Profi le | Brendan McCarthy
Where are we today? The European framework is more nascent than in the US and is guided by a different structural framework. It is not as effi cient or cost effective as the US because of the clearing and settlement costs. Central clearinghouses (CCPs) need to interoperate in order for the European market to develop further. What is happening is that many are trading American Depositary Receipts (ADRs) instead of directly on the platforms because it is less expensive.
Do you see interoperability happening? It depends on where MiFID goes. If the regulation can achieve interoperability then the implicit as well as explicit costs will decrease and it will create a much better bid/offer spread. It is not clear though that this will be the case with the current form of MiFID II. At the moment, everything is being proposed, but nothing is being enacted. If it does not happen then it will be diffi cult for the European market to get to the next level. This does not mean that interoperability will go into reverse but that it will not reach US levels.
In terms of tools, what are clients looking for? In the US, there is clear need for intelligent sourcing algos. The development of effective algorithms
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requires heavy investment in technology, market data and strategies to extract alpha as well as connectivity. We believe the value of a broker like Knight is to help clients effi ciently navigate the market through sophisticated trading tools that lower the market impact as well as explicit and implicit costs. We can offer customisation in that we can take a standard algo and confi gure it to better meet a client’s particular trading strategy. But more than that, we design and improve our algorithms on in-depth research, that’s our differentiator.
There are concerns about high frequency trading. Do you think it is warranted? There are four different types of high frequency traders – passive, stat arb, directional and structural. The majority are passive and provide some kind of liquidity but there are those that act very aggressively and there needs to be some kind of regulation around that particular activity. They should not though all be lumped together.
What are your plans for the future? We plan to continue to invest heavily in our algo research and development of new, more intelligent tools for our buyside clients. We want to optimise their trading strategies and level the playing fi eld for all market participants. ■
Best Execution | Autumn 2012
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