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An AXA to grind

Published in Automated Trader Magazine Issue 28 Q1 2013

You might think Christophe Roupie already has enough on his plate. He runs the trading operation for one of the biggest asset managers in the world, with a 55-strong team in London, Paris and Connecticut and he has plans for a presence in Hong Kong. But he is also keen to spend more time in Brussels. As he tells Automated Trader Editor Adam Cox, the buy side can do a lot more to work with regulators and ensure more sensible rules are put in place.

Adam: What would you say is the overall philosophy in terms of your trading strategies?

Christophe: We're here to execute our fund managers' and clients' investment decisions by going to the financial markets and trading their orders. Therefore, and I know it sounds very simple and very basic, our main objective is to minimise market impact whilst providing best-in-class execution in a sound and risk-controlled operational framework. Our trading strategy is driven by our multi-expert asset management model, meaning that market intelligence and brokers' interests are concentrated within trading before being directed to the relevant investment teams on a global scale.

We have also developed tools and invested massively in systems which allow us to stream real-time information to our fund managers and clients across all asset types. We always try to be the most efficient conduit for liquidity and market information to our clients.

We trade in all currencies and markets - equities, ETFs, sovereign, credit, emerging and high-yield bonds, convertible bonds, FX, money-market and treasury instruments as well as listed and OTC derivatives (CDS, IRS, ILS). I am also in charge of securities financing, which encompasses repo and securities lending, giving me a fairly wide spectrum of product coverage.

Christophe Roupie, AXA

Christophe Roupie, AXA

Adam: When you say your clients, you mean the fund managers.

Christophe: Globally yes, our clients being the fund managers. But we also consider clients all the stakeholders within AXA IM or outside the company who are supporting our activities and ensuring we meet our objectives.

Adam: Maybe we can talk about the tools and systems you mentioned.

Christophe: Minerva, our order management system, is at the core of our execution process. In terms of risk and control, we want to ensure that when looking at an order from creation to execution and matching we have as much STP as possible. To keep it fairly high level, Minerva is linked to the decision-making tools of our fund managers and clients, meaning that all the orders that we receive follow a very strict process whereby they are initiated by the fund manager, pushed through a constraint server and then sent electronically to the traders. The traders will then choose the way they interact with the marketplace, either via voice or using FIX technology to release orders to brokers or directly to e-trading platforms.

For example 80% of the orders received in FX were traded electronically in 2012, and that equates to roughly one-third of our volumes. It represents a 15% increase in the number of tickets and a 42% uptake in volumes from the previous year. Overall, we traded over 1.5 trillion euros across all assets in 2012.

Adam: Okay, so the scale of your trading must be a big factor. Not many firms are initiating these kinds of flows. If you're aiming to reduce market impact, how do you go about it?

Christophe: The numbers I've given you so far are for FX, which is a very competitive market. A lot of the tickets can be processed via electronic platforms and the market impact is therefore negligible. What we trade electronically usually has limited market impact. Anything above a certain size would be traded via voice, or any currency which is less of a natural fit for e-trading. We still take the view that for important transactions - regardless of the asset type - slippage can be better managed when conducted by voice. Again here, this is the job of the traders to make that choice and understand where they can go to trade at the best price or obtain the best possible result for our client, and also keeping in mind that the overarching philosophy from a risk perspective is that all of our business is driven by counterparty risk and counterparty limits we must comply with.

Risk control is at the heart of our investment process and also at the heart of our execution process. I'll give a very good example: we don't do DMA. We don't think that we can actually fully control the risk which is embedded in having direct access to exchanges. The traders are our first level of control and they also rely on brokers to perform a second level of control or oversight. And I have to say that I feel more comfortable having that 'safe pair of eyes' approach rather than running the risk of an execution going wrong because of a fat finger which could have a massive market impact and of course damage our investment performance.

If we look at fixed income globally, which is a large part of our AUM and consequently represents a large share of our trading volumes, in 2012 we traded half of our tickets electronically for roughly the same split on volumes - that's a shift we've seen every single year since 2005, a gradual pickup in the volumes traded on platforms.

And on equities, our use of algorithmic strategies has steadily increased to reach 25% of our volumes today from 5% a few years back. We use a combination of low and high touch trading to manage market impact, including program trades and crossing networks. The rest is still executed by voice and as a matter of fact we very much encourage our traders to keep a high degree of interaction with their sales coverage. From an STP/FIX standpoint close to 100% of our orders are confirmed and allocated electronically.

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