Jul-Sep 2007, Issue 13

Smart order routing has been touted as the antidote to post-MiFID liquidity fragmentation in Europe. The technology’s supporters argue that it worked in the US, so it should also work in Europe. But smart order routing is far from perfect, and the big differences between the two markets could prove a challenge.

Brian Mitchell, global head of dealing and portfolio control at Baring Asset Management, sees benefits from the implementation of MiFID and believes that the market as a whole is broadly supportive. He spoke to The TRADE about the challenges remaining and his expectations for a post-MiFID landscape.

With high frequency trading comes a need for speed. Now long-only firms are under pressure to increase ‘search’ speeds to access liquidity across disparate trading venues.

“The benefits to investors of additional competition could be lost to the cost of fragmentation – widening spreads and market impact, impairing transparency and increasing the cost of market data, to the detriment of all investors,” warns Clara Furse, CEO of the London Stock Exchange. With European exchanges under threat from new trading venues, is there substance to this vision of the post-MiFID world?

Tony Mackay, CEO, Instinet Europe, discerns a three-way segmentation emerging among buy-side clients in the face of market and regulatory pressures.

Marcel Naas, managing director, Eurex Repo and Jean Robert Wilkin, executive director and head of GSF product management at Clearstream, explain how enhancements in electronic repo trading can improve liquidity management.

Clients have a clear and precise view of how and where they want their trades executed, writes Jerry Lees, head of alternative execution at CA Cheuvreux. To write a best execution policy post-MiFID calls for dialogue and an intimate understanding of client requirements.

The benefits of accessing dark pools of liquidity have been well covered in recent months. What is less clear is how an investor can distinguish among them. Yvonne Hansmann and Brian Spengemann, execution consultants at Merrill Lynch, explain where to start.

Smart order routing is a complex undertaking that demands a reliable solution as much as speed and intelligence, writes Toby Bayliss, head of electronic execution sales, Europe at Citi.

Low latency makes money, but it costs money too. How can the buy-side benefit, asks Bill Ruvo, vice president and business manager, Reuters Data Feeds.

How relevant is the current focus on low latency to buyside traders, asks Robert Flatley, global head of Autobahn Equity at Deutsche Bank.

Backtesting algorithms, using the right depth and sequence of data, is a means to ensure that market performance matches expectations, writes Dr John Bates, founder and vice president, Apama Division, Progress Software.

Darren Simons, sales account manager for RTD Tango and backtester, RTS Realtime Systems and Steffen Gemuenden, co-CEO of RTS Realtime Systems Group examine the key criteria for developing an effective algorithmic solution.

Chris Smith, head of business development, Euro- Millennium and director of NYFIX International draws on the experience of the US market as a blueprint to predict the likely impact of MiFID on European equity trading.

Hedge funds must tackle administration capacity and operational risk head on, contends José Santamaria of RBC Dexia Investor Services, if the current level of growth in the industry is to be sustained.

While the unbundling of execution and research has obvious potential benefits, the implementation of commission sharing arrangements needs to be carefully thought through to create a well-managed program and avoid information leakage, counsels John D. Meserve, president, Westminster Research Associates, a member of BNY ConvergEx Group.

Is trading technology keeping up with the pace of change? Tim Wildenberg, managing director, European head of algorithmic trading at UBS examines how his organisation is responding to the challenge and setting the standard in buy-side service provision post-MiFID.

Though the full impact of MiFID awaits, notes George Andreadis, vice president, AES liquidity analyst at Credit Suisse, buy-side clients can already see the tangible benefits of systematic internalisation and smart order routeing.

Deutsche Börse OTC Post-trade Transparency Service