding off the first day of TradeTech will be a panel discussion on why market data is top of the agenda. For panellist Jeff Hudson, CEO, Vhayu, the scope of the challenge can only be appreciated by examining the broader historical context. M ost TradeTech attendees will have personal experience of the challenges presented by the massive increase in data associated with the trading function. Jeff Hudson, CEO, Vhayu, the market data specialists, draws on the analogy of evolution to bring home to the trading community that a change in mindset will be needed to operate successfully in the burgeoning electronic marketplace. Focusing on the evolution of consciousness rather than physical attributes, he suggests that the role of ‘the carbonbased life form trader’ has more or less run its course as the main participant in today’s electronic marketplace. “If you think about the ‘old days’, the ‘post-Mesozoic’ period, if you will, the trader would read the Wall Street Journal, look at a ticker tape, talk to people on the phone and would then make trades,” says Hudson. “That doesn’t work anymore. We are now at the point where markets have become so large and so complex that traders have invoked silicon-based force multipliers.” Without leveraging the force multiplier effect of silicon chips, serious trading in today’s markets is not feasible, says Hudson. That force is multi-dimensional, affecting both speed and volume. “As a human, I THE TRADETech DAILY—Paris 2008 “If I use a siliconbased machine not only can I trade 10,000 times faster, but I can trade 10,000 times more.” Jeff Hudson, CEO, Vhayu can run 100 metres in 9.5 seconds, but if I use a machine, I can do it in two seconds,” says Hudson. “Similarly, I can trade only so fast on my own, but if I use a silicon-based machine not only can I trade 10,000 times faster, but I can trade 10,000 times more.” Human limitations The market used to be defined as the sum total of the players and their ability to trade, says Hudson. “Now we have all the force multipliers, we have super strong players in the market that can trade so much faster and so much more broadly that the market is exploding, creating that much more data.” Human traders need to come to terms with their limitations in such an environment, Hudson argues. In automated trading, the human traders are the directors of the machine, which acts as their proxy. The supervisory and feedback functions built in to the system need to work at the same rate as the machines that are trading. That realisation is starting to dawn on people, he says. The way that machines are programmed to trade is itself evolving. “Electronic trading has up to this point been more or less equivalent to a reptilian response mechanism,” Hudson suggests. “It’s all about taking the most recent event and reacting to it. If you look at a lizard, what it knows is hardwired in. It has a reptilian response to movement: opportunity or threat. That’s what algorithms are doing today. They look for movement and react.” As consciousness evolves, says Hudson, other factors come into play. “We start to take into account things like community and history. We make use of the ability to remember the past; we recognise what’s going on, put it into a context and make a plan for the future.” For the moment, says Hudson, most algorithms are reptilian – “They snap at whatever moves” – but the new generation of algorithms will be able to learn from experience, recognising and avoiding situations that in the past have led to undesirable conclusions. There is an evolution toward massive parallelism, says Hudson. Increasing sophistication is being coded into algorithms to which the trader will need to cede more of the actual decision-making. “There’s still this notion that, ‘I am the trader, I'm thinking up what to do and I’m in charge’,” he contends. “But we’re starting to see adaptive algos that adjust themselves to current conditions, not requiring the traders themselves to say, ‘Wait a minute, what's happening?’ That’s the next stage: on-the-fly quant research or on-the-fly alpha generation.” Data churning In short, says Hudson, we are creating silicon traders. These systems will be more adept at absorbing, analysing and acting on vast quantities of data than humans could ever be. “We as humans are carbon-based. We cannot easily and speedily discern the difference between relevant and irrelevant data,” he says. To humans, the amount of data being generated by the use of force multipliers seems overwhelming. Yet, says Hudson, “If I could ask these 8-core Pentium ma- chines, ‘Is this too much data for you to handle?’ They'd say, no.” The problem that the machines will encounter is that the pathways to communicate all this information still need to change. “The networks are too slow, but there are people working like crazy to develop bigger and bigger pipes,” he says. People need to shift their perspective, Hudson concludes. “What gets people from New York to Paris? Is it the pilot? No, it’s the autopilot. We’ve trained it to understand its environment.” What does the pilot do? “He watches to make sure nothing goes wrong and that the autopilot does not encounter anything that is outside its corpus of knowledge.” What is still irreplaceable in human beings, says Hudson, is that “they have the ability to react in a creative way to a situation that nobody’s seen before.” That is the human trader’s preserve. l to learn more… market data – Why it’s top of the agenda and how you can ensure the best data at the best price Wednesday 23 April – 17:20, Stream A Issue 1—Advance edition page 17 trading technology MiFID rings the changes for electronic trading With MiFID triggering market fragmentation, trading technology has to adapt fast to keep pace with market demand W hat do buy-side traders need most from their trading tools, how will they go about getting it, and what will providers