He was most recently head of UK equity trading at UBS Asset Management, having previously served as a high touch equity sales trader at Kepler Cheuvreux.

London-based Lawrence has extensive experience working across both the sell- and buy-side, working across asset classes.

Prior to Kepler, he had worked at Principal Global Investors as a senior equities trader, Instinet as an equity sales trader, Ennismore Fund Management as head trader, and also served as a European market maker at ABN AMRO.

Read more: In conversation with… Stuart Lawrence

Lawrence announced his new role in a social media announcement. UBS Asset Management had not responded to a request for comment at the time of publishing.

The post Lawrence named head of European equities trading at UBS AM appeared first on The TRADE.

“You don’t need to spend years and a lot of money trying to build […] these technologies exist already, they’re out there. You’re better off buying something.”

He explained that when it comes to future proofing, this approach could be a key way to ensure that a firm’s technological investments remain constant even when, or if, revenues dip.

“One of the benefits of buying before you build is that an order management system or technology may be with you for 10 to 15 years, maybe even longer than that up to 20 years [and] if your revenues at the front take a dip, the first thing the president of your company is going to do is hit IT budget and potentially cut your big developers.”

When this happens, a firm can find itself in a situation where their product lacks the necessary support to run effectively, Challenger added.

He also went one step further, and suggested that despite the industry’s focus on functionality, there is a case to be made for prioritising architecture.

The notion of architecture over functionality, he explained, is linked to the future-proofing. When a firm looks at technology and its function, they are focused on what the system can do today and giving users what they need at this present moment. 

Nevertheless, if firms are set to continue viewing technology as a 10 or 15-year investment, it needs to be able to change as time goes by and adapt with users.

Challenger asserted: “Thinking about the architecture of the order managed system or the EMS is critical. At my own firm [UBS AM] I’ve got two pieces of technology. For one, every time I want to make a change it’s a nine month process and a million dollars, and the other one is a two week cycle and we get it for free. That’s because of the way the system is architected, how they can actually implement that change and how they can drive it.”

The need for innovation in a market steeped in legacy systems and operations is clear as it becomes increasingly apparent that if firms fall behind, they will stay behind. 

Read more – New study of post-trade ecosystem shows pain of legacy systems

“Excel is fast food, right? It’s fast, it’s easy, it’s cheap, and it tastes really good. But you can’t live on this stuff, and eventually it’ll slow you down,” explained Challenger. 

Elsewhere, the key-note address highlighted the benefits of empowering desks to lead the charge as technological developments continue to pick up pace. Talented traders are those highly cognisant of what the key issues are and importantly, what they need in order to address this. 

“If you can empower them to help you enact that change, then you’re going to actually expand your resources and drive change fast. If you tap into a person and say ‘okay, well, now you’re in charge, you fix it’ and give them the resources to do that and help them fix it all of a sudden, they become empowered and start to enjoy their job because all the problems they’re actually able to fix themselves.”

Read more – Trade TV: UBS AM’s Lynn Challenger on adapting to T+1

Challenger emphasised that getting the trading team involved in the changes being made is a key way to not only drive change faster, but ultimately, reach goals quicker.

The post ‘Buy before build’ says UBS AM’s global trading head Lynn Challenger appeared first on The TRADE.

Most recently, Vahid served as deputy head of global value equity and head of European mid cap equities, where he held responsibility for managing a range of institutional and retail funds across global, European and UK equity mandates.

Prior to that, he served as a portfolio manager for European small and mid-caps as well as a European equities research analyst.

Based in London, Vahid will report to Jörg De Vries-Hippen, head of investments equity Europe. As part of the role, Vahid will help strengthen and expand the firm’s capabilities in the fundamentally-managed European core and value space.

“The addition of Kayvan to the team will further strengthen our capabilities in European core and value investing, an area we know is of key importance to our clients,” said De Vries-Hippen.

Vahid’s appointment follows a string of recent hires within AllianzGI’s equities team including Giles Money as chief information officer, global sustainability/SRI equity team, as well as the promotion of Rajnish Kumar to the newly created role of head of investment technology and AI, investment platform.

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Around-the-clock (24/7) trading is something we already see in the foreign exchange markets and the growing cryptocurrency landscape. Yet with equities, these markets are constrained by market hours which may be specific to a region and/or exchanges themselves.

Major equity markets including the New York Stock Exchange (NYSE), NASDAQ, the London Stock Exchange (LSE) and Tokyo Stock Exchange (TSE) all tend to have trading periods that range between 6-9 hours daily, with markets closed over the weekends and on major holidays. Some exchanges do offer pre-market and after-hours trading sessions, where limited trading activity occurs outside regular trading hours. These extended trading sessions are, however, less liquid and tend to have different rules and regulations that need to be followed when compared to regular trading hours. 

