Institutional broker-dealer Louis Capital Markets (LCM) is expanding its presence in Asia to capture opportunities offered by the region's growing demand for electronic trading capabilities and the expansion of alternative sources of liquidity, says Alexander Colin-Jones, the firm's partner and CEO in Hong Kong.
“We see Asia as a very exciting prospect. It's where we see the next phase of growth expansion for the group. Asia is catching up with the rest of the world at the moment and so is at an interesting stage as we strive to access all forms of liquidity. As the Asian trading landscape evolves, we will be looking to reinvent ourselves, so that we can continue to add alpha and enhance best execution for our clients,” he says.
LCM was established in New York in 1999 by Michael Benhamou and Laurent Imbert established Louis Capital Markets and expanded to London in 2003. The firm currently supplies research and execution capabilities across multiple asset classes, including direct access to 35 equities markets, to more than 1,000 institutional accounts.
Part of LCM's growth strategy is to boost its Asian cash equity business in Hong Kong and London. For this purpose, the firm hired a team from Instinet led by Nick McDonald, previously head of Asian equities at the global agency broker, where he spent 12 years. “We're looking to expand our existing businesses in Asia as well as adding the products that already exist within the group. This will create opportunities for us in fixed income, commodities and FX options in the long term,” Colin-Jones adds.
“For our cash business, as well as our equity derivatives business, we've added headcount in Asia and we're constantly looking for different opportunities which will allow us to grow organically in the region and also to leverage other offices and existing relationships within the group. The recent expansion of our research offering in the region focusing on event-driven strategies is an example of this.”
LCM currently accesses over 10 different dark pools and crossing engines in Asia. Colin-Jones says it is important for the firm to be able to access all pools of liquidity, internal or external, dark or lit, primary or off-exchange. “For us it represents potential price improvement so we can offer best execution and provide alpha for our clients,” he says. “Alternative liquidity is fairly fragmented in Asia compared to Europe and the US, but the landscape is constantly evolving. With more entrants such as Chi-East coming through as well as the increasing creation of internal broker dark pools, being able to tap into this increased liquidity will offer our clients price improvement.”
A key part of LCM's execution services is its Alpharithms, which the firm asserts is the first smart algorithmic routers built for the buy-side. Alpharithms route different order types to the historically best performing algorithms on the Street based on a monitoring process that uses both historical and real-time performance data. Taking into account the historical and real-time matching rates of liquidity pools, it is possible to use probabilities to reduce market impact.
“On a given day, there could be a great deal of liquidity on a given name,” says Colin-Jones. “For example, recently with November's quarterly MSCI rebalance, there were opportunities and extra liquidity. It is imperative that we can access all pools of liquidity so that we can interact with natural flow and reduce market impact. If we have a high hit ratio with certain stocks in certain dark pools, we'll always maximise interacting with that liquidity before going to the primary market. This unbiased and transparent evaluation is ultimately how we enhance alpha.”