do to meet their needs? For algorithmic trading providers, one of the biggest problems faced is the latency in their offerings resulting from a lack of CPU power, according to Ralph Silva, managing director, securities and investments at research and consultancy firm TowerGroup. “The number of data elements informing algorithms is going to increase over time,” notes Silva. Today, he contends, individual algorithms have some way to go to match the number of simultaneous inputs that can be handled by the computational power of the human brain. A number of emerging technologies have the potential to make the trading process faster. Some companies have set themselves to the task, developing advanced CPUs and ‘protein-based microchips’, according to Silva. However, he suggests, the biggest opportunity for vendors going forward lies in selling infrastructure-based platforms that give traders the ability to create their own algorithms using the coding elements provided. Silva also envisages the development of a common trading platform for investment banks. “On a trading floor in London or the US, different technologies are used running different types of algorithms. Some traders will use Visual Basic [Microsoft’s event-driven programming language], while others – sitting three floors down – will be using an Excel spreadsheet,” explains Silva. This lack of a common trading infrastructure means that firms have no consolidated view of the algorithms they use. One problem with this is that traders within a firm might often find themselves trading against each other. “How many times have we known one trader going after a counterparty who happens to be across the desk?” asks Silva. By deploying a common trading screen for each of their traders, rather than different screens throughout, brokers can counter this problem, he argues. To provide the buy-side with a greater sense of control of outcomes, brokers are stressing the potential customisation aspects of their algorithmic offerings. Yet according to The TRADE’s 2008 algorithmic trading survey, only 4% of buy-side traders polled cited customisation features as important to them. According to Silva, this makes perfect sense. Buy-side traders are not interested in customisation provided by the sell-side, since what they really want to do is build the algorithms themselves. Understanding cost Transaction cost analysis (TCA) is also having to evolve to cope with the market structure changes that have taken place since MiFID went live on 1 November 2007. One of the most significant developments in this respect is in benchmarking. For a buy-side firm sending an order to a broker to be executed via a smart order router (SOR), liquidity-seeking algorithm or other ‘smart’ electronic trading device, the need to apply a benchmark “With each broker using different liquidity pools, it is hard to find a common benchmark against which to evaluate their performance.” Vincent Burzynski, group marketing and products director, GL Trade “The number of data elements informing algorithms is going to increase.” Ralph Silva, managing director, securities and investments, TowerGroup against which to evaluate the broker’s performance is paramount, says Vincent Burzynski, group marketing and products director at electronic trading solutions provider GL Trade. Accurate broker evaluation is more challenging today than it was in the pre-MiFID trading environment, according to Burzynski. “With a proliferation in the number of liquidity pools available for traders to access, using a VWAP benchmark will not be satisfying enough,” he explains. VWAP has long been regarded as the de facto standard in TCA analysis – widely used and easy to understand. But with multiple liquidity pools for trades to be routed to, VWAP will be different for each venue. “With each broker using their own algo or SOR engine to access different liquidity pools, it is hard to find a common benchmark against which to evaluate their performance,” explains Burzynski. The problem is unlikely to go away. “Access to dark pools of liquidity are in increasing demand by buy-side traders,” comments Burzynski. Traders use dark pools because they value the anonymity they offer by not displaying their orders on the market, he adds, thereby reducing market impact. The importance to traders of anonymity has been verified by independent research. The TRADE’s 2008 algorithmic trading survey, based on interviews with over 150 buy-side traders, found that close to 22% of respondents cited ‘anonymity’ as a significant driver behind the adoption of algorithms as part of their trading strategy. “We need to discuss how important reducing market impact is for the buy-side and how it can be improved,” notes Burzynski. l Make TradingScreen your winning move. TradingScreen’s Multi-Broker, Multi-Asset Class Execution Management System is now used by over 1000 buy side firms worldwide * * * * Proven ASP model for easy implementation Pre-certified integration with most order management systems Intuitive and customisable user interfaces Powerful integrated trading tools: - Pre and in-trade analytics - Liquidity aggregation from IOIs to ATS/MTFs - Order flow management using AutoRouteTM - Sophisticated strategy builder (baskets, pairs, spreads) - Largest algorithmic trading offering across asset classes - Unique ‘MiFID-in-the-boxTM’ best execution reporting and compliance to learn more… defining the next generation of electronic trading Thursday 24 April – 9:10 For more information please visit us at TradeTech Paris 2008 - Booth 007 www.tradingscreen.com keynote academic address: the future of technology innovation in financial markets London +44 207 149 3100 Paris +33 1 4070 0487 New York +1 212 359 4100 Thursday 24 April – 14:35 TradeTech_draft08b.indd 1 THE TRADETech DAILY—Paris 2008 19/3/08 8:28:29 am Issue 1—Advance edition page 19 Multi-asset-class trading >CORPORATE PERFORMANCE MANAGEMENT >ENTERPRISE SEARCH >BUSINESS INTELLIGENCE vi·tal·i·ty, noun 1. physical or intellectual vigor; energy 2. the capacity for survival or for the continuation of a meaningful or purposeful existence Alpha comes at a price 130/30 strategies may well have freed traditional managers from the stricture of long-only investing but are not without risk W > B U S I N E S S P R O C E S S A U T O M AT I O N Species live and die by their ability to adapt to a changing environment; the same is true for your business. Allin understands that Business Process Automation means more than upgrading your legacy systems for today’s marketplace, it’s about building solutions for today that can adapt to the market developments of tomorrow. It’s about increasing the control, speed and reliability of your processes. It’s about survival. Find out how we can help you thrive in today’s marketplace: call +1 781 213 6917 or email us at info@allin.com 22-25 April 2008•The CNIT Centre, Paris Harness the potential of your trading desk ith the European Union’s UCITS III Directive now permitting mainstream money managers to replicate hedge fund strategies, the past few years have witnessed an increased blurring of lines between traditional long-only fund managers and specialists in absolute return products. With institutional investors trying to boost alpha in an era of low expected returns, one of the most popular alpha generating strategies to hit the market is the 130/30 fund. Also known as active extension or short-extension strategies, the 130/30 vehicle gets its name because 100% of the fund is invested long, while the manager also shorts stocks up to a value equal to 30% of the fund’s assets. The proceeds of the short sale – stocks that are expected to underperform the market – are then used to buy stocks that are likely to beat the index. On paper, the merits of 130/30s seem clear, particularly for asset managers who believe a long-only structure is restrictive, preventing them from making money by targeting unattractive securities. The vehicle allows them to seek more alpha without having to do any major reshaping of their asset allocation or portfolio structure. “With a 130/30 product, you can completely control your exposure by taking a short position if necessary. You can get all of your views on stocks into the portfolio, and go really long with the ones that you really like,” explains Richard Lacaille, head of global active equities, SSgA. “At the same time, there is no worry that you are going to unbalance the portfolio and get exposure to sector risk. It can be both a boost to performance but also allow much better risk control.” Despite short track records and the lack of data for evaluating strategy and performance, 130/30 managers said they are encountering strong institutional investor interest. The growing popularity of 130/30s is confirmed by recent research which estimates the investment strategy has, in the space of two or three years, pulled in around $140 billion AUM, a figure that is forecast to grow to more than $2 trillion AUM in the next three years. But despite this traction, the strategy is not without its critics, as delegates are likely to discover at the TradeTech session devoted to 130/30 strategies. Some industry experts, wary of the heavy marketing campaigns that have accompanied 130/30s, have pointed out that the funds are extremely dependent on the stock-picking skills of the manager and carry potentially greater risks than long-only funds. Caveat emptor 0 r 30 ide Ove buy s ady r io alre sen dees ed n m r e att confi Principal Sponsors: Lead Sponsor: “The outstanding agenda is sure to deliver insight into the latest developments in our industry” Richard Lacaille, CIO, SSgA Register today! Call +44 (0)20 7368 9465 THE TRADETech DAILY—Paris 2008 Email: tradetech@wbr.co.uk Visit www.tradetechequity.eu Last year, a Sunday Times article voiced the common concern that 130/30s could prove troublesome for traditional long-only fund managers who lack experience in shorting stock: “Buy a bad share and you can only lose what you put in, but if you have gone short you have to buy it back,” ran the article. “If its price falls in the meantime that’s fine. You’ve made money as you buy it back for less and pocket the difference. But it could also rise, and rise indefinitely. You can lose a lot more money this way.” While acknowledging that shorting can be “unfamiliar territory” for some managers, Lacaille believes the onus is on them to “demonstrate to clients their shorting ability as well as their traditional ability.” He also dismisses the accusations of marketing hype. “I can understand where people are coming from, because it seems that there is a lot of institutions doing 130/30s all of a sudden and there is a bit of spin around it, but there is actually a lot of substance.” SSgA is the market leader in 130/30s. According to Lacaille, the funds have a greater likelihood of delivering alpha than a high-conviction portfolio of concentrated stocks, those shares that fund managers are convinced will either go up or down more than the market. “Concentrated portfolios often come “With the 130/30 business, investors have an alternative to a high-conviction portfolio for the first time.” Richard Lacaille, head of global active equities, SSgA with risks that in the current environment people may not be particularly comfortable with,” he comments. From a risk perspective, but also in terms of regulatory disclosure, it is becoming harder to find 20 or 30 stocks in Europe that are unambiguously going to outperform. “Now, with the 130/30 business, investors have an alternative to a high-conviction portfolio for the first time,” adds Lacaille. Some critics, however, suggest that 130/30s are simply a variant of high conviction portfolios, since most of the long part of the fund more or less tracks the