On the other hand, foreign exchange – the largest financial market in the world – benefits from the fact that trading is not limited to one central location but is instead conducted between participants by phone and electronic communication networks (ECNs) in a wide range of markets globally. Foreign exchange markets are open 24/7 in different parts of the world from 5 pm EST on Sunday until 4 pm EST on Friday. This means that at any moment in time, there is at least one market open, with some overlaps existing between one region’s market closing and the opening of another. This allows traders worldwide to be able to meet the demand for a particular currency at any given time. 

Similarly, cryptocurrencies have gained appeal due to their ability to be traded 24/7, including on weekends and holidays. Unlike traditional financial markets, such as the equities space, cryptocurrencies are not limited by set trading hours and can operate continuously – given that they are decentralised and traded across a range of global exchanges, allowing participants to buy, sell and trade cryptocurrencies at any time. 

Whether equities will mirror the around-the-clock model favoured in the foreign exchange and cryptocurrency markets is yet to be seen, with varying viewpoints on whether demand for it exists and whether or not the shift is even feasible. 

Recent technology initiatives suggest a renewed appetite for around-the-clock trading in equities but given the markets were debating the shortening of trading hours just a few short years ago, it begs the question if this is something the equities market participants want or need.

“Already in EMEA, we have six valid trading days. With Middle East and North Africa (MENA) becoming a larger part of indices and portfolio managers’ thinking, decisions will have to be taken around how best to trade these markets. Each asset manager will need to consider the balance between the cost and benefit,” says Stuart Lawrence, head of UK equity trading at UBS Asset Management.  

If equities markets were to offer 24/7 trading, operational changes would have to occur to allow exchanges to accommodate this shift. As seen with the upcoming shift to T+1 settlements in the US, Mexico and Canada next May, institutions will have to rethink the way their operations are set up to allow a more continuous method of trading globally. 

“The move to T+1 will affect trading desks where FX transactions need to be undertaken,” notes Lawrence. “Non-USD based account asset managers investing in US and Canadian securities need to be able to generate and execute FX trades at the end of the US day – there is no longer time to leave it all to the next day as not all pairs with all custodians can settle T+0.”

The same will be the case if the equities markets were to move to a 24/7 execution model. Staffing of desks would have to be very different to allow for continuous trading, using varying methods including follow-the-sun and positioning various support desks around the globe to allow for shift work. 

For larger institutions, which may already have a global presence, this shift will be a lot more feasible than for smaller ones, given that these firms will already have employees operating across the world. 

“For a follow-the-sun based global organisation, increasing headcount a little bit and adding in new processes, more capabilities and ensuring smooth handovers between time zones is not without risk, but it’s probably a bit easier than it is for a relatively small local bank who trades in their home market and not much else,” says Adrian Ip, managing director, product technology and sales at Aquis Exchange. 

For smaller firms, on the other hand, incorporating continuous trading within equities would likely require either setting up new shops in different locations to allow for around-the-clock trading, or outsourcing trading for certain markets – with both presenting additional costs. 

“As the global economy becomes increasinly flexible on working from home, it might be the case that you have some traders trading from home late at night or early in the morning, or both,” notes JW Verret, associate law professor at George Mason. 

“For exchanges, I think as execution shifts to 24/7, exchanges will have to go global to survive. Trading desks will have to look to globalise as well. The global demand for 24/7 will push domestic institutions to find global partners.”

The role of technology

When looking at a potential shift to 24/7 trading in the equities space, there are several potential barriers that exist which could prevent the move. These predominantly relate to technology, regulation and market structure, alongside the most significant hurdle – whether or not market makers and participants are prepared to make this shift at all. 

Earlier this year, Aquis Technologies – a division of Aquis Exchange – launched what it claims to be the world’s first regulated market-grade 24/7 matching engine for both existing and start-up exchanges, named Aquis Equinox, which never requires shut down or down time. 

The development – which covers a wide range of asset classes including equities, ETFs, fixed income, derivatives, crypto and tokenised assets – allows exchanges running on Aquis Equinox to guarantee continuous operation, without the need for shutdown to facilitate software upgrades, infrastructure changes, capacity increases, reference data management or member onboarding. 

“Up until we launched Equinox, the concept of 24/7 trading of equities, or any other asset class, was always a theoretical discussion with some vague possibilities subject to market participants liquidity capabilities, regulators and technological restrictions. It was never an absolute that we can have a market that runs forever. With Equinox, the technological problem is now no longer the bottleneck in this,” says Ip.

“Equinox enables clients to do everything from sequence number resets to instrument and member onboarding alongside real-time software upgrades without having to stop trading, now we pass the baton to regulators and market participants to solve the remaining hurdles.”

For the buy-side specifically, having an order management system (OMS) or execution management system (EMS) that can be used on a global basis is essential to 24/7 execution in equities – allowing all regions to operate seamlessly and communicate with one another on the same platform in order to reduce risk and avoid duplications, which is particularly important for large organisations with bigger trade flows.

