The Gateway to Algorithmic and Automated Trading

Sound Bytes: views from the conference circuit

First Published 1st April 2015

Visions of the future for the role of exchanges, a deep dive into research showing that there is a strong theoretical argument in favour of factor investing, and other juicy tidbits from a whirlwind week of conferences.

Cees Vermaas

Cees Vermaas

Managing Director and CEO, CME Europe

London - The financial industry descended on London last week to discuss the latest developments for asset management, banking and exchanges.

Event: World Exchange Congress

Commenting on the 2030 vision for markets that are more open, transparent and serve a greater proportion of the public against a backdrop of harmonised regulations across Europe:

"We in Europe's financial industry have the technology and the market experience across every asset class. What we need both (from) policy makers and financial markets practitioners is determination and the will to think fresh. (Economist John Maynard) Keynes once said: when the facts change, I change my mind. What do you do? Well, we are at that point in Europe, I see great challenges but also some hopeful signs." - Cees Vermaas, managing director and CEO, CME Europe

Perspective from Asia-Pacific (representing over half of World Federation of Exchanges membership):

"If you don't work for the larger purpose of the society, (exchanges) will become irrelevant. Slowly we will become smaller and smaller…How do we become relevant to the society again? Most of the funds are getting raised by private equity guys, by venture capitalists, not by the exchange industry…My understanding (is that the) next 20 years will create more wealth than the last 10,000 years have created…will the exchange industry participate in that?" - Ashish Chauhan, CEO, BSE India

"For high frequency trading, we have too much needs for such kind of investors. At the moment, the transactions from the colocation facilities, with regards to transaction-based, not order flow-based, 30 to 40 percent are coming from colocation in cash market, 60 to 70 percent are coming from derivatives market." - Keisuke Arai, chief representative in Europe, Japan Exchange Group

Pushing FX on-exchange:

"Imagine one order book for FX, there only is one eurodollar. Don't believe the press, there is 50-odd venues out there all quoting different prices to different customers. It is discriminatory. That' the reality of it. So let's have an open order book." - David Mercer, CEO, LMAX Exchange

Fixed income too:

"For the banks, voice is a comfortable channel. Having said that there clearly is a push towards electronic trading in some of these instruments. What we are able to do with exchanges is say: if you think yourselves now as less of a rigid order book where trades may match, but actually think of yourself as more of an information exchange, more of an on-line dating construct, where buyers and sellers on a pre-trade basis find each other, then we've developed trading protocols that will allow different banks to trade with each other, almost on a dealer basis, via exchanges."

"Data streaming is still a function of the world that we propose, some of this private data can still be streamed, there is no reason why that can't get to you in a very efficient, electronic way that can be put straight into models. It's just private data, so the data you get will be based on the relationships you have with individual banks and will be fully at the discretion of the individual banks that give you that data. What they are hoping for is that you reward them with trade flow on the back of that data." - Stu Taylor, CEO, Algomi

Event: EDHEC-Risk Days Europe

Presentation on preliminary research showing a strong theoretical argument in favour of factor investing (aka alternative risk premia or smart beta) under specific conditions, namely if the benchmarks being used are replicating portfolios for asset pricing factors - where the price of any payoff is given by the expectation of the product of the payoff with respect to a stochastic discount factor:

"We should always keep in mind that maybe, after all, factor investing doesn't make any sense, maybe it is just a marketing fad that is going to fade away very fast, so we have to understand whether innovation here is bringing something substantial or it is just a buzzword…Is it just marketing that asset managers and asset owners together are enjoying looking at fancy new stuff…Why would any different form of grouping securities, individual securities, make any difference in the end?"

"Diversification is not meant to help us cope with 2008-type events. We have other technologies for that - we have hedging, we have insurance…Diversification is simply meant to help us harvest risk premia in the most efficient way, by precisely diversifying away from our portfolios any kind of risk which is not rewarded." - Lionel Martinelli, professor of finance, EDHEC Business School and scientific director, EDHEC-Risk Institute

"(Results show that) all allocation schemes do better than market cap weighting. I think that is a profound lesson and probably many of us (portfolio managers) are still very much bound to be market-cap allocation type paradigm. I think we really should challenge that." - Jaap van Dam, managing director, Investment Strategy, PGGM

Event: State Street Data and Analytics Survey Key Findings

Commenting on the latest research from State Street on innovation adoption across banking and asset management industries:

"What you have going on is a whole new level of big data analytics and the tools that enable that to be possible, and the people who are able to do that work are sought after. It is interesting to us that talent showed up as the number one investment area, more so than the tools. People are investing in the people, (and) feel like that is a more important area than investing in the processes and the systems." J.R. Lowry, head of EMEA, State Street Global Exchange

"The two technologies that the report identified, machine learning and cognitive computing, could bring massive change to asset management." Shaul David, fintech sector specialist, UK Trade and Investment

"The drag of legacy came up very clearly in the research, because it impedes your ability to personalise services to your customers, to use those analytics, to maximise the value of them. But also, on the regulatory side and compliance, the cost of compliance and the data requirements and what firms need to supply to the regulators is a big cost and that is another area where financial technology can make a really important contribution." Lisa Moyle, head of Financial Services and Payments programme, techUK

Event: Trading Show London

On applying the lessons of the Obama 2012 re-election campaign to trading:

"This is the first time in American politics that we had the money and the resources to go exactly to the experts. So if you are looking for big data people, you went to find the big data people, if you want engineers you went to the engineering people."

"We all have always used data, the 'big' part here is marketing. We don't need that marketing because storage is solved, for the most part has been solved, especially in the financial world. You guys are the beginning of big data, why is it suddenly this new thing?" Harper Reed, CTO, Obama for America, social media pioneer

On last look pricing:

"The six top dealers in the UK represent 60% of all UK interdealer FX market trades. So you have a very small community of providers doing a majority of what's being traded in the market today. And in some cases these firms are engaged in what they call horizontal or vertical integration, in other words they are using data within their own firms first, and is that bad news? Because it means they are out in front of their clients. This raises potential conflicts of interest and concerns about what we call information asymmetries. Am I getting information before you? Or are we getting it at the same time?" - James Watson, managing director, ADS Securities London