market, while the rest, both long and short, goes into high conviction ideas. There is even a suggestion that the funds are simply a scheme to generate higher than usual fees – a notion that Lacaille rejects. “The fees are in proportion to the alpha,” he insists. “From a risk return perspective, 130/30 strategies are more efficient than long-only. So although we are using our capacity at a higher rate, we are delivering disproportionate amounts of alpha. We would rather do more 130/30s than we would long-only, not from the fee perspective, but just because it is a more efficient way of using the capacity that we have got.” l To learn more… 130/30 investing: Putting some flesh on the bones Wednesday 23 April – 14:30, Stream B Issue 1—Advance edition page 20 buy-side empoWerment Alpha traders keep the pressure on brokers How far and how fast is ‘buy-side empowerment’ changing the buy-side/sell-side relationship? T here is little doubt that the traditional roles of buy-side dealer and sell-side sales trader have blurred, as asset managers seek more control over trade execution. Just how far, and how rapidly, this evolution is taking place is still a matter of conjecture however, and a subject that will cut across several sessions at TradeTech. The increasing amount of trading technology available to buy-side traders, including advanced order and execution management systems and, more recently, smart order routing, is giving asset managers more control than ever over the execution process and putting pressure on the sell-side to innovate and offer new services. “The empowerment of the buy-side has put quite a burden on brokers,” observes Rob Boardman, head of algorithmic trading at agency broker and technology firm ITG. “Not all broker/dealers are wellequipped to thrive in an environment where their clients are suddenly much more technologically savvy than they used to be.” For buy-side houses that actively manage investments rather than track indices, outsourcing execution to brokers is not an option. Traders intent on achieving superior returns need an intimate knowledge of the stocks and how they are traded, observes Jan Lamme, global head of trading at ABN Amro Asset Management. “If you see the role of the buy-side dealer as part of the portfolio management process, the dealer should be familiar with how he needs to execute the equities in the portfolio manager’s model portfolio,” he says. To meet the demands of buy-side customers, brokers not only need to be highly technologically enabled, argues Boardman, they also need to understand quantitative trading techniques. Sell-side evolution Brokers need to adopt a more consultative role now that execution power is shifting to the buy-side, advises Larry Tabb, CEO of research and consulting firm Tabb Group. “The role of the sales trader isn’t to say, ‘do you want to buy or sell shares in Vodafone’. It becomes one where they help the buy-side trader understand the various tools the sell-side has at their disposal, how to use them, and how to trade in a more fragmented environment.” Buy-side empowerment will only increase, predicts Tabb, particularly in Europe, where the advent of MiFID is resulting in a greater choice of execution venues and liquidity pools. “As the market becomes more fragmented, the buy-side will generally take greater control over how they execute,” he says, adding that this will involve the buy-side developing its own algorithms and integrating with different dark pools. “It won’t just be about delegating that order to a broker or asking the broker for capital,” says Tabb. “As the market becomes more fragmented, the buy-side will generally take greater control over how they execute.” Larry Tabb, CEO, Tabb Group to learn more… the future of the buy- and sell-side – where is the empowerment of the buy-side leading? Wednesday 23 April – 12:00 As well as changing the types of services brokers provide and how they provide them, the trend towards greater buy-side empowerment could also change the structure of the sell-side as a whole as broking houses become more automated. “A broker has got to have a good degree of automation on both the sales side and the execution side,” says Boardman at ITG. “I’m not forecasting that all brokers will have far less people, but I think there will be fewer brokers with more specialist staff who are more productive,” he proffers, with sales traders’ input reserved for difficult trades, while the rest is automated. Not only is the buy-side taking over more of the roles traditionally performed by the sell-side – it is also poaching the staff to perform them. “The role of the buy-side trader is increasingly being filled with ex-sell-side people,” notes Tabb. Cultural shift The trend towards greater buy-side empowerment is not universal, however. Although in general the buy-side is taking greater control over the execution process, some asset management firms only pay lip service to the notion of empowering buy-side traders. “They have an order management system and think that’s the end of the road,” says Boardman. The support of senior management for the trading function from a risk management or skill-set point of view is critical, he argues, and is often missing. “It’s a decadelong trend. There were early adopters at the start of decade; it will be early into the next before the majority of investment institutions are trading themselves.” Rob Boardman, head of algorithmic trading, ITG THE TRADETech DAILY—Paris 2008 gral to the portfolio management process, will continue to outsource the execution component to brokers. Buy-side desks that want a more active role in the whole asset management process will have to fight for it. “You can get recognition by telling the firm you are going to assist them in beating their benchmarks and take responsibility for it,” says Lamme. “On buy-side dealing desks in general, taking responsibility