Bernard Sabrier

The new entity, named Kepler Cheuvreux Unigestion Equities, is set to focus on quantitative strategies and together will manage more than €3 billion in assets, subject to regulatory approvals. 

The first stage of integration will see Unigestion transfer the €3 billion in assets under management – specifically in the form of mandates and investment funds – and simultaneously integrate the entirety of its equities team into Kepler Cheuvreux’s operational infrastructure.

Following this, Kepler and Unigestion will create the jointly owned entity, alongside the management team, focused on accelerating the business’ development through external growth initiatives.

“Unigestion brings its quantitative and qualitative public equities expertise, enhancing Kepler Cheuvreux’s well-established research capabilities. This partnership merges fundamental and quantitative research approaches, optimising portfolio management while diversifying and expanding the range of investment strategies,” said the firms in a joint statement. 

In addition, Kepler Cheuvreux is contributing a sales force of over 130 professionals and more than 1,300 institutional clients across Europe, North America, and MENA.

The firms are also set to integrate ESG criteria into the management processes for Kepler Cheuvreux Unigestion Equities, including maintaining an “active dialogue” with portfolio companies.

Speaking about the partnership, Laurent Quirin, chair of the supervisory board at Kepler Cheuvreux and Bernard Sabrier, executive chair of Unigestion’s board, highlighted that this partnership is being driven by shared ambition to “provide institutional investors with sophisticated, innovative solutions tailored to the evolving market landscape”.

They added: “The combination of Unigestion’s quantitative expertise with Kepler Cheuvreux’s research, execution and distribution capabilities, enables us to unlock unique synergies and offer a distinctive, high-value proposition.”

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Now in its second year, this award is designed to celebrate those individuals who have made a significant impact on their own organisation and, equally, the industry externally, with a commitment to bettering and future proofing the markets for years to come.

Shortlisted individuals are repeated contributors to discussion whether that be through panels, associations or schemes to support the next generation joining the financial services industry.

The winner will be decided by a live industry vote at The TRADE’s Leaders in Trading gala awards night on 8 November. Congratulations to this year’s shortlisted nominees!

Industry Person of the Year 2023 shortlist:

Seema Arora, managing director, head of execution sales, Instinet Europe  

Champion of The TRADE’s Rising Stars of Trading and Execution award scheme, Instinet Europe’s Seema Arora needs little introduction with an extensive financial career spanning more than 25 years.

Beginning her career at Dresdner Kleinwort Benson as director and head of portfolio sales trading in 1997, she later went on to spend six years at JP Morgan, initially as an executive director and head of execution sales responsible for electronic and portfolio trading and ETFs. She later took on a role at the bank as executive director of investor flow sales responsible for the introduction of its derivative product to its UK client base.

Prior to joining Instinet Europe, Arora spent several years at Kepler Cheuvreux also in senior execution sales, program and portfolio trading focused roles. She joined Instinet Europe in 2019 as managing director and head of execution sales, her current role where she is responsible for the growth of new and existing client revenue. 

Alongside her role within the markets, Arora is vocal in her support of the next generation of individuals entering the financial services industry through participation in intern programs and the Rising Stars initiative, in partnership with The TRADE. 

Eleanor Beasley, chief operating officer for EMEA equity execution services, Goldman Sachs 

Chief operating officer of EMEA equity execution services, Eleanor Beasley, joined Goldman Sachs to manage its new-look market structure team in 2019. She assumed the role at the bank after a 15-year stint with Morgan Stanley where she held several roles, most recently head of market structure for clients.

In her current role for Goldman Sachs, she is responsible for ensuring the operational efficiency of the business, managing relationships with exchanges and ensuring the business and its clients are well-positioned for developments within the European market structure. She began her career as an analyst at the London Stock Exchange Group (LSEG) in 2002.

Beasley is a committed expert and thought leader in market structure – an essential tool for any institution amid the many regulatory shifts taking place in the market as of late – and alongside her role at Goldman Sachs she is also chair of the AFME Securities Trading Committee, as well as sitting on the board of Cboe Europe and participating in several exchange and industry advisory groups.

Chris Jackson, global head of equities strategy and head of equities, EMEA, Liquidnet

Global head of equities strategy and head of EMEA equities for Liquidnet, Chris Jackson has an extensive equity trading career spanning over 25 years. He began his career in program trading sales at London-based investment bank SG Warburg.

Jackson later spent 12 years at Merrill Lynch where he held a number of roles in both London and New York, most recently as head of sales across programme, transitions and electronic trading for the EMEA region. Jackson left Merrill Lynch in 2009 to join Citi as its head of execution sales for EMEA before joining Liquidnet in 2015. He served in a variety of senior equities roles until his most recent one as global head of equity strategy and head of equities for EMEA. He is also responsible for Liquidnet’s equity product strategy. Jackson played a pivotal role during the acquisition of Liquidnet by TP ICAP Group, ensuring a smooth transition during the integration process.

