People In The Trade: Jean-René Giraud
Published on April 8, 2008.
MiFID has wrought many changes in the European equities market – some that the European Commission intended, and some that it arguably did not. What it has failed to do, according to Jean-René Giraud, business development director at the EDHEC Risk & Asset Management Research Centre, is spark innovation in trade execution.
Giraud contends that Chi-X Europe, for example, with its ‘taker-maker’ tariff structure, has brought some pricing innovation to the European market. But he adds, “As far as innovation in execution is concerned, we didn’t see anything. All the new initiatives are based on existing technology. No one came up with a new market model. No one came up with a new concept that dramatically changed what already existed on central exchanges.”
Even the more recent entrants into Europe, such as Nasdaq OMX, have failed to bring innovation to the market, Giraud believes. “It is existing technology and the same players,” he says. “The competition may push prices down a little bit, but it will not dramatically change the value proposition for the asset management firms. It will simply give them another venue to link with.”
As a result, Giraud thinks new entrants have not shaken up the European trading market as much as they have in other industries. He points to EasyJet’s entry into the airline business and Google’s entry into the advertising business as examples of revolutionary events. “We didn’t see a revolution in execution,” he asserts. “There is a lot of room for innovation. The industry is still inefficient, very expensive, and does not use technology as best it could. It’s a little disappointing, to be honest.”
As an example of possible innovation, Giraud suggests that algorithms could be implemented at the execution venue level rather than the broker level. “Why is it that every broker still has a VWAP mechanism?” he asks. “Why can you not implement VWAP on the order book itself? It would be 10 times more efficient. No one at the execution level is proposing this as an integrated solution.”
The next big innovations and developments might not be in the execution space at all, but in clearing and settlement, predicts Giraud. “One of the big issues affecting innovation and execution is the fact that you don’t have an open space for clearing and settlement, especially on a global basis,” he says. “A lot of the costs are in clearing and settlement rather than the execution space.”
He concludes, “That is probably where we will see some interesting innovations, and where some of the big clearing houses or banks may be in a position to invent something new in terms of linking innovative execution with innovative clearing and settlement propositions.”