is not one of the easiest things to do,” he suggests. “Historically, they are more bookkeepers than traders, with benchmarks agreed with the portfolio managers.” There is still work to be done before the whole buy-side community can be described as ‘empowered’. “It’s a decade-long trend,” says Boardman. “You saw early adopters at the start of decade; it will be early into the next before the majority of investment institutions are trading themselves.” l Although technology is credited with empowering the buy-side, the ability to seize control of execution is as much about company culture and strategy as it is about available technology. Lamme at ABN Amro points out that firms who do not believe they can derive any value from execution, and do not see the dealing desk Page as inte-1 Apama 130x180 20/3/08 09:45 are you an alpha or a beta trader? examining the impact of the increasing sophistication of the buyside trader Thursday 24 April – 15:15, Stream C MULTI-ASSET TRADING, MARKET AGGREGATION SMART ORDER ROUTING & DIRECT MARKET ACCESS REAL-TIME MARKET ABUSE & FRAUD DETECTION POWERED BY APAMA VISIT US AT STAND 66 TRADETECH ‘08 PARIS, FRANCE Progress Apama is the leading CEP provider for the trading community. T +44 (0) 207 788 0137 www.progress.com/apama Issue 1—Advance edition page 21 market fragmentation Master class in market evolution When it comes to fragmentation, Thomas M. Joyce, chairman and chief executive officer, Knight Capital Group, believes that Europe has an advantage in coming later to the game. 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For more information, contact +1 800 431 2602 (North America), +44 (0) 20 7825 7700 (Europe) or +61 3 9249 2000 (Asia Pacific), or email info@interactivedata.com. Let Interactive Data power your real-time applications Interactive Data Real-Time Services Interactive Data Managed Solutions eSignal, Interactive Data Desktop Solutions “In an increasingly fragmented marketplace, buy- and sell-side firms want sophisticated algorithms that facilitate anonymous and efficient trading.” Thomas M. Joyce, chairman & CEO, Knight Capital Group T Introduction The algorithmic revolution – what is it, who’s in it and where is it heading? Part 1: Adopting an algorithmic strategy Chapter 1: The role of algorithms in the overall trading mix Chapter 2: Integrating algorithms into the order management system Chapter 3: Integrating algorithms into the execution process Part 2: Algorithms in action Chapter 4: Algorithms – limits and possibilities Chapter 5: Algorithms to help you trade aggressively Chapter 6: Dark pools and algorithmic trading Chapter 7: Regional differences in algorithmic design Part 3: Quantifying and measuring performance Chapter 8: Overcoming the challenge of assessing execution quality Chapter 9: Algorithms, trading costs and order size Chapter 10: Execution consulting Part 4: Innovation in algorithmic design Chapter 11: Algorithms for FX Chapter 12: What will the next generation of algorithms offer? To order your copy or for further information: Tel: +44 (0)20 7400 7100 Fax: +44 (0)20 7404 7111 Email: francoise@thetrade.ltd.uk THE TRADETech DAILY—Paris 2008 homas M. Joyce, chairman and chief executive officer of Knight Capital Group, will be addressing TradeTech in Paris on the lessons that Europe can learn from the market evolution in the US, covering technology, regulatory impact and the changing market structure. To address the issue, Joyce plans first to set out the changes as he sees them in terms of what US market participants have had to face. In January, Knight itself announced the acquisition of EdgeTrade, a leading agency-only trade execution and algorithmic software firm that allows buy- and sellside clients to source liquidity and manage the trading process while maintaining anonymity, reducing market impact and lowering transaction costs. “In an increasingly fragmented marketplace, buy- and sell-side firms want sophisticated algorithms that facilitate anonymous and efficient trading,” Joyce noted at the time. Constant change Although the pace of liquidity fragmentation has accelerated over the past year, Joyce points out that the process of eroding the exchange monopoly on order flow began well over a decade ago with the introduction of Reg ATS and subsequent reform of order handling rules. The first part of the talk will show how the regulatory changes and attendant product innovations have led to greater efficiencies over time, but not without challenges along the way. Market participants in the US have not necessarily greeted each change with universal approval. Joyce points out that Reg NMS, for example, was approved by the SEC with a “razor-thin margin”. There remain obvious technical challenges related to NMS, he suggests, “in particular, the explosion in messaging traffic.” Europe can benefit from its relatively late start in fragmentation, where national exchanges still dominate the trading landscape. Participants, he suggests, should take advantage of the opportunity to prepare ahead of time – an option not available to their US peers. He does not, however, expect an equivalent mushrooming of liquidity venues as the US has recently experienced. The current clearing and settlement infrastructure in Europe, which is itself fragmented, could not support such fragmentation without further reform, he argues. For markets to take full advantage of MiFID, further reform of infrastructure will be necessary. Nevertheless, he suggests, although there will inevitably be pitfalls, drawing on the US experience will make it easier for Europe to get to grips with the challenges ahead. Joyce is well placed to describe these challenges. He joined Knight in May 2002 from Sanford C. Bernstein & Co, where he served as global head of trading. He is a former member of the Nasdaq Group Board of Directors and has been a director on the boards of the Security