For some, joining a new firm can either be a challenge to their existing perceptions or an exercise in changing the perception of others. For Ed Wicks, global head of trading at Legal & General Investment Management (LGIM), it was case of both.
“When I came here, I was actually quite surprised that the amount we are transacting runs to trillions of pounds on an annual basis,” he says. “I view the UK’s GDP as good contextual metric and on an annual basis we are trading multiples of that, so it is a serious business and it comes with a great deal of responsibility. What I have seen in the three years that I have been here is that that business has been growing as well, and it is a broad-based growth.”
Growth plays a significant part of Wicks’ mandate at LGIM and so far, he has taken to the task of building out the firm’s scope with a healthy gusto. Having started his career at one of the world’s largest investment banks in JP Morgan before joining the buy-side with BlackRock, Wicks is well-versed as to how vital scale is to a business that is constantly aspiring to the next level.
Wicks places a high emphasis on incremental improvement, whether it be on his team’s work or LGIM’s trading processes, and his record with the firm since joining in 2015 speaks for itself. Initially responsible for LGIM’s equity trading, Wicks’ role was then expanded to cover equities on a global scale before being handed the role of global head of trading across all asset classes last year.
“We have a vast breadth of assets that we trade and each of those assets are growing, both in terms of notional turnover on an annual basis and also the number of tickets, which is almost more important from my position,” he says. “I need to make sure that we have the appropriate execution arrangements to manage not just the initial size of the book.”
As his remit has expanded, so too has Wicks’ ability to effect change on LGIM’s trading operations, although he stresses that like other asset managers, the firm is not in a position to hire a team of 20 new traders and therefore must work more intelligently with the resources at its disposal.
One of the first items on Wicks’ agenda was to implement what he describes as a “truly global operating model” by establishing a new trading desk in Hong Kong as LGIM’s hub for the Asia-Pacific region at the start of 2017, a crucial element that was previously missing from the firm’s set-up.
“We have centralised trading in all three regions and we are able to operate a full pass-the-book model, which means we can leverage the regional trading desks to make sure we are not snowed under here in London, which is a very important aspect,” Wicks explains. “To deal with that size of book I felt we needed a more robust global operating model, which we have now achieved.”
The next item on the agenda for Wicks dovetailed with the first, in that the size of the firm’s operations on a global scale required a different approach to managing risk. To do so, Wicks wanted to bring more of LGIM’s data to bear within its trading processes, something the firm had done in the past in a fragmented manner with various groups of traders and covering certain metrics.
In response, LGIM has this year implemented a centralised trading research department comprised of quantitative analysts, allowing the desk to aggregate its data in one location, which Wicks describes as a “real win” for the trading team, as well as being complimentary to its third-party transaction cost analysis (TCA).
The final element for Wicks was to optimise the use of electronic trading on the LGIM desks. He reiterates the need to be more efficient with the resources the firm has available to it, meaning he only advocates increased electronification where it makes sense to do so. For example, approximately 80% of LGIM’s equities business in EMEA is conducted via algorithms, but that doesn’t mean Wicks will implement a similar approach for trading across all other asset classes.
“Rates lends itself well to electronic trading and our business mix supports that, so we have been successful there,” he explains. “Then we recognise that in other markets, such as credit, where we have a very active book of business with a very high average trade size, it perhaps doesn’t lend itself so well to electronic trading. The fact that we are able to electronify other markets frees up resources to look at that high-touch business.”
None of these changes are new for Wicks personally, who highlights his work at previous roles with JP Morgan and BlackRock as having instilled the vital nature of operating globally, trading electronically and incorporating data into the decision-making process. However, this doesn’t mean there isn’t scope to drive further change based on his views of how the markets and the nature of trading are evolving.
“My personal view is that, to some degree, asset classes are converging; I know that’s not a popular theory, but there is truth in that,” he asserts, pointing to the twin drivers of increased regulation and a growing desire from end users for more transparency in how markets operate. This, in turn, presents LGIM with significant opportunities going forward, according to Wicks, who states that the firm is large enough and possesses the scale to influence how the market structure is going to develop.
Wicks details that he views the LGIM trading operation as two separate buckets of traders, with equities and FX on one side, and fixed income on the other. Wicks says he is keen to break down siloes among his trading teams: “I don’t particularly like labelling someone with a specific, granular-type activity. I think there is a place for that and we will always have asset and multi-asset class specialist traders let me be very clear on that point, but alongside that it’s very important to embrace the multi-asset trading capability,” he says.
Following the implementation of a new EMS for the firm’s FX activities, Wicks was able to co-locate the FX and equities trading teams at LGIM, resulting in more people having sight of a more diverse set of instruments with the same post-trade analytics. It’s another example of how the firm is adapting to changes in the market structure and how that impacts on its approach to trading different asset classes.
“The trading protocols are coming together, the market structure of equity and FX is converging, which are both high volume and macro products for us and we have seen real success with that,” Wicks says. “The opportunity is there to broaden traders’ horizons, make sure that they are conversant in more than one asset class, eliminate key man risk and ultimately have more people feeding into the direction of those businesses, which can only be a good thing for innovation.”
Another aspect for improvement is the increased automation of LGIM’s trading processes, something that Wicks believes will resonate with other large asset managers, although he clarifies that he is talking about the kind of automation that involves traders in an oversight process, or, in other words, trading by exception.