“This uniform approach, one which UBS AM uses, ensures smooth transition between desks as we move through the day,” notes Lawrence. “In addition, you need a global transaction cost analysis product and means of communicating in real time, neither of which are onerous requirements.”

Pros and cons

As with any potential move within the global financial markets, benefits associated with a major market structure shift need to be weighed against the negatives. A shift to 24/7 trading in equities could help remove friction associated with access to markets, mirroring the foreign exchange and cryptocurrencies that can be accessed at any time and from any location. Given different time zones, interested participants may be limited to trading stocks in their local region due to lack of access to other markets. Some people may be interested in trading in other markets but may only catch the tail end of the trading day, if at all. 

“We’ve seen a massive period of globalisation over decades if not centuries,” highlights Ip. “What that has meant is that a lot of people around the world in the last 20-30 years start talking about their stock portfolio, including equities from other countries and other regions around the world than their home market. The more that you can do that and the more that you can get greater participation round the clock, it fuels greater liquidity and gives investors worldwide the opportunity to easily access and trade their desired portfolios regardless of region and time zone.”

Highly liquid markets have predominantly been driven by institutional firms, market makers and high frequency traders (HFTs) in the past, but the retail segment is growing. Retail investors contribute an increasingly chunky piece of liquidity to the markets across the globe, particularly in equities, and 24/7 access to additional markets could see this boosted further. 

“If you have retail investors that are putting orders out there, able to interact with real markets around-the-clock – that gives you greater liquidity, which makes these markets ultimately more stable, better for long term growth and everything else that we know that liquidity drives,” adds Ip. 

The equities markets’ current trading model that offers accessibility during specific trading hours currently limits retail participants, even domestically, who want to participate in the market. Individual investors, who may be occupied during existing trading hours due to realities such as their own jobs, may not be able to carry out trades when markets are open. Not only could 24/7 trading in equities benefit market participants who want to access markets outside of their own region, but also those domestically who cannot access markets during existing trading hours. 

In The TRADE’s recent roundtable, Dirk Donker, head of Euronext retail services, notes that “We are seeing a bigger demand for trading ‘after hours’. [To have more of an overlap with the US] is absolutely an element that we need to consider because a lot of the population of Europe is trading US stocks so in that sense we need to align.”

Introducing 24/7 trading within equities could also promote increased fairness among markets, to both institutional firms and retail traders. Currently, futures markets can be used for US equities after trading hours close, however, it is not as liquid as the equity market itself. 

“The need to switch to futures markets after close is just an artificial friction in the market and I think getting rid of it will be fairer and more efficient, particularly for those institutions and hedge funds that exist across border,” argues Verret. 

The possibility of extending market hours is something participants have expressed concern over in the last few years. 

In 2020, buy- and sell-side traders called on the London Stock Exchange and other European venues to shorten equity market opening hours to 9 am to 4 pm GMT in a bid to improve culture and diversity on trading floors and boost intraday liquidity, in response to several industry consultations.

However, following significant debate, exchanges later rejected these bids, stating that the move would not act as a silver bullet solution for the complex issues around diversity and mental health.

“When considering extensions, there must be conversations around – and recognition of – the health and well-being of traders,” notes Lawrence. “Any changes to our trading days would likely require changes to the coverage model, and potentially increase costs.”

Elsewhere, given the growing portion of volumes now being executed during the close in Europe – now upwards of 30% of daily volumes – and the impact it is having on liquidity in the continuous trading day, extending market hours now could be seen as counterintuitive. Not to mention the previous bid by participants to improve intraday liquidity by shortening the daily trading period.

The SEC’s new market structure proposals

The US Securities and Exchange Commission (SEC) proposed four separate rulemakings in December last year, which represent the most significant attempt to revamp market structure for US equities in recent memory. 

One of the potential ramifications of the proposals – if they were to come to pass – is that they will change the competitive dynamic for exchanges and trade execution, alongside changing the dynamic for cross-border consolidation of exchanges, which could ultimately help facilitate 24/7 trading in equities. 

Given that there were only a couple of dominant players in the US, namely NYSE and Nasdaq, it has previously been difficult to get cross-border merger and acquisition activity between exchanges.  

“It’s a long overdue regulatory shift from the SEC that is going to take market share from NYSE and NASDAQ and distribute it among the other 13 exchanges, and that’s going to change the competitive dynamic – such that cross-border consolidation is going to become easier and we’re going to see more joint ventures, more buyouts, more mergers between different regions and that’s an important part of the 24/7 story,” notes Verret. 

“The regulatory change prompts competitive change, the competitive change prompts global consolidation of exchanges and that is what I think ultimately leads to the 24/7 trading environment.”

Are we on the way to 24/7 trading?