Industry Association (now SIFMA) and Archipelago. He is also a former member of the NYSE’s Market Performance Committee and of the Merrill Lynch Europe Executive Committee. l to learn more… the us perspective: What europe can learn from the us marketplace Wednesday 23 April – 13:55 Issue 1—Advance edition page 22 exhibition The main event Firms compete for top billing T he second annual TradeTech awards dinner and role of honour presentations will take place at 20:15 on 23 April at the CNIT Centre. A cocktail reception will be held before the dinner. Following feedback from last year’s attendees, the number of categories has been pared back from 12 to eight. “People attending the ceremony last year said they would have preferred fewer categories because they wanted to spend more time enjoying the dinner with their peers than listening to and watching formal presentations on stage!” comments Yasemin Karaman, the event organiser at WBR. The categories this year will be: best buy-side use of advanced trading tools; best sell-side alternative execution service; best buy-side order management system (OMS); best sell-side OMS; best execution management system (EMS); best overall data provider; best overall execution venue; and buy-side achiever of the year award. Companies hoping to be shortlisted for a nomination had initially to submit a 500-word statement, indicating why they thought they should win the award. “Many also provided supporting materials including press releases and client testimonials to advance their case,” remarks Karaman. The deadline for companies to submit their nominations was 20 February. To guarantee the audience are kept entertained, Omid Djalili, a well-known British stand-up comedian and actor, will compère the event. In addition to his NYFIX promotes Euro Millennium SOR and algos top Merrill Lynch’s agenda Newly launched European dark liquidity pool unveiled Bank wants to simplify client access to products N errill Lynch’s smart order routing (SOR) and enhanced algorithmic offerings top the list of products the firm will be discussing with clients and delegates at TradeTech, according to Yvonne Hansmann, head and managing director of EMEA trading sales at Merrill Lynch. “We are continuously enhancing our algorithmic products and have lots of customisation strategies,” she says. “Our customers don’t just want off-the-shelf solutions.” Other issues Merrill Lynch will be addressing include the search for liquidity, global reach, traditional sales trading and commission sharing agreements. The notion of simplifying access to products is a particular priority for the bank. “We work hard to make our products easy to use and to integrate them seamlessly into all the multi-broker front-ends,” says Hansmann. Merrill Lynch sees its exhibition stand as a useful forum for discussion with its buy-side clients. “Our idea with the stand is that it is more a meeting point than a demonstration stand,” says Hansmann. She adds, however, that TradeTech often tends to serve as a venue for initiating discussions that can then be followed up with one-to-one presentations. l YFIX, a provider of community-based electronic trading solutions, launched Euro Millennium, a dark liquidity pool for pan-European listed equities, on 17 March. The firm will be using the TradeTech exhibition as a platform to generate further interest in Euro Millennium, explain how the service works and how clients can use and connect to it. Euro Millennium is open to both buy- and sell-side traders and uses the same technology as NYFIX Millennium, a US dark pool that has been in operation for the past seven years. An advisory board made up of both buy- and sell-side market participants worked with NYFIX for a year to help the firm develop Euro Millennium. “It was based on the US version but modified for the European markets,” comments Chris Smith, director, NYFIX International. Members of the advisory board included Allianz Global Investors, Baring Asset Management, JPMorgan Asset Management and Schroder Investment Management. Broad range “Some of the firms on our advisory board were vocal about wanting us to post small-cap stocks on the system as well as blue chips,” comments Smith. As well as being open to both buy- and sell-side participants, it can be used to trade blocks, small orders, and small- and mid-cap stocks as well as blue chips. Euro Millennium currently matches UK-listed equities and will be rolling out other major European markets over the course of 2008. Delegates will be able to learn more about Euro Millennium and the range of services offered by NYFIX at the firm’s stand. Smith will also be giving a presentation entitled ‘Dark versus light – exploring European trading strategies’ at 14.30 on Wednesday 23 April. l Chi-X celebrates its first anniversary MTF to provide statistics and updates of its first full year of operation C hi-X Europe, the pan-European multilateral trading facility (MTF) majority-owned by Instinet, will be celebrating its first full year of live operation at this year’s TradeTech. Chi-X’s history is closely tied to the event. At TradeTech 2006, Tony Mackay, president and managing director of Instinet Europe, revealed that a new trading platform was in the pipeline. At the following year’s event, Mackay was back on stage to discuss the platform’s launch at the end of March 2007 and its initial performance. This year, the company will have a full year of operation to draw on and will be providing updates on its performance from its exhibition booth at TradeTech. According to Peter Randall, CEO of Chi-X Europe, the figures will show a platform experiencing steady growth, with institutions of varying size making use of its trading capabilities. Chi-X is keen to expand participation still further. The MTF’s main message at the event will, says Randall, be ‘Best execution? Best check Chi-X’. He will be