“Our efforts to date have been almost entirely focused on the equity business, which, given our execution arrangements, suits it very well,” Wicks says. “We have taken a subset of our equity flow, approximately 4,000 orders year-to-date in a fully automated fashion, where the portfolio manager raises the order and – if they meet certain criteria – automatically routed to a pre-selected algorithmic engine, then feed back into our EMS and automatically booked.
“We’ve seen real success with that and of that flow subset we initially started with we’ve seen no drop-offs in performance in terms of transaction costs, if anything there has been a slight reduction. I somewhat attribute that to our speed-to-market being sufficiently quicker; it may only be 10 or 20 seconds quicker, but those seconds, as a percentage of the window of execution, can be quite great.”
While there are plenty of opportunities for Wicks and LGIM to explore, there are also challenges to overcome in order to take the firm’s trading operations to where he wants it to be. As he says, the quest for continual improvement means that those objectives will continue to develop, especially for a firm dealing with the volumes LGIM does.
“Trading trillions every year, a busy day could see 20,000 equity orders, 2,000 FX orders and 500 fixed income orders; it’s a busy operation,” he says. “We owe it to our investors and to ourselves to continue to innovate, and that’s a challenge, one we are well-placed to meet.”
Going back to the importance of continual improvement, Wicks says that the most fundamental challenge for the firm is to deliver better client outcomes, which in turn means recognising that as market conditions change so too must trading processes and execution arrangements – a prospect arguably made harder during periods of market volatility.
While this will not be a challenge specific to LGIM, the way in which asset management firms approach such a problem will differ from desk to desk. Wicks highlights the approach to high- and low-touch trading during market volatility as a pertinent example, stating that there will be different approaches to redressing the balance at such times depending on the mix of asset classes and orders involved.
“The main point here is to recognise that your operating model and execution framework must be adaptable, so you are not just rigid and set up in a certain way,” he says. “That is an important part of any head of trading’s role, to recognise that you must continually ask yourself if your current set-up is appropriate for current market conditions. Ideally you want that flexibility, to be able to pivot and tilt depending on where markets are going.”
Undoubtedly the biggest change to the markets in recent years was the introduction of MiFID II and as Wicks states, this doesn’t mean that regulation will stay static in years to come. He points to the rhetoric from regulators and politicians to continue to evaluate the efficacy of the new regulatory regime and ensure it is fit for purpose.
“I don’t think MiFID II will be a one-time shot, there will be further iterations to come and we have already seen things around that,” he says, pointing to a lack of progress concerning market data costs and the lack of consolidated tape as key issues to be addressed by both the asset management industry and regulators alike. “We have to see progress in terms of a consolidated tape and that is in both fixed income and equities. This is a fundamental requirement for the buy-side and everyone should be cognizant of the importance of this and should be lobbying their own regulators and state bodies.”
Wicks says that it has become an essential part of the trading role to ameliorate what regulation might look like going forward and that it has become a key element of his own role with LGIM. He says he spends significant time in dialogue with industry bodies such as the Investment Association and Plato Partnership, as well as LGIM’s internal compliance and legal departments, trying to help regulators understand the impact of changes to existing and future regulation on the markets.
While MiFID II brought in a swathe of changes for the buy-side to contend with, LGIM were already handling much of these changes in the daily trading process anyway according to Wicks, such as the expanded reporting requirements and moving towards more electronic trading. Possibly the biggest change for LGIM has been handling the new best execution arrangements, for which the firm finalised its new policies and sub-policies alongside establishing a best execution committee in April 2017. Wicks says that the original idea for the committee was to meet on a monthly basis initially before moving to a quarterly model, however the meetings – which incorporate legal and compliance, portfolio management, operations and investment teams – have proved so valuable that LGIM has stuck with a monthly schedule.
Positive mental attitude
While there has been more time dedicated to regulatory affairs, Wicks believes this is something that is happening throughout the asset management industry and part of the continuing evolution of the head of trading role. He states that this is not just “paying lip service” to the regulators in terms of compliance, reiterating his view that buy-side firms should be influencing the future of regulation to the benefit of the industry.
On a more fundamental level, although still related to greater complexity of market structures and regulation, Wicks views the increasing level of interaction with LGIM’s clients as one of the biggest changes to how the head of trading role is evolving.
“It is our job to help clients navigate those markets and explain to them, in easily understandable terms, what’s going on and how it is going to impact both their specific funds and the market structure as a whole,” he explains. “I spend a lot of time with clients now, for example. Every week I am probably spending time with at least two or three clients in various roles, talking to them about market structure, explaining various aspects of the impact of regulation on markets, and I think that is an interesting part of the job.”
Wicks also highlights the ongoing importance of technology and governance – both in terms of optimising electronic trading processes and the overarching framework that supports those operations – but it all comes back to an approach of incremental improvements that a head of trading should embrace.
Having only joined LGIM less than three years ago, it speaks volumes about his approach regarding the changes to the firm’s trading processes and global model he has been able to effect; clearly it is bearing fruit for the firm and will form the basis of its trading strategies going forward under Wicks’ leadership.
“To be successful in any trading role, be it on the sell-side or the buy-side, you have to have the mindset or attitude to want to come into the office every day and incrementally improve the trading process,” Wicks states. “That, to me, is what stands a very good trader from an average trader. It might be small changes on a daily basis, or on some days no change at all, but you have the attitude to always want to make things better, you will eventually see tangible results that will be recognised. I think certainly in my experience that is how I have been recognised.”