The New Electronic Broker

Additionally, we have spent a significant amount of time adding quant personnel to our algorithmic trading effort. Seeking liquidity and trading at fair value in a world of electronic liquidity provision is a challenge. We have personnel on our team that have experience building high frequency trading models. Our team has implemented electronic market making models in our algorithms to assist in determining optimal trading opportunities in various liquidity pools. The ultimate role of the broker is to optimally manage access to various liquidity pools: in-house, third party private pools, and public exchanges/venues. Best execution relies on the optimal use of traditional and electronic execution tools to access liquidity.

On the electronic side, it is our duty as a broker to deliver high content algorithms, smart routers, and liquidity pool access to our clients via their desktop of choice. Ultimately, the business always reverts to optimal liquidity access.

Are you seeing traders including proactive risk management into their desktops?

Over the past few years I have seen buy-side trading desks employ more pre-trade risk controls into their OMS and EMS. On the broker side, since the May 2010 Flash Crash in the US there has been much more attention to risk management as it pertains to market access. The Flash Crash highlighted cracks in US market structure but also sent a message to brokers around their deployment of sponsored and naked sponsored access and their algorithmic trading strategies pricing models and order type usage.

How is this space maturing?

Compared to a few years ago, clients have a much better understanding of what they are trying to achieve with electronic execution. They have become much more aware of the various liquidity pools and providers in the market. Algo trading is a good example. If you go back three to five years, clients would take broker algorithm suites onto their desktop and integrate the entire suite. Traders would integrate all of J.P. Morgan ‘s algorithms and the algorithms of various competitors, with the result that they had several algo strategies from each broker and a long list of drop-down menus.

What we are seeing now is traders identifying their style of execution and asking the  brokers for specific algorithms according to strategy, instead of taking a broker’s entire algo suite. Clients are getting away from buying the marketing and branding of the broker and moving toward using plain language styles of execution. I believe this is a sign of a market that is maturing and better understanding of how to use the electronic execution products to find liquidity.