Alongside his various equities roles within the market, Jackson has previously been co-chair of the FIX committee for EMEA, an advisor to the UK Government office for science on the future of computer trading in financial markets and a founding member of the OpenTCA initiative to promote transparency and standards in transaction cost analysis (TCA). In April, he took part in a charity bike ride home from the TradeTech Europe 2023 conference in Paris in aid of Farms for City Children.

Stéphane Marie-Françoise, director, multi-asset trader, Unigestion

Senior vice president and multi-asset trader at Unigestion, Stéphane Marie-Françoise, has an extensive financial markets career spanning more than 20 years. Beginning his career at Dexia Securities as a financial analyst assistant in 2002 he has since gone on to serve at CPR Asset Management, Amundi and Unigestion.

After joining CPR Asset Management in 2002 in a middle-office role, Marie-Françoise rose through the ranks, joining the dealing desk in 2005 in an equities program trading and derivatives position. He later took responsibility for the dealing desk in 2007, managing a team of three traders. Marie-Françoise moved to Amundi as a senior execution trader in 2012 before eventually joining Unigestion in 2013 in a multi-asset capability as a vice president and multi-asset trader. He was promoted to senior vice president in 2018, later taking on his current role as director and multi asset trader.

Marie-Françoise was recognised as one of The TRADE’s Rising Stars of Trading and Execution in 2017. He is a continued thought leader in the industry, particularly in the multi-asset sphere, and was subsequently awarded the Buy-side Market Structure Expert of the Year award at Leaders in Trading 2022 by The TRADE after an industry vote.

Matt Mcloughlin, chief commercial officer and partner, Liontrust Asset Management

Former TRADE Rising Star of Trading Execution, Matt McLoughlin has nearly two decades of financial markets experience, including the last eight years he has spent at Liontrust Asset Management. He began his career at the UK’s HM Treasury, before moving to AIG Investments to manage fixed income funds.

He subsequently spent six years as a senior trader at hedge fund RAB Capital before moving to Legal & General Investment Management to trade global equities and derivatives. Following this, in 2015, he shifted to Liontrust to run the trading desk. He assumed the role of chief commercial officer at Liontrust in April, now overseeing the development and commercial strategies of the Group as well as maintaining oversight of the trading desk. Under his stewardship, Liontrust was awarded the Multi-Asset Trading Desk of the Year and Mid-Cap Trading Desk of the Year by The TRADE in 2022 and 2017 respectively.

McLoughlin is a committed contributor to industry discussion and to the development of new talent in the markets. Alongside his core roles, McLoughlin is a director and board member of The Plato Partnership, a member of the Liontrust Investment Partners LLP Management Committee and a member of Liontrust Product & Distribution Committee, as well as having numerous committee memberships at the UK Investment Association.

The post Leaders in Trading 2023: Industry Person of the Year shortlist revealed appeared first on The TRADE.

Stephane Marie-Francoise

Marie-Francoise: Everything starts with the desire from the investment team to develop a multi-asset class strategy offering. From that point, you can decide if you want to build an infrastructure and a scalable trading platform across the business line – harmonising the workflow and automation – or to externalise. If you think that you will have the volume and the capability to trade across the multi-asset class internally, you will take this road and will choose to build the infrastructure. This gives you flexibility to be able to trade across multi-asset classes internally, asset managers can adapt their strategies and take advantage of market trends or mitigate risks. At Unigestion, for example, we took this road seven years ago when we integrated a multi-asset team.

Champenois: To add, one needs to consider the size of the business. Multi-asset trading desks are much more appropriate for small- to medium-sized organisations as you often operate with smaller teams and trading flows. This makes the multi-asset trading setup easier to implement compared to larger institutions running several 100 billions of US dollar assets under management.

What are the key challenges associated with operating as a multi-asset trading desk?

Eric Champenois

Champenois: As you can imagine, it takes some time and requires a lot of IT development resources, with significant costs attached to that. One needs to have a proper budget to be able to implement such a setup. It’s also a challenge to harmonise the workflows and to select the right trading system for the right asset.

There are also some impacts from a human standpoint as it requires a change of trader skillset. Historically, at Unigestion, we were much more focused on equity trading, and when we took the shift to a multi-asset trading model, traders had to get up to speed on the trading of a wide range of new financial instruments. There is therefore a learning curve that can take some time depending on the complexity of the investment strategies and the underlying instruments.

The adaptation to market standards can also be challenging because not all the instruments are trading the same way and this brings some more complexity when setting up harmonised trading workflows. As an example, electronic trading and automation on equities is a well-established workflow in the industry, whereas some other asset classes such as interest rate OTC derivatives are much more traditional in terms of the way they trade, although some progress has been achieved in the last few years, especially with clearing and in light of electronification.

