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How much of your international trading do you handle remotely from your South African trading desk?

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How much of your

international trading do you handle remotely from your South African trading


In foreign

markets, the portfolio construction is reasonably passive. It’s more index tracking

with selective stock picking. All trades are executed from Cape Town. We’re basically in the same time

zone as the UK and Europe, so from that perspective it’s simple. If it’s an FX

transaction we can trade in any currency across the world from Cape Town via a South

African bank like Standard Bank or RMB. In terms of equity execution we usually

route it via an international investment bank, generally through Paris or London.

The administrative side is handled out of Cape

Town. It’s just the custodian that is based in the

domain where you purchase.


equities, our trading frequency in foreign markets is limited. We recently

unbundled a portfolio managed by a fund of funds manager and constructed our

own MSCI World ETF fund. An ETF is going to stay in your portfolio for up to

six months to a year, leaving you to execute a small number of trades on an ad

hoc basis to tweak the portfolio. Getting best execution here is not the

overriding concern.

Best execution

and unbundling are obligatory for UK-based traders. To what extent do you see

these as precedents that should be observed in your own trading operations,

regardless of whether there’s a regulatory following wind?


months ago we started implementing a process of unbundling. The catalyst for this

was, first, that there are ethics around this whole issue. As a firm we

prescribe to the CFA Institute’s code of ethics and one of the core concerns there

is transparency. The client needs to know how we are spending his brokerage and

why. Secondly, it was to enable our dealing desk to evolve and become more

involved in the investment process. Now we utilise execution shops that are

efficient and source research from partners that will add value to a client’s investments.

And if we can’t compensate them on the execution side, I have the option of

using commission-sharing agreements (CSAs) to channel the funds. We explained

the ethics around this to our clients. In agreeing to this, clients altered

their mandates. The next step was to enter into CSAs with broking partners that

we typically trade high volumes with. We intend to have two big multinational houses

as partners and one of our algorithmic trading suppliers as a third partner.

Where you rely

on the sell-side for execution, do you have a preference for global or local


If you look

at the South African market and focus on how the execution side of the broader

market operates, the majority of ‘true’ liquidity lies with those big

multinational brokers that have a local footprint here. Not only do they see

domestic flows but also huge international flows and have a ‘prop’ book behind

it. With the smaller domestic brokerage firms we quite often find that their

execution is average. In the future, they will either have to link up with a

major international house or develop a specialised trading desk. There are

people here that specialise in small-cap execution, transition management or

basket trading, for example.

How do you

measure best execution?


understand what is a best execution you need to assess the goal in implementing

a specific trade. That starts when the trader has the conversation with the

portfolio manager. In its simplest form one should look at an implementation

shortfall model where you have a reasonably liquid counter. The model will

attempt to quantify the expected impact and compare that to the final execution.

That’s straightforward in a market like South Africa where you have a

single exchange. Any one of a number of benchmarks can be applied to see if the

trade execution was done properly. However, in some foreign markets, especially

the US

where you have fragmentation, it’s extremely difficult.

To measure

best execution on a trade-by-trade basis is possible but very challenging. Our

expectation of post-trade analytics is that, over time, it can single out good

execution shops from bad. You can’t blindly accept that each and every trade is

accurately measured. So in terms of best execution we like to map trends.

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