Whether or not equities will eventually mirror the 24/7 trading environments we see within the foreign exchange and cryptocurrency markets is yet to be seen. Technological advances have been made which suggest it could be feasible, however, whether the industry deems the concept fit for purpose in equities is still a debatable prospect.  

“Trading 24 hours a day, seven days a week is extreme and I see no immediate demand or need for it,” argues Lawrence. “However, we will see an increase in coverage requirements and there are some benefits to the change.  Foremost is smooth and continuous trading, meaning an asset manager can work on a global level with minimum hinderance. Utilising regional desks improves local understanding and creates market knowledge specialists who can leverage their expertise rather than relying on one generalist desk for global coverage.”

The post Are we on our way to 24/7 trading in equities? appeared first on The TRADE.

UBS Group’s takeover of Credit Suisse Group is dependent on registration statement (share approval from the US Securities and Exchange Commission) and other closing conditions.

This loss protection agreement (LPA) reflects the terms of the guarantee, issued by the Swiss Federal Council on 19 March 2023. At the time, the Swiss National Bank said the takeover would “secure financial stability and protect the Swiss economy in this exceptional situation”.

The LPA will remain in effect until either all assets covered by the guarantee are realised, or until terminated by UBS the businesses confirmed in a statement today.

The agreement states that “the Swiss government guarantees losses of up to CHF 9 billion if realised on a designated portfolio of Credit Suisse non-core assets once UBS bears the first CHF 5 billion of any realised losses”.

In a statement, UBS established that it would manage the assets in “a prudent and diligent manner”, with the intention of minimising losses and maximise value realisation as far as possible. Additionally, the business agreed to cover both initial and ongoing external costs incurred by the Confederation and FINMA for the LPA.

UBS confirmed its intention to take over Credit Suisse in March, with the deal reported to be in excess of $3.25 billion.

Credit Suisse shareholders are set to receive one UBS share for every 22.48 outstanding shares held with UBS assuming responsibility for Credit Suisse’s obligations under its outstanding debt securities.

Once the transaction is completed, both Credit Suisse shares and American Depositary Shares (ADS) are set to be delisted from the New York Stock Exchange (NYSE) and the SIX Swiss Exchange (SIX).

The deal officially closed on Monday 12 June, with UBS set to assume all of Credit Suisse’s assets and liabilities as the entities merge into one consolidated banking group. 

Speaking in an announcement, Sergio P. Ermotti, chief executive of UBS addressed the new relationship between the banks following the completion of the transaction – highlighting that the former competitors are now moving forward united. He said: “Together, we’ll present our clients an enhanced global offering, broader geographic reach and access to even greater expertise. We’ll create a bank that our clients, employees, investors and Switzerland can be proud of.”

The post UBS and Swiss government sign Loss Protection Agreement appeared first on The TRADE.

Should EU structure and regulation mirror the US more, how?

As an American, I need to think carefully about how I answer this one, or risk sounding like a cliche. I think both sides of the Atlantic can learn from each other, and from Asia too. While the US embarks on a huge initiative to reduce settlement risk, for example, India has already moved to T+1 settlement, and China to T+0. However, when it comes to trading and liquidity, one of the things that the US has done well is putting the mechanisms in place to enable the creation of a ‘distributed market’. 

Through the Security Information Processor (SIP/consolidated tape) and the National Best Bid and Offer (NBBO) rules, the US has created a unified order book across multiple venues and exchanges. The risk of a single point of failure is significantly reduced as the market is no longer reliant on a single exchange to determine price. Furthermore, this structure enables innovation and competition, driving down explicit transaction costs and introducing new pools of liquidity. This is a very important point, because different market participants need different tools to achieve best execution. 

UBS is a large global asset manager with a presence in 23 markets and I am responsible for the execution of some very large orders. Sending orders of this size to only an open order book would reduce liquidity and drive-up transaction costs. Firms dealing in large orders, like ours, require every available tool to access liquidity. Putting caps on those tools hurts our clients. 

Where should EU policymakers focus to drive growth in the region?

That is a complex question. Broadly speaking, there are a lot of things which governments and regulators could do to drive growth, such as fostering more start-ups, improving market efficiency, and reducing the cost of raising capital. However, when a company makes the decision to go public, it has the ability to choose on which exchange it lists its stock. From my perspective as a trader, one of the key factors companies must consider is the robustness of the secondary market. When thinking about the secondary market, it’s important for policymakers to consider how to reduce the cost of trading, enable deep pools of liquidity, and encourage a larger investor base. 

I would highlight three areas to focus on. First, a study on trading costs and liquidity, as well as the impact of past regulations. Second, I would also remove restrictions on instructional trading venues to enable traders to ensure best execution. Finally, there should be a focus on expanding the investor base. From a liquidity perspective, breaking barriers is key to the growth and development of the investor base. For example, most US retail investors are unable to buy and hold an EU stock in their retail brokerage account. So, while broadly there is a lot that could be done to drive growth, in my opinion, reducing costs and enabling a broader audience of market participants will increase the appeal of any exchange to companies looking to list.

