While now may seem like a bad time to launch a new sell-side execution business, Toby Bayliss, head of algorithmic and program trading, Europe, at agency broker Sanford C. Bernstein, says his firm’s venture is well-positioned to deal with the dispersion of liquidity in Europe’s equity markets.
“Our electronic execution offering has only been available to clients since May 2008, so we do not suffer from any legacy infrastructure issues,” says Bayliss. “This means our systems have been built from scratch to address the fragmented market place.”
Much of Bernstein’s reputation is based on the research it already provides in Europe and, according to Bayliss, this gives the firm a good starting point when attracting clients to its execution business. “When a client has confidence in a strong research product, it is possible to use that relationship providing an opportunity to showcase the latest electronic execution offering.”
Bayliss joined Bernstein from Citi, where he worked on the program and sales trading desks, before his most recent position as head of algorithmic sales. His initial task at Bernstein was to make sure clients were aware of the tools and functionality provided by the broker. Bernstein only offers cash equities portfolio trading and algorithmic trading, allowing it to focus on the new competitive landscape that is reshaping Europe’s markets. To meet best execution expectations in Europe, the firm is currently connected to pan-European markets Chi-X, Turquoise, BATS Europe and Nasdaq OMX Europe, as well as a number of dark pools.
“We connect directly to the main MTFs (multilateral trading facilities), but we also ensure we can route to all other new venues, via a third party, from day one,” says Bayliss. “This gives us time to monitor and assess whether it’s worth us committing the resources to connecting directly ourselves.”
Bayliss identifies use of technology and innovative order types to be key factors in differentiating the value propositions of the new European trading venues, particularly as fee structures become more alike.
“We actively use the new functionality these new venues offer and acknowledge that high-frequency trading counterparties are an important component to their success,” he says. “BATS Europe, for example, has made strong inroads towards attracting high-frequency players and this has been key in gaining traction.”
The new functionality and liquidity that alternative venues have brought to European equity trading are already starting to show tangible benefits, according to Bayliss. “Fragmentation has already made a massive difference in terms of cost,” he says. “Not just exchange fees, but the cost benefits from having additional liquidity in the market, reducing market impact, narrowing bid ask spreads, as well as encouraging incumbents to up their game.”