Buy-side firms are reverting to traditional sales traders to help them trade blocks, as algorithms and dark pools fail to deliver performance in a low-liquidity environment.
Speaking at the TradeTech Liquidity conference in London yesterday, two prominent buy-side heads explained how they had adjusted execution strategies to make greater use of sales trading expertise.
“It’s increasingly difficult to get anything done in block size. Liquidity seeking has become our primary focus and we’re using algos and dark pools differently,” said Betsy Anderson, head of centralised dealing at Ignis Asset Management.
Anderson said combining basic principles of sales trading with electronic trading channels was needed to move blocks, offering greater certainty of execution and better size discovery.
“We’re going back to a combination of traditional sales trading by trading with those individuals who we know are experts in the stocks in which we’re trying to move big blocks,” said Anderson, adding that algos were not a silver bullet for liquidity. “It’s very difficult for algo providers to differentiate themselves in a low-volume, low-liquidity environment. The only thing we want to do is to get business done in size and leave minimal footprint, but that’s not something they can offer."
Anderson’s comments were echoed by Dale Brooksbank, head of trading, State Street Global Advisors (SSgA), who said his firm was incorporating sales trading techniques alongside the 300 algorithmic strategies it uses.
Brooksbank said greater use of sales trading at SSgA was partly driven by the need to deal with increased market complexity, such as the growth in high-frequency trading (HFT) over the last two years.
“We will look back at where we have interacted with HFT and if there was any reversion. If there are trends that appear to be negative to our clients then we’ll mitigate those,” Brooksbank said, adding that he also recognised HFT offered liquidity benefits.
The global financial crisis in fall 2008 has sparked a significant drop in trading volumes across Europe. Trading figures for the first six months of 2008 in Europe registered €6.25 trillion, compared to only €4.39 trillion for the same period in 2012, according to Thomson Reuters Market Share Reporter.