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Automated Trader Magazine Issue 09 Q2 2008

Everything is in a state of flux’. This phrase, originally used to describe the thought of Heraclitus, the Greek philosopher, could equally apply to the European equity markets following the introduction of MiFID (the EU’s Markets in Financial Instruments Directive) in November 2007. Both buy- and sell-side firms are struggling to adapt to a new environment which offers choice in trade reporting and execution. Such has been the subsequent lack of clarity on liquidity and trade execution performance, market participants must be relieved that competitors to the national stock exchanges have not been faster to emerge. Smart order routers and liquidity-seeking algorithms might be the solution to a fragmented European market in due course, but not until a more transparent picture of trading activity emerges. Both our ‘MiFID Descends across Europe’ feature and this issue’s AT interview focus on how buy-side traders are adapting to a trading environment in flux. Daemon Bear and Kristian West of JPMorgan Asset Management discuss not only the impact of MiFID, but also their approach to deploying today’s trading tools to optimal effect.

The career of Steve Radez might easily be described as being in a permanent state of flux. “Over time, profitable inefficiencies will disappear and you will have to move on to something else,” says the man regarded by many as the world’s first automated trader. Radez looks back at the key decisions and developments in his varied career. Change is also expected in the fixed income markets following the recent credit crisis. ‘Picking up the Pace’ looks at how greater transparency and liquidity could enable growth of algo and auto trading. And as the fixed income markets await a regulatory response, Mary Lou Von Kaenel and Greg Malatestinic of Jordan & Jordan consider the regulatory risks raised by the unprecedented growth in the volumes and pace of algorithmic trading.

Predicting change is the theme of Ernest Chan’s article on regimeswitching models, while effecting change – in terms of portfolio transition via algorithm trading – is explored by Joseph Sidibe of Merrill Lynch. From a technology perspective, Skyler’s Valerie Bannert-Thurner argues that buy-side use of market data must change to support dynamic trading models and Angelo Corsaro of PrismTech explains how a new middleware can handle increased message traffic. For readers wondering whether their trading platform is able to handle future changes in the trading environment, this issue’s Technology Forum focuses on order and execution management systems. Heraclitus may well have recognised the challenge.

Chris Hall - Editor

chrish@automatedtrader.net

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leader Do Black Swans Swim in Dark Pools?
SUBSCRIBERS ONLY The continued rise of dark liquidity and the development of more sophisticated execution algorithms could increase regulatory obligations on brokers and/or exchanges, according to Mary Lou Von Kaenel, Managing Director, Management Consulting, Jordan & Jordan, and Greg Malatestinic, Senior Software Engineer, Jordan & Jordan. ...full story
strategies Transition Management: Best Execution through Algorithmic Trading
SUBSCRIBERS ONLY The ability to restructure investment portfolios with minimal cost, risk or information leakage is a critical skill in today’s competitive fund management industry. Joseph Sidibe, Vice President, Execution Sales Desk, EMEA, Merrill Lynch, explains how use of algorithmic trading techniques can help ensure best execution in transaction management. ...full story
Machine Learning + Regime Switching = Profitability?
SUBSCRIBERS ONLY The concept of regimes – such as bull and bear markets – is elemental to financial markets. The desire to predict regime switches, commonly known as turning points, is similarly elemental. Ernest Chan, CEO of E. P. Chan & Associates, examines a possible technique for this most demanding of tasks....full story
technology workshop Data Distribution Challenges for Next Generation Applications
SUBSCRIBERS ONLY Angelo Corsaro, Product Marketing Manager, PrismTech Corp., outlines the advantages of a new middleware – data distribution service (DDS) – over messaging technologies currently deployed to support automated and algorithmic trading....full story
Optimising Market Data for Buy-Side Automated Trading
SUBSCRIBERS ONLY The next generation of buy-side trading models is driving new requirements for market data. Buy-side firms use market data in a variety of different ways and for different purposes, but how – asks Valerie Bannert-Thurner, Managing Director of Skyler Technology Europe – can they make the most of the market data available to drive their automated trading decisions?...full story
sponsored articles Small Cap, Big Challenge
SUBSCRIBERS ONLY Small and mid cap trade execution is a tough nut to crack. Long ‘dry’ periods, with occasional unexpected patches of liquidity, call for a very different execution style from large caps. Don White, Head of US Equity Product Development at Bloomberg Tradebook, explains how flexible high touch tools can be combined with conventional algos to provide a ‘mid touch’ solution that may produce enhanced small/mid cap execution performance....full story
case study Mr Immediate
SUBSCRIBERS ONLY Steve Radez, CEO of Essex Radez, has a strong claim to be the world’s first automated trader. Together with Essex Radez’s CTO, John Muelhausen, he explains how technology and automation have been constant themes in a three-decade trading career. ...full story
feature MiFID Descends across Europe
SUBSCRIBERS ONLY Six months after its launch, the Markets in Financial Instruments Directive (MiFID) has begun to stimulate greater competition between trade execution venues, but the fragmentation of liquidity and trade reporting has also caused confusion among buy-side institutions. Chris Hall reports....full story
alphability This Issue's Round-up of AT's Proprietary Alphability Metrics
SUBSCRIBERS ONLY Automated Trader's proprietary tradability metrics are environmental statistics intended to assist those building trading models/systems in determining which markets and timeframes are most favourably responsive to which generic types of model. ...full story
feature Picking up the Pace
SUBSCRIBERS ONLY The idiosyncrasies of the fixed income market have made it a laggard in the adoption of automated and algorithmic trading, but the soul searching that followed the sub-prime crisis may accelerate uptake, reports Chris Hall. ...full story
anatomy of an algo The Multi-Venue FX Algo
SUBSCRIBERS ONLY Ian Smith, Director, and Cameron Mouat, Head of AES FX Trading, Credit Suisse, provide an example of how execution algorithms capture liquidity across multiple trading venues in the foreign exchange market....full story
technology forum Ready for Take-off?
SUBSCRIBERS ONLY Are today’s order and execution management systems capable of guiding buy-side dealers through an increasingly complex trading environment or will new hybrid solutions emerge? AT asks leading providers to share their views. ...full story
my machine Morgan’s Mission
SUBSCRIBERS ONLY As one of the world’s largest fund managers, JPMorgan Asset Management’s trading operations increasingly resemble those of an agency broker. Daemon Bear, Head of Equity Trading, and Kristian West, Head of Trading Strategy, who recently joined from Barclays Capital, explain the tools and processes employed by the firm in pursuit of best execution. ...full story
peek ahead Just a lot of hot air?
SUBSCRIBERS ONLY Why, in the era of webinars, wikipedia and www.automatedtrader.net, do people still go to conferences? ...full story