The last challenge is more from a risk and compliance perspective. You need to be able to understand the strength of each counterpart, because a broker might be good in one asset class but not in the others. It is important to understand all the compliance or regulatory factors because the pragmatics are clearly different between the asset classes.

How can signals in one asset class have implications across other assets?

Champenois: Signals in one asset class often have implications across other assets due to various interconnected factors in the financial markets. Macroeconomic data, investor sentiment, market dynamics and geopolitical events can influence these factors. The impact can obviously vary depending on the context. Having a multi-asset trading desk gives a clearer overview of the interaction between all these instruments and adds value to the investment process.

From a technological point of view, and as previously mentioned, there is a lot of maturity in certain asset classes such as equities. There’s always a wish to reproduce a very streamlined STP workflow, like from equities for example, and to bring it to other asset classes to make it easier to trade, as well as to streamline the process behind the trade. Essentially, trying to reproduce this kind of model. However, the technological capabilities for some instruments are not growing as fast as we at Unigestion would like. Here, for example, equity trading is 100% STP, with listed F&O, foreign exchange and cash bonds the same, and for some other remaining asset classes we still have some manual processes in place. We do our best to streamline all these processes when suitable technology becomes available and ensure that we can at some point get full automation and a scalable environment.

How can multi-asset teams help identify risks and build tools to access greater outcomes?

Champenois: Mitigating operational risk is core for a trading desk. Building STP workflows and ensuring execution velocity is a priority to minimise risk.  At Unigestion, it has really been a core focus and it has always been part of our corporate DNA – we want to make sure that we have a good assessment of risk at all times. As a trading desk, we ensure that automation is part of our processes as far as possible. We also need to ensure that the platform is scalable. If you have a proper multi-asset trading desk in place, you should be able to handle all asset classes and automate processes as much as you can so that you can easily grow your business without necessarily growing your structure massively.

Transaction Cost Analysis (TCA) also helps us minimise risks from a cost perspective as it gives better visibility and transparency on implicit costs from an investment perspective but also allow us to better assess our brokers. Thanks to those types of tools, traders can monitor execution costs (in real-time and post-trade), meet compliance requirements and adjust trading strategies if needed to improve portfolio implementation.

How are firms adapting their working practices to compete with the tech industry and attract top talent?

Marie-Francois: Fintech companies are the place where the young talent tends to go to because I would say the work style is seen as more attractive. Traditional finance or asset management doesn’t have the same traction it had 10 or 20 years ago, so our industry needs to adapt to that if it wants to attract the best talent. Covid helped in a certain way, with greater flexibility, but the industry probably needs to do more.

Secondly, high-tech companies are more innovative by nature, giving employees a deeper sense of purpose. There’s a lot of freedom for young talent to create applications and to do some individual work which they are recognised for. Also, financial companies need to convince prospective employees that they can have a positive impact on the world in the future. Finally, from a career growth perspective as well, finance companies need to reinvent themselves to provide new projects and new outcomes for young talent, so they can have long-term views on their future career. If you give long-term projects, young talent is more likely to stay committed to the firm.

What sort of tech innovations are helping facilitate the shift to multi-asset trade?

Marie-Francoise: Innovation is definitely coming from the traditional third-parties, such as the EMS and OMS providers. They started this process a couple of years ago with algo wheels, making life easier for traders to focus on important trades. They keep going into this path by innovating and trying to make their EMS or OMS more multi-asset. A couple of players are doing this quite well, although they are at the stage where they are multi-asset, just as a staging point. A trader can see everything in one place, but they still need to have the other software to execute other asset classes.

The second one comes from fintech companies, in terms of interoperability. They actively try to make the bridge between the different software by asset class and to make it simple for the user. Finally, the last part comes from the exchanges themselves. They try to bring more volume and activity to the listed venues in order to increase transparency by asset classes.

The post Fireside Friday with… Unigestion’s Eric Champenois and Stephane Marie-Francoise appeared first on The TRADE.

How can you leverage TCA innovation to generate better efficiencies across asset classes and markets?

Equity TCA has been existing globally for a number of years and is therefore much more matured compared to TCA on any other asset classes such as FI, FX and listed derivatives.

As of today, the lack of accurate data and the need of standards is particularly pronounced for fixed income transactions and over the counter (OTC) markets in general. Intraday data may not be available in many derivative or fixed income instruments making the use of the TCA not relevant. The request for quote (RFQ) workflow on FX justifies a limited use of the TCA as most of the costs are standardised across the brokers. Nevertheless, the fact that different asset classes can have similarities in terms of liquidity profile or regulation justifies the use of the TCA. There remains a huge amount of future potential for TCA in general once more clean data is available at a decent cost. Equity TCA is the most advanced and can be taken as a reference to improve and strengthen the other assets classes, we just need to adapt the metrics for each asset classes.

How can TCA allow traders to better interact with and visualