The New Electronic Broker
J.P. Morgan ‘s Frank Troise sat down with FIXGlobal to chart the expansion of electronic trading tools available to the buy-side and point out which new tools will make the difference in the months to come.
In what way has the trader’s desktop improved?
Over the last few years, the biggest improvements have been the inclusion of more multi-asset class execution capabilities and the inclusion of additional analytics. Desktop trading platforms that support equities options, futures and FX trading, with the ability to track all of those orders in the market and give aggregated profit and loss are much more prevalent. More trader desktops incorporate pre-trade analytics measures, such as market impact estimates as well as post-trade execution information.
What do your clients say they want most from their analytics?
Clients want a combination of real-time and post-trade analytics. Prior to starting the trade, clients want tools that help their investment decision process. Once an investment decision is made, pre-trade market impact and trade scheduling tools can help traders develop an implementation game plan. Through the course of the trade, clients like to see real-time analytics that can help them improve the performance of their trade; for example, abnormalities around volatilities and volumes. Post-trade, clients want performanc reports measuring actual execution costs against various benchmarks on a daily, monthly, and quarterly basis.
How does putting so much technology in the hands of the trader change the role of the broker? How does the broker add value in addition to the electronic tools?
In the electronic broker business, our value added comes in our role as execution consultant and our ability to educate clients on the use of pre- and post-trade analytics and execution tools. I look at the roles and responsibilities of the people on our electronic client trading desk as helping clients implement their investment ideas. When a client has a trade to execute, it is up to our team to educate that client on the tools they can use to put together a plan, present them with the tools to execute the trade and while they are executing the trade, provide information that can be used to improve their plan throughout the execution period.
After the trade is executed, we work with clients to evaluate how well they did against their plan and help them improve their trading process in the future. We focus on creating and enhancing client products continuously. Our goal is to make it easy for them to use analytics and execution tools to achieve best execution. The better we understand a client’s goals and objectives the more we can collaborate with the client on custom solutions and training. Electronic trading products are very different from traditional equities execution capabilities. A key differentiating characteristic is that the products reside and are used by the client at the client site. In the traditional model virtually no broker technology oriented product existed at the client site.
The communication mechanism for order delivery was the telephone and execution occurred in the broker/ dealer environment. Electronic brokering is a very intrusive business. Our products exist in the client’s technology infrastructure. This has led to changing core competencies of brokerage firms. We now have to be experts at delivering products into the client site. This has implications on training and technology integration.
How does the electronic broker assist clients in locating liquidity, either through tools or the consulting process?
Liquidity has and continues to be a top priority for clients. They have always come to brokers to find liquidity in as ‘quiet’ a way as possible. In today’s landscape, much of that liquidity exists in electronic form and is fragmented. The result has been a proliferation of tools (e.g., algos, routers) that help clients navigate liquidity pools to logically consolidate the fragmented liquidity. To assist in that process we have created a pool to concentrate order flow across various trading desks, retail segments of the broader J.P. Morgan Chase organization, transition management flow, and third party broker dealer flow. I refer to it as a centralized electronic merchandise hub.