giving a presentation with that title on the first day of the main conference. “There are around 50 participant firms now on Chi-X,” Randall notes. “If only those are checking Chi-X, many others aren’t checking it and are not getting best execution.” l THE TRADETech DAILY—Paris 2008 stand-up show, Djalili has starred in Notting Hill, Pirates of the Caribbean, The World Is Not Enough and Gladiator, as well as every episode of Alexei Sayle’s Merry-go-round. l M Linedata connects to research management platform LongView users can now access Norbury Links research L inedata Services will announce at TradeTech that its LongView Trading order management system (OMS) now offers users access to Norbury Links, a research management platform developed by Norbury Financial Systems. Norbury Links helps users to screen and organise financial research. The system will offer LongView users access to research that relates directly to their holdings, helping them make better-informed investment decisions, according to Norbury Financial Systems. At the same time, the alliance helps Norbury reach the LongView Trading user base, which includes 10 of the top 25 asset management firms by assets under management. “Our alliance with Norbury should help reduce clients’ paperwork and tackle the problem of information overload relating to identifying, sourcing, and accessing relevant investment research,” comments Jack Wiener, executive vice president in charge of business development at Linedata Services in North America. The applications are integrated in such a way that users can switch from one screen to the other at the touch of a button. If, for example, a user reviewing information about a specific company in Norbury decides to buy or sell shares in the company, they can press a button and be taken to the specific order screen in LongView with the company already in the input field. Conversely, if a client decides to add commentary on a security’s position they have seen in LongView, they can press a button and be taken to the appropriate screen highlighting the company research in Norbury. l Issue 1—Advance edition page 23 TIME OFF in Paris getting around parisian high life The easiest way to travel around Paris is on the métro, with 372 stations spaced an average of 500m apart. Look for the green Metropolitain signs! The métro has 14 lines, each marked by a number, colour and with a final destination (similar to the London underground system). Most services begin at about 05:30 until around 00:30 (later at weekends). The invention of Gustave Eiffel, a French structural engineer, the Eiffel Tower was built between 1887 and 1889, originally intended as a temporary exhibit for the 1889 World Fair. It took approximately 20 months to construct the Tower, at which point it was the world’s tallest building at 321 m. It shrinks up to 15 cm in cold weather when the iron and rivets contract! The RER is the suburban rail service, which has five lines (A to E) passing through the city centre and connecting with the metro. Trains run every 12 minutes from 05:30 to midnight. Paris also has three tram lines, which go to the suburbs, and buses running from 06:30 to 20:30 with a reduced Sunday service. Noctilien night buses run after the métro closes, with 27 routes covering most of the city. An alternative way to see Paris is form the River Seine on a batobus river shuttle. Services are every 35 minutes, 10:00 to 19:00, stopping at the Eiffel Tower, Musée d’Orsay, the Louvre, Notre-Dame and the Hôtel de Ville. Condemned as an ‘eye-sore’ by Parisians following its construction, the Tower became a popular attraction, with people coming from all over the world to visit it even when the World Fair was over. It provided inspiration for artists and the decision was taken not to have it demolished in 1909 as previously planned. The 7,000 tonne structure affords a stunning 360degree view of Paris and is the world’s most popular tourist attraction, with about 250 million people having ascended it to this date. Its position in the French skyline is synonymous with Paris for millions of people. nightlife Clubs Le Caveau de la Huchette 5 rue de la Huchette Tel: +33 (0) 1 43 26 65 05 Come here for jazz music from 21:00, but if you want to stay on for swing, rock and R&B it is played after 02:00. The club boasts a “funky cellar ambience” and will set you back between €11 and €13 at the weekend. Métro: Saint-Michel Le Balajo 9 rue de Lappe Tel: +33 (0) 1 47 00 07 87 eating out The Jules Verne Restaurant Champ de Mars Tel: +33 (0) 1 45 55 61 44 For a meal with a view, try lunch or dinner on the 2nd level of the Eiffel Tower. Make your way up in a private lift, and enjoy dishes such as puff pastries filled with crab and shrimp cream, lobster or langoustines. For those who prefer meat, sample the oven-baked veal or veal rib steak with mushrooms. Choose from the a la carte menu or a set lunch or dinner menu. Try this venue for a wide variety of music styles, from salsa to rock, R&B to DJ evenings. On Sundays from 15:00 to 19:00, it hosts a musette, which includes old-time tea dancing. Métro: Champs de Mars-Tour Eiffel or Bir Hakeim If you are feeling fit, you can shun the lifts and climb the 1,792 steps to the top, then admire the views when you’ve caught your breath. There are restaurants on two of the three viewing platforms, Altitude 95 on the 1st level and Le Jules Verne on the 2nd level. Admission is from €10, 21:00 to 02:00 Tuesday to Thursday; 23:00 to 05:00 Friday and Saturday. Pierre Gagnaire At night, the Tower lights up with the help of 20,000 gold light bulbs, which took 25 mountain climbers five months to install! You may prefer to visit the Tower at night, as the queues are shorter. Bars Métro stops for the Eiffel Tower are Champ de Mars-Tour Eiffel or Bir Hakeim. For cocktails such as the Kashenka, a mix of vodka and strawberries, or the Benderitter, which is a blend of champagne and ginger extract, expect to pay €20. Sit back and enjoy the leather armchairs, wood panelled walls and intimate atmosphere. The Salon des Réalités Nouvelles The Salon des Réalités Nouvelles (new realities) was a society set up to exhibit pure abstract art, founded in Paris in 1939 by Sonia Delaunay and others. It was re-established in 1946 after World War II and continues today in April each year. In the Parc Floral de Paris, over 400 established and developing artists come to exhibit examples of their abstract works. Métro: Bastille Bar Hemingway Hotel Ritz Paris, 15 place Vendome Tel: +33 (0) 1 43 16 30 30 18 rue Troyon 6 rue Adival-de-Coligny Tel: +33 (0) 1 42 92 00 24 Tel: +33 (0) 1 43 80 40 61 This bar is virtually on the doorstep of the Louvre, a fashionable and popular place to enjoy a relaxed drink or a meal, or just to read the newspapers during the day. Described as a chic bar playing the latest music, the clientele here are mainly young and trendy. Not the place to come if you want a quiet drink and a chat! Try traditional Moroccan food and drinks in the restaurant. Tel: +33 (0) 1 42 74 22 77. Take the métro to Châtelet or the RER to Châtelet-Les Halles. Métro: Charles de Gaulle-Etoile Guy Savoy Theatre de la Ville Find the theatre at 2 place du Châtelet, 75004. Situated near the Champs Elysees, a meal here is expensive but worth it! Dishes include suckling lamb with green papaya and turnip veloute thickened with Tarbais beans, or wild sea bass slices with marmalade of slightly acid fennel. The chef is renowned for his Grand Dessert, consisting of seven different dishes… leave some room! Le Fumoir Métro: Louvre Rivoli Admission is €17.50 to €26. Productions are from Tuesday to Saturday at 20:30 with a Sunday matinee at 17:00. Tel: +33 (0) 1 58 36 12 50 Métro: Concorde or Madeleine The parc is really a botanic garden, with its Vallée des Fleurs, a pine forest and butterfly garden. It is open from 09:30 to 17:00, and will set you back €3. Take the métro to Château de Vincennes. From 9-27 April, you can experience a theatre-circus production from James Thiérrée. The show is a mix of mime, dance, circus, clowning and aerial acrobatics, and returns to the theatre after a successful run in 2007. Hotel Balzac, 6 rue Balzac La Casbah 18-20 rue de la Forge-Royale Tel: +33 (0) 1 43 71 04 39 Métro: Ledru-Rollin, Faidherbe-Chaligny. Café de l’Industrie 16 rue Saint-Sabin Tel: +33 (0) 1 47 00 13 53 Located near to the Opera de la Bastille, here you will find reasonable prices, Parisian food and delicious cocktails. Enjoy live jazz on Monday, Tuesday and Wednesday from 21:00 until midnight. Try the artichoke soup with a layered brioche of black truffles and wild mushrooms, followed by poached blue lobster served with pureed carrot and star anise, or sea bass with spices. For dessert, sample the chocolate cake layered with praline and chicory cream. Métro: Charles de Gaulle-Etoile Spoon, Food and Wine 14 rue de Marignan Tel: +33 (0) 1 40 76 34 44 The menu here includes dishes from all over the world, some of which you can create yourself by matching sauces to courses. Choose pumpkin soup with paprika and fromage blanc, grilled squid, or veal breast with polenta and an orange sauce. Save room for a chocolate pizza or exquisite strawberry ice cream. Métro: Franklin D Roosevelt Métro: Breguet-Sabin, Bastille Published by THE TRADETech DAILY—Paris 2008 www.thetrade.ltd.uk www.thetradenews.com Editor & Publisher: John Lee +44 (0) 20 7400 7101 john.lee@thetrade.ltd.uk Deputy Editor: Ben Dyson +44 (0) 20 7400 7106 ben.dyson@thetrade.ltd.uk Consulting Editor: Richard Schwartz +44 (0) 20 7400 7102 richard.schwartz@thetrade.ltd.uk Staff writer: Alan West Contributors: Alison Campaniello, Bob Giffords, Richard McClure Advertising & Marketing: Françoise César +44 (0) 20 7400 7100 francoise@thetrade.ltd.uk, Marika Cooper +44 (0) 20 7400 7104 marika.cooper@thetrade.ltd.uk, Wayne Sussman +44 (0) 20 7400 7107 wayne.sussman@thetrade.ltd.uk Graphic Design: Tina Eldred +44 (0) 1985 844 699 tina@eldreddesign.co.uk The Trade Ltd, 39 Hatton Garden, London EC1N 8EH ©The Trade Ltd. London 2008. Although The Trade has made every effort to ensure the accuracy of this publication, neither it nor any contributor can accept any legal responsibility whatsoever for consequences that may arise from errors or omissions or any opinions or advice given. This publication is not a substitute for professional advice on a specific transaction. No reproduction allowed without prior permission. Issue 1—Advance edition page 24 AES – Don’t be afraid of the dark Equitymarketscontinuetorapidlyfragmentacrossexchanges,MTF’s,darkpoolsandotheralternativevenues.AtCreditSuissewerecognise theneedtotakeanintegratedapproachtoaccessingavarietyofliquiditypoolswhateverformtheymaytake. AllAESstrategiesseamlesslyincorporatelightanddarkliquidityusingoursophisticatedPathfinderandCrossFinder+smartorderrouters. CS Internal Client OMS Orders AES •AEStechnologyusesheatmap&probabilitylogicto efficientlyandstealthilyseekoutliquidity. 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CrossFinder+ AES – The Standard in Algorithmic Trading® Darkpoolsarelastyear’snews.CrossFinder+isCreditSuisse’sdynamicorderrouterwithaccesstomultipledarkpoolsand MTF’susinghiddenorders.IntegratedintoeveryAESstrategy,CrossFinder+givesyouthepotentialtotapintoarichcurrent ofadditionalorderflow.FindouthowAdvancedExecutionServicesalgorithmstakeadvantageofthisnewlandscapeandcan getyououtofthedarkpoolsandintothedarkoceans. +44 20 7888 0006. www.credit-suisse.com Thinking New Perspectives. ThisadvertisementhasbeenapprovedsolelyforthepurposesofSection21oftheFinancialServicesandMarketsAct2000byCreditSuisseSecurities(Europe)LimitedofOneCabotSquare,LondonE144QJ.AESisaregisteredtrademarkofCreditSuisseand/orits affiliatecompanies.©2008CREDITSUISSEGROUPand/oritsaffiliates.Allrightsreserved.