Dan Royal: Trading royalty

Dan Royal, global head of equities trading at Janus Henderson, sits down with Laurie McAughtry to talk trading techniques, technical innovation, and his journey to the top of the game.

Starting with Janus Capital back in 2001, Royal is one of the longstanding stalwarts of the equities space – and while he might relish his base in the beautiful wilds of Colorado, he is nothing if not connected to the movements of global markets. Heading up a global group of buy-side equity heads of desk that meet regularly to evaluate key themes of the market, he’s got his finger on the pulse now… but it took him a while to find his true equities calling. 

A long and winding road 

“I’ve been in the industry a really long time,” he says. “I took a role at Cargill Investor Services in Chicago on 25 June 1984 – and I remember walking onto the trading floor and just being totally overwhelmed.”  

He started out as a runner “which is sort of the lowest form of life on the trading floor, where you’re literally taking an order from a phone clerk and giving it to a broker in the pit and getting yelled at every step of the way. And that was my first taste of the business, and I loved it”. 

After 10 years with Cargill in the futures pits, ranging from S&P to FX, he left in 1994 and ended up moving away from the trading environment and onto a desk position. “I worked for a hedge fund in Chicago, then transferred to a bigger one in Florida, and that led me to Janus Capital [as was] in 2001.”  

Originally joining Janus as a turnkey foreign exchange trader, the role quickly evolved into a senior equity trader and was then actively involved in both asset classes for the firm, loving every minute of it.   

Royal took a brief hiatus from Janus in 2006 to move to Artisan Partners as director of trading and operations, yet returned to Janus in 2008 to head up the equities desk.  Then when Janus Capital merged with Henderson Group in 2017, he retained the role of global head of equities within the merged entity. Based in Denver, he now heads up a global team of 16 traders, of which five sit with him, six in London and four are based in Singapore.  

“It’s been great. It’s been amazing. I’ve loved the journey, and I love where I am now.”  

What was the pivot like from FX to equities?  

“I came from the FX and commodities world, transacting in a wide range of liquid products. While transitioning into the equity space, the noticeable change was the liquidity within any individual stock could be significantly challenged. Your order strategy, the way you approach liquidity, the way you approach a fragmented array of brokers and exchanges and venues – all of that is very different in the equities space. Order and liquidity management presented largest impact to the learning curve, ranging from the pace of orders to the range of toolsets. The scope and breadth of different channels within the equity space delivers a much more fragmented market in that respect – centralised from an exchange perspective, but with multiple venues, an endless number of brokers and a wide range of trading tools.  

But having said that, the thing about trading is that while asset classes might not all act the same, the characteristics and the psychology of markets are all very consistent. Whether FX or futures or commodities or equities, there’s a type of mentality and liquidity dynamics that runs throughout.”  

What proportion of your activity is equities now?  

“The firm has about $275 billion AUM. That number, largely equity, is exclusively handled by our team.  Additionally, we also trade equity derivatives, futures and a portion of the foreign exchange needs related to those products.” 

Do you trade as much as you’d like these days?  

“I attempt to operate as a bit of a player-coach. While I do sit on the desk day-to-day, often the management responsibilities of the role keep me from actively managing a blotter of trades.  Yet maintaining an active role in trading is invaluable in my role of managing the department. 

That said, we have a very seasoned team of traders. Nine members of the team have either been head of desk before or are currently running one, which makes my job significantly easier. Having that level of experience and seniority in terms of understanding the markets, the tools and the process provides our investment teams with an incredibly solid conduit into the marketplace. 

 As a trading team, we have been fortunate to experience a very low turnover rate. Though we’ve had a couple of senior team members depart to bigger roles, those situations provide the opportunity for junior talent to come forward. We have an amazing group of people at Janus Henderson in all different departments that intersect with trading, and while seats on our team don’t often open, we do attempt to tap internal talent whenever possible.”  

What’s the culture of your desk? What kind of outlook do you try and bring to the team? 

“The team approach, for me, is incredibly important.  Over the years, I’ve experienced many desks and corporate cultures.   I’ve been fortunate to see what works and what perhaps doesn’t work as well. Within Janus Henderson, our team operates in a very flat structure, focusing on a harmonised and inclusive effort.  Post-merger between Janus and Henderson, our focus was that of combining cultures as quickly as possible.  Given the similarity between our two legacy firms terms of desk construction and philosophy, we successfully focused on a ‘global first’ model in all we did. That philosophy extended across systems, coverage and workflows, giving us a seamless and harmonised coverage model for our investment teams.”  

How do you maintain communication across a global team?  

“This is crucial to the concept of harmonisation. We’re communicating constantly, daily, across all of our desks. The heads of desk circle up multiple times a week to discuss strategy and focus. We also run numerous department initiatives – anything from looking at how we can enhance our equity capital markets processes to how we proceed with automation – and we’ll assign team members from each region to be the champions of those projects. Then it’s their responsibility to liaise across all the global desks to move it forwards. It gives everybody ownership into the process, and it also gives everyone a working knowledge of what the needs of the desk are for that project.”

Where does your trading desk sit within the wider organisation?  

“I believe that the trading desk is not just about trading. We sit at the intersection of the portfolio managers, the analysts, compliance, legal, technology and product development. While serving the needs of equity trading, we find ourselves also being problem solvers for the broader efforts within the firm.  For example, if there is a new product being developed, often trading will need to get involved early in that conversation so that we can evaluate operational complexity and workflow. The ability to identify challenges and risk in existing and new initiatives is critical to a successful suite of products. So trading is more than just trading. We have to be a jack of all trades, as it were. 

A lot of it is about risk reduction. A bit like the frog and the water, where suddenly the water is boiling, and the frog didn’t notice – it’s our job to see when the water is getting hotter. We have to act quickly to establish functional tools that can support the level of risk we are embarking and ensure we are doing the right thing on behalf of the firm, of our investors, and of our shareholders.”  
How do you measure risk?  

“It is important that we evaluate risk with a continuous focus.  Everyone on the team has an ability and responsibility to identify workflows that present increased risk to the team and firm.  Often times, we will track those within a process we call nonstandard monitoring.  Through this we can help get a broader audience focused on potential mitigation efforts, if needed. It’s all about awareness – both on the desk, team-wide, and firm-wide.”  

How do you achieve optimum performance and best execution for your client? 

“For the greatest likelihood of a successful outcome when implementing the investment decision, we look at best execution as a process. It’s not a singular result. There’s not one number that’s going to define whether we achieve best execution. Often, non-practitioners might look at metrics like implementation shortfall, your comparison to interval, VWAP or other TCA metrics for achievement. But best execution is far more complex than that, and we incorporate all factors when evaluating our results. One of the most crucial elements is how we navigate our liquidity demands. Do we have the right tool set, do we have a platform that gives us all the right algos, the right high touch, the right crossing networks, the right data coming into it and the ability for the traders to navigate that? Our tool set must be broad and inclusive.  The platform and toolset need to be continually optimised. Markets evolve, liquidity demands evolve, there are numerous different components that are continually changing. You can’t just leave an algo running in perpetuity without attention and enhancement, as it becomes stagnant. This requires ongoing sensible conversations with product providers about how you can continually make things work better.  

We embark on this through the structure of our platform. At the beginning of our own innovation journey in around 2009 we took all of our algos – probably around 240 – and realised it was very difficult to perform A/B comparisons. With that as the goal, we wiped the slate clean and we created a bracket system, where each bracket is the equivalent of a toolbox. We now have nine brackets where each has a specific set characteristics. You could view each bracket as a tool in the toolbox, where the complete toolset gives each trader an ability to effectively navigate our markets and manage any situation from a liquidity perspective.  

From there we went to all our providers and said: here’s a description of our brackets, now build a custom product that fits the characteristics of each. With that in hand, our traders can utilise both qualitative and quantitative measurements to identify what works best in terms of achieving liquidity and minimising impact, through a framework that allows this constant A/B comparison. We have quarterly updates and reviews with our algo providers where we review our algo suite, evaluate metrics and implement enhancements where needed.”    

Why is peer knowledge share so important?

“Trading desks are at the forefront of a firm’s footprint to the street. We maintain the commission wallet, we maintain the relationships with our core broker partners, and we serve to enhance relationships between firms. It’s important to approach that in a positive manner – you don’t have to be everyone’s friend, but we do want to make sure that we have open and honest dialogue.  

One of the efforts I have been fortunate to be a part of is a group called the Buy-side Equity Trader Roundtable – a global grassroots group of head and senior traders that we started in 2009. We’re now up to 30 members and while we don’t act as an industry advocate, it’s enormously helpful in terms of sharing best practices, sharing thoughts, and sharing ideas. We keep our conversations contained within the group, it’s entirely confidential, but I think it has made our industry stronger and better. We’re careful about who we bring into it, but it’s immensely valuable to be able to bounce ideas off each other without someone else trying to solve the problem for you.”  

What is the biggest change that you’ve seen in the last 20 years? 

“Technology is always going be the forefront of largely anything we do. We’re always trying to grow and evolve, where technology is the single best way to become more efficient. Order flow and complexity continues to grow, efforts toward automation and workflow efficiencies continue to make our team more effective. Our focus continually looks to our OMS, EMS and TCA providers to partner with us on leveraging greater enhancements and efficiencies. Those efforts move the trading workflow from pushing buttons to greater value add in the investment decision and implementation.    

Currently, we’ve just wrapped up phase one of our automation process, so we are now able to define which orders are suitable for automation and which aren’t, and make sure our systems sweep them to the right place. We’re coming up to phase two, which will be to move up the food chain in terms of using variable logic, contingent routing logic within an order using multiple channels. It’s about having the hammer, the wrench and the screwdriver, and figure out what sequence we need to use them in to build the chair.”  

What would you like to see change in your market? 

“The market is incredibly efficient and it’s incredibly successful. The industry can be both resilient and fragile at the same time.  There is incredible complexity in the equity trading environment.  The industry has experienced significant technology glitches over the year that can be incredibly costly.  As we embark on regulatory changes both here and abroad, we cannot underestimate the downstream impact that some of these proposals may have on the ecosystem.  I can certain appreciate the efforts by the regulators to create a more level playing field, we just need an appreciation for the strain those may impose on the industry framework.”  

What’s your priority for 2023? 

I’m always nervous about risk. That’s why we’re constantly evaluating and seeking to innovate. My priority is to make my traders more efficient, more integrated into the investment process, and better able to contribute to the global dialogue. That’s an ongoing effort. We’re constantly evolving. So my message is to be aware of innovation, embrace change, and continually seek to move forwards.