Profile | Brendan McCarthy Knight vision
Brendan McCarthy, Knight Direct’s newly promoted head of sales and relationship management talks to Best Execution about recovery from the nearly disastrous glitch of August 1st, and the lessons learned as well as the impact of impending regulations in the US and Europe.
What has been the impact of the technology problems that cost the firm to suffer a $440m loss in August?
The truth is nothing is perfect and there are errors. If you look at the stock market crash in the 1930s, it was a fully manual market that was responsible. In today’s electronic markets, humans still make mistakes. Following that mistake, we received very strong support from both clients and our competitors. Three investors (Fred Tomczyk, CEO of TD Ameritrade, Martin Brand, managing director of Blackstone and Matthew Nimetz, advisory director of General Atlantic), have joined the board in the past month. At Knight Direct, our technology and business of providing agency algorithms is separate from the affected unit, so we were able to bounce back quickly once it was clear there was no impact on us. Across the entire firm, Knight initially lost market share, but the flow has returned and we have regained our leading position.
What accounts for the support? I think it is a combination of culture, products, research and client services. It is also down to the way we handled ourselves. We have good relationships and have always put the client first. However, we also were transparent about the error and have learnt our lessons. We recently hired
24
IBM to look into the trading glitch and are currently conducting an internal and external review. We are also putting in place better policies, practices and procedures to avoid this from happening again.
Looking at the market as whole, what impact do you think the impending regulation will have? I think the competition that has been created by regulation such as MiFID in Europe and RegNMS has led to innovation. We have seen a plethora of alternative trading platforms and new solutions such as smart order routing and sophisticated algos to source that liquidity. In turn, the primary exchanges have lost market share to off- exchange venues. This is not the case in Europe although we are seeing an increase in terms of the concentration of flow to these off-exchange platforms.
Do you think the rules have made it easier to achieve best execution?
The execution experience has materially improved and the average execution speed has dropped significantly to less than one second compared to north of three to four seconds in the past. Innovation has also meant that the costs of trading have been dramatically reduced for the end investor.
Best Execution | Autumn 2012
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