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Automated Trader talks to Pavel Vidov, head of trading at Intrast

Published in Automated Trader Magazine Issue 36 Spring 2015

Automated Trader talks to Pavel Vidov, head of trading for Russian proprietary trading firm Intrast, founded in 1992.

Pavel Vidov, Head of Trading, Intrast

AT: What asset classes do you trade and where?

Pavel Vidov: Derivatives, equities, depositary receipts (DRs) and now moved into the FX market. It is probably the main market that is profitable here in Russia, at least for HFT trading. We are mainly on the Russian market, but also in London, and Chi-X, but (Chi-X) is pretty small volume.

Our volume on a daily basis across all the instruments is like hundreds of millions of dollars.

AT: How have strategies been affected by the economic situation?

PV: For DRs, the volumes are lower than before, but the arbitrage opportunities are bigger. Everyone who is doing this kind of strategies, like market making or arbitrage, they have more opportunities for profit right now.

The volumes on the IOB in London are like three times lower than before in terms of dollar volumes. The number of stocks traded is not much lower, but since the stocks are much cheaper now than they were before, the volumes have dropped.

But there are bigger opportunities for this kind of trading.

AT: That's because?

PV: There are more statistical deviations from normal behaviour. The price is not so exact as it was before, we see less competition in terms of liquidity provision. Some of the foreign firms exit because of some of the sanctions. The other thing harming price discovery is the rising costs of carry. The central bank has set the interest rate at 17%, so the price of carry in roubles has risen very much. Interest rates and sanctions have also caused problems with conversions of DRs to local shares and vice versa. And sure high volatility is an environment where HFT players feel well.

In December there were problems with liquidity (when) brokers set the margin interest rate at very high levels, so it was pretty difficult to carry the positions overnight. Also, foreign banks that are liquidity providers in terms of DRs, they have stopped or lowered the volumes they do with Russian counterparties, so it is now also more difficult to obtain DRs for short positions. That is why I believe the opportunities for arbitrage are now more interesting than it was before.

Source: MNI Indicators

AT: Some people point to a lack of big volume flow, does that hurt you?

PV: I believe the situation is now worse than it was before in terms of long-term investors. A lot of institutional investors exited positions, sold their inventory at whatever prices, and this also creates some opportunities for HFT trading because they are selling panickly sometimes. So they create some discrepancies in terms of share price discovery. That includes opportunities for arbitrage, but that is a one-time opportunity if they don't come back.

AT: How do you expect the Russian quant community to develop in the future?

PV: I don't remember during the past seven years (since starting trading), a single year when we didn't have any significant problems in terms of financial or economic situation, or politics here in Russia. The opportunities, they were always there.

But you can't just be smart to start this kind of business. You need to make pretty significant investments right now in infrastructure: servers and software and stuff. It was much cheaper to be competitive before. I am pretty sure it is all the same situation anywhere in the world.

AT: Do you trade any of the other BRICS? Is the grouping relevant for you?

PV: We thought of entering the Indian market, but I am not comfortable with this international long-distance broker-trader relationship and we cannot set up an office in India.

In terms of the Chinese market, it is also difficult to enter, and it should be Hong Kong anyway.

And then Brazil also has their specifics in terms of foreign investments. The coupling of these markets is probably somewhere in the FX market. But in terms of equities, there is no coupling and it is very difficult for us to enter.

The BRICS is not a relevant group for me. Russia has decoupled very much from them all and the situation is now that investors treat every country on their own.

Source: Moscow Exchange