Do you expect trader’s appetite for risk to go up this year, why and what impact will this have on trading patterns?

I don’t think that appetite is the problem. The problem is risk. In 2022, central banks took us on a wild interest rate ride. And it doesn’t take much to fill a risk profile when gilts trade on a higher volume than Bitcoin; when USD/JPY, which is typically a 4-5 vol currency, rallies 50%, and when developed market inflation prints in the double digits. Now that the VIX is back down at 20 and the US ten year is finding its range, the equity market can focus on earnings and figure out how to price stocks again. I am not saying we have seen the last of volatility, but I think the volatility this year is going to be driven by what equity investors understand best, which is earnings. Because of that, investors are going to have more confidence to take risk and market makers will be able to provide decent two-way liquidity.

How can regulators and participants work to reduce fragmentation in Europe?

While fragmentation can help drive competition and innovation, the industry needs to focus on stitching things together better and move towards to what I call a “distributed exchange”. By that, I do not specifically refer to Distributed Ledger Technology (DLT), although I think over time, it will make its way into the industry infrastructure. I am speaking instead about promoting a single best bid and offer across exchanges, venues and banks SIs, providing the transparency such that orders are traded at the best possible price for the lowest possible cost. That could be done through a European SIP and a EBBO (European Best Bid and Offer). 

The post Fireside Friday with… UBS Asset Management’s Lynn Challenger appeared first on The TRADE.

What is your technology strategy?

Two years ago, we instigated an algo wheel and after that we began the process of automation. We built on our algo wheel infrastructure and created desks from which certain types of order flow would be automated. We call it “no touch”. The portfolio manager sends trades to the automation desk, which then sends them on to our EMS, where they are executed in a timely fashion based on the parameters we’ve set in the algo wheel. The only thing we need is one person on the desk to have eyes for kick outs in case anything hasn’t correctly submitted due to prescribed characteristics.

We started small with certain types of flow and as we go on we’re bolting on more and more. In terms of notional traded it’s a hugely growing part of our activity. Ultimately, though it is difficult to give an arbitrary number in terms of the number of orders automated, I’m aiming for 60%+, maybe even as high as 80%. Most of that will be made up from the passive side of the business. In terms of overall notional traded it will probably be less than that, by percent, because we will tend to execute the higher value orders ourselves using the experience of the trading team. The advantage of automation in my opinion is that it clears the “white noise” of low-notional orders where we can add no value so we can focus on those where we can. 

As a step further on from that, we’re working on clustering. Clustering is about looking at the characteristics of each individual stock in a more data-driven way. A stock could, for example, have certain momentum or volatility characteristics that can be observed. Each stock can be assigned to a group (or cluster) and that group can be traded in a way relevant to their attributes. This means orders are no longer limited to a one-size-fits-all wheel approach. There are some sell-side firms who offer this clustering information but we’ve chosen to use our own data because we’re trading for UBS AM not for the street. We know how our past orders have acted and therefore we should be using that to navigate what we do in the future with our algos. These are algo wheels 2.0. Most buy-side firms have an algo wheel and we all need to start thinking about the next stage of evolution.

Which market structure and regulatory changes are you most aware of?

For a very long time, the industry has had an exchange-centric model. However, in the last two to three years we’ve seen a move towards alternative venues and disruptors, primarily because of their innovation. For example, you have some ELPs now looking to quote directly into your EMS – firms like XTX are pushing very hard for that bilateral relationship. In the past you would reach them via a smart order router or a broker algo. If I’m dealing directly with one of the ELPs then they know who I am and my risk profile and can price accordingly (and probably more competitively) versus when I interact with them via an algo. We’re also seeing buy-side to buy-side options such as Appital. In addition, we also have some of the more traditional venues such as turquoise which have turned on their rebate again. The momentum is definitely with the innovators.  

Regarding regulation, we are seeing a divergence post-Brexit between the UK and EU. The UK is looking more pragmatically about where orders are executed and the EU will have to take note of this and adjust accordingly. It’s almost like the EU is waiting and watching. If the UK makes significant changes to Mifid II then the EU will either have to match the UK or find a way of blocking perceived advantages. We’ve got to pay a lot of attention in the near future to regulation as it increases the cost to the brokers. It’s also very onerous in terms of the information required.  We must also be mindful of what’s happening around T+1 settlement. Long term, this concept will probably expand to Europe and other major markets. I understand T+1 from a counterparty risk and credit risk perspective but there are other factors that we will have to consider in terms of increased settlement failure, as well as the implications for ETFs and FX flows. 

The most important topic for me is outages. Ironically, the Investment Association put out their recommendations on what should happen in outages the week that Nasdaq OMX went down and we lost four Closing Auctions. At a minimum, we need some standardisation of messaging from the exchanges but we should expect the development of a mechanism to circumvent these events. Outages are a second order consequence of a lack of regulatory coordination and planning in the EU.

How has the relationship between the buy- and sell-side evolved over the years?

The real change is with the low touch broker relationships. These don’t exist as they once did – it’s medium touch now. I expect a high level of service for our electronic orders, with our coverage adding value where they can. I’ve made that very clear in particular to our wheel brokers. There’s a lot of people who want the chance to be on our wheels and if brokers aren’t prepared to work for it then we move on. 

How has the trading experience been altered over the last few years in light of current market conditions?

During my 19 years of working prior to February 2020, there was always a strict understanding that no one in equity trading would ever be able to work from home.  Then, suddenly, the Covid pandemic hit and automatically the trading experience changed in terms of how we did things and how we interacted with brokers. Initially, during the early Covid months, with the periods of high volatility and where spreads widened, we saw people tend to trade in different ways than they had previously.

There was a clear increase in over the day trading, with traders trying to be as passive as humanly possible to cover themselves in case of intraday news flow. Liquidity sourcing became difficult primarily because some of the larger market makers were trying to reduce the risks for themselves through smaller risk sizes. From a UBS AM perspective, we didn’t really see this but it had a knock-on effect. Now, with a macro and geopolitical environment that remains challenging, we are seeing certain brokers succeeding because of how they have changed their models, while others have suffered because they haven’t adapted as quickly or innovated in this new market.  

How have you altered your strategies to mitigate these conditions?

Alongside the active managers, UBS AM has a sizeable passive index business that has grown exponentially in the last few years. The sheer makeup of our flow has altered due to this, so we’re having to factor that into our decision-making processes. From the active side, we’re definitely finding there’s a lot less natural business to interact with and instead we are using more risk, which isn’t always our preference. The larger banks can offer this through their CRBs but the smaller brokers often don’t have the balance sheets to do so. Therefore, the big banks are dominating and are consolidating their positions. That said, we are seeing some of the smaller firms innovating more than their larger rivals and this product improvement keeps them competitive. Also, as with our peers, we are continuing to use algorithms more as a percentage of our overall business, fuelled by the use of our algo wheels. 

The post In conversation with… Stuart Lawrence appeared first on The TRADE.

Simona Stoytchkova, head of global markets and digital, Europe, State Street

Despite a slow take-up so far due to lengthy implementation, the sophistication on the buy-side requires more and more holistic and bespoke solutions for their execution needs, which are very costly to develop and maintain in-house. The need for multi-asset execution, coverage in emerging markets, regulatory reporting and speed of onboarding of new funds, make it imperative to have access to front to back solutions from sell side, which effectively act as an extension to sell side’s own execution capabilities. This ensures asset managers get better access to liquidity, enjoy a resilient set-up and transfer the risk.

Stuart Lawrence, head of UK equities trading, UBS Asset Management: This year was another year of global geopolitical and macro shocks to challenge the markets.   That said, markets have mostly handled the volatility well and shown resilience in the face of heightened uncertainty and despite decaying liquidity.  We do not know what the new year will bring, but the major issues we have seen have not been fully resolved, so 2023 could be a bumpy ride. Innovation will continue to drive market structure, and I expect to see growth for the relatively new disruptors who are challenging the old, exchange-centric model. 

I think this competition is a good outcome, but liquidity remains key, and those who can offer it in a viable and timely way will be the winners.  We will also be keeping a watchful eye on UK regulation as it further diverges from that of the EU, as this will clearly affect the liquidity landscape.  Further, market structure decisions made in other regions, such as a move to T+1, will no doubt resonate through Europe.  In addition, the drive for more ESG-focus within the industry will become more prominent as well.

Stéphane Boujnah, CEO and chairman of the managing board of Euronext: The process of European integration will continue in 2023. Euronext will lead the way in building simpler, less fragmented markets by integrating Italian cash trading into the Euronext single liquidity pool and with the expansion of Euronext Clearing in Europe. In parallel, the competitive environment for cash equity trading will intensify, albeit with an important shift in the battleground: more than ever, trading venues must demonstrate their execution quality to both sell side and buy side in an objective, quantified manner. Finally, driven by changes in EU regulations, trading venues will enter a period of innovation not seen since Mifid I.

Concerning ESG, indices tracking social-oriented projects will offer new opportunities. On the environmental side, clients will continue to focus on specific themes such as biodiversity as well as increasingly requesting indices aligned with EU Climate benchmarks. The launch of new Euronext ESG indices will help to direct investment to ESG projects.

Jennifer Keser, head of market structure and regulation, Europe and Asia, Tradeweb: With a confluence of macroeconomic and geopolitical factors weighing on markets, liquidity and the cost of liquidity will remain a top priority in the new year. Regulation-wise, the recently published EMIR review could force EU market participants to clear certain Euro-denominated asset classes in EU CCPs. In turn, this could shrink the liquidity pool in Europe and restrict the buy-side from leveraging trading efficiencies, ultimately costing them more to trade and impacting end investors.

However, increased use of e-trading innovations, such as portfolio trading, and new trading protocols, like Request-for-Market (RFM), are positive advances that can help institutions address liquidity challenges. Another market structure development that would provide investors with better post-trade data and help improve pre-trade decision-making is the long-awaited consolidated tape. Next year, we should see industry discussions and collaborations on the tape intensify, bringing us one step closer to its establishment.

Sakeena Lalljee, director of business development, Aquis Exchange: We expect to see growth in alternative closing auctions, as trading firms adapt and adjust to incorporate these in their trading strategies. The Aquis Market at Close (MaC) service, for example, grew from an ADV of €400 million to €598 million between November 2021 and November 2022, reaching a high of 7.1% of European closing auction trading in October. We expect to see this trend continue into 2023.

Robin Mess, CEO and co-founder, big xyt: The industry is approaching its sixth year under MiFID II. Despite some progress with the consolidated tape, the scope and availability for the various asset classes remain uncertain and will be carefully observed next year.  While the CT is gaining shape, market participants will have to adapt to market structure changes. In the third year after Brexit, these will be driven by regulatory reviews with potentially diverging legislations. Competing venues that will try to grow or regain market share will also create challenges for algos and SORs – whilst we might see further consolidation amongst sell-side firms.  The unresolved geopolitical situation, global inflation and interest rates will continue to have an impact on volatility, liquidity and execution costs. Trading desks and portfolio managers will need evidence for their decisions. A reliable view on market volumes, market quality, liquidity forecasts and execution performance will remain a key requirement for market participants.

Anish Puaar, head of European equity market structure, Optiver: It will be a crucial 12 months for retail investor protection as regulators press ahead with much-needed reforms. Retail participation in European markets recently hit a fresh high, so there’s an opportunity for the industry and policymakers to keep the momentum going. Despite repeated efforts to reach a consensus, an agreement on payment for order flow in the MiFIR review remains elusive. At an absolute minimum, the EU should ensure PFOF rules are applied consistently across the Union.

Authorities should also pay more attention to promoting competitive trading models. Some markets are set up in a way that gives a single market maker exclusive access to retail orders, where best-execution is less likely to be achieved than in a true multilateral market.  What’s the best way to stimulate retail investor interest in exchange-traded products like listed equities, options, futures and ETFs?

There seems to be a worrying bias in Europe toward lookalike structured products, that go by names such as contracts-for-difference, turbos, warrants and sprinters. If these offer the same exposure as exchange-traded products but with less transparency and higher costs, why aren’t the markets doing more to promote the latter?  With carefully targeted trading and market reforms, we can be in a great place to boost retail participation and create more diverse capital markets in Europe over the next 12 months.

The post The TRADE predictions series 2023: Market structure and regulation, part two appeared first on The TRADE.

FlexTrade said the trade was made possible through JP Morgan’s ability to provide its electronic liquidity directly into UBS AM’s FlexFi solution.

“Our bilateral connectivity to JP Morgan, using FlexTrade’s fixed-income EMS, FlexFI, is the next big step in the electronification of our bond and credit trading activities,” said UBS AM’s global head of trading and order generation, Lynn Challenger.

“Working on this initiative with FlexTrade and JP Morgan, we have produced a highly sophisticated, transparent way of simplifying and streamlining our workflows and interacting with the sell-side.”

Actionable liquidity on European credit is now available within FlexTrade’s EMEA trading workflow on the FlexTRADER FI execution management system.

“Over the past few years, JP Morgan has made significant strides in expanding the digital distribution of our liquidity to clients,” said Eddie Wen, global head of digital markets at JP Morgan.

“JP Morgan’s ability to connect its liquidity directly into client workflows through EMS solutions like FlexTrade, delivers significant efficiency gains and cost savings to our clients. Further, this solution provides clients with greater choice in the ways they can execute with JP Morgan.”

The trade follows news from May that Dutch asset manager Robeco had gone live using a FlexTrade execution management system to access pre-trade analytics from Goldman Sachs.

“Working with UBS Asset Management and JP Morgan on this new initiative and the outcomes it can create illustrates how revolutionary an EMS can be for fixed income trading,” said FlexTrade’s managing director for EMEA, Andy Mahoney.

“Incorporating actionable sources of liquidity into the trading workflow seamlessly gives clients a unique view of the market. In addition, bringing manual, opaque processes into a machine-readable format offers a first step toward improving transparency and efficiency with technology.”

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Panellists gave insights into how disrupting technology, new regulation as well as data and analytics will help shape the changing face of the trading desk.

Speaking on things that need to be focused on to improve the trading desk in the near future, Archit Soni, portfolio manager at Dimensional Fund Advisors, highlighted the need to follow the lines that regulation provides.

“I think for us it’s actually navigating regulation because as the world is evolving very quickly, information is also passing through quickly, with people’s ability to pick up knowledge from other countries speeding up quite a bit. I think Asia’s in a really good spot because they’ve seen some regulation in fixed income markets in Europe in the last five years and they’ve seen how they navigated through Covid and market distress events,” said Soni.

“Because of that, they can actually take some of the good and bad from both Europe as well as what’s happening in the US. The regulatory framework over the next three to five years is something we’re really going to focus on. That’s going to be what really shapes the way our trading desks operate.”

Martin Viseux, head of fixed income trading Asia, HSBC Global Asset Management (Hong Kong), discussed the new focus to create tools that will enable traders to make the right decisions quickly.

“Our job has changed drastically in the last few years, as we discover new markets and new products. As a result, taking the right combination of decision becomes very hard because in the past, the traditional way of trading involved sending requests for quotes electronically or voice trades. Today we have so many different decision options and the pre-trade is somewhere where we invest a lot. Dynamic real data is important to obtain in an organised manner to allow us to make the right decision quickly. In addition, we follow our internal best execution policy, making sure that the combination is justified and at the right price point,” said Viseux.

Speaking on the role data will have in transforming the trading desk, Laurent Ischi, director, AiEX and workflow solutions (APAC) at Tradeweb, noted that “In the past we saw a lot of people always talking about gathering the data. But what I think is very interesting here is, there’s actual use cases that are being applied and being shared, and I think that makes it more interesting at the end of the day.”

“Getting the data is one thing, but then actually doing something with it is a complex step and I think people are definitely making that step now and then applying it. Finding the right protocol, whether to trade on the list, whether to automate or to trade manually – that’s all the stuff that now is being fed by the data that has been gathered and actually can be used and recycled for these purposes,” added Ischi.

Moderator of the panel, Brett Elvish, director at Financial Viewpoint, shifted the focus to where panellists expect to see trading desk evolve by 2030. Archit Soni, portfolio manager at Dimensional Fund Advisors, noted that post-2008, the role market makers play has changed fundamentally.

“Because of that we’ve seen alternative market makers or liquidity providers come in. The actual progression from that was, well at the end of the day, where do the bonds end up going? They end up going and sitting with the buy-side. If you think about it, naturally the buy-side are the real risk takers. I think, a world where you’ve got buy-side to buy-side, buy-side to sell-side, essentially all markets that’s trading in a range of different protocols, we understand that the bond market isn’t exactly like some of the other asset classes, so we can’t expect to have just an RFQ or a dark pool or an auction system, but multitude of different protocols,” said Soni.

“Instead, a place where using global connectivity will allow us to have a much more rich market in the sense that we can actually trade with different market participants. In the bond market, I think going forward, the more transparency that we can get and the more electronification we can get, on average, will lead to lower transaction costs.”

Tradeweb’s Laurent Ischi, director, AiEX and workflow solutions APAC,  highlighted two things that he expects to see changing in the coming years. “Firstly, we’re going to see a continued increase of electronic training protocols tailored to trade particular markets. If we’re looking at the automation in particular as well, what we’re going to see is a lot more change of how trading desks operate a lot more towards exception handling – very much what we’ve seen on equity trading desks over the last 20 years, essentially,” said Ischi.

“I also expect trading desks and trading styles across multiple asset classes to converge, and people are going to have the ability to actually benefit from different ideas that are present in different asset classes.”

HSBC Global Asset Management’s Viseux, highlighted that with new market participants in the market and new capabilities and products that they are using, transaction costs are likely to decrease.

“I definitely think transaction costs will go down and the way we trade as well. We’ve seen a big change in market structure with high volatility where the traditional banks have backed off and do not provide liquidity as intended. Fortunately, I think that growing the number of market participants will help us find greater liquidity. We are doing a lot of work to connect new market participants into our trading platform so that we can access liquidity at a cheaper price overall,” said Viseux.

Elsewhere, Ravi Sawhney, head of trading automation and analytics at Bloomberg, said he believes “an environment where things like automation, data science and AI are sort of like woven into the fabric of the trading desk. I also think you’ll see things that we might not expect as well, such as virtual reality as a different way for traders to analyse their trading data. We’re not really sure where it’s going to go, but it has definitely open up a lot of minds and planted seeds in people’s heads.”

Concluding the panel, as well as predictions on how the trading space is likely to evolve by 2030, Martin David, head of trading APAC at UBS Asset Management, noted: “I think eventually it’s very possible that the whole trading procedure will be a bit more like a kind of big black box on both sides and for all counterparties and then the job of the trader is to oversee the entire framework. Instead of analysing trade by trade, it will likely be more about analysing the flow and the result and seeing the relationships they have.”

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