Trading Execution Concerns Shift From Latency To Proactivity

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The ground on which market participants walk is shifting from a foundation of latency and performance concerns to a playing field where being proactive is their best asset, according to trading technology experts who spoke in a webinar hosted by Intelligent Trading Technology on June 1.

Webinar Recording: High Performance Technologies for Electronic Execution

“A few years ago, it was all about latency and performance. That’s more commoditised now but it’s still a factor. It’s just expected, instead of being a differentiator,” said Ollie Cadman, head of product and strategy, EMEA, at Vela Technologies, the sponsor of the webinar. “There are areas where firms will be proactive on adding features, functionality, investing and driving their business forward. On items you would have been reactive with, you partner with a proactive technology provider who has the expertise and resources to constantly invest, innovate and work with the client to solve problems.”

However, as firms try to be proactive about the performance of their trading technology, the continued growth of market data volumes inherently elicits a reactive response, Cadman explained. “As volumes continue to go up and the generation of data gets faster, that continues to provide challenges, requiring partnership with someone who invests in data management, enhancing data performance and can reduce their footprint so when volumes aren’t going up, the total cost of ownership isn’t also going up linearly,” he said. “More functions need real-time data and need more data, especially on the compliance and risk side.”

Among service providers, it’s not necessarily the newest cutting-edge start-ups that are most useful for helping firms be proactive and cope with more market data volume, according to Will Winzor-Saile, an execution architecture executive at Redburn. “It’s the middle ground multi-lateral trading facilities (MTFs), who were new and innovative awhile ago and have now hit the point of covering more ground and getting greater market share,” he said. “They have the advantage of being smaller and they can be more nimble, but you have to balance that with how much actual trading they have and how many people they have to take advantage of this news and innovation.”

Still, in an informal poll of the webinar audience, 66% said they prefer to use a combination of exchanges and new venues for trading execution, while 33% said they prefer to only use established exchanges, and no one said they only prefer to use new start-up venues. Winzor-Saile said this shows that large established exchanges will be affected by new, smaller competitors.

Featured Download: Poll results on High Performance Technologies for Electronic Execution from our recent webinar audience

“The larger incumbent exchanges have the market share so they will always have an advantage in liquidity,” he said. “But they are definitely seeing competition. Having smaller competitors innovating and coming up with new ideas is essential, but it’s the impact that will have on the larger exchanges is where we really see things moving.”

Adding MiFID II regulation to considerations about how to be proactive with trading technology, smaller firms are finding they must separate compliance and business functions to perform both of these effectively, according to Cadman. The cost of separating these functions could dissuade smaller firms from operating in markets or performing functions that require MiFID II compliance. Cadman sees MiFID II best execution requirements requiring systematic internalisers, crossing networks and dark pools to use multi-lateral trading facilities to execute trades within regulatory bounds.

Multi-lateral trading facilities can outsource compliance and market surveillance functions, noted Ian Salmon, director at Ignite G2M. However, they “must have the right amount of due diligence to know that it’s fit for purpose,” he said. “In my experience, you can’t delegate the responsibility. You must make sure you’re fully responsible for whatever you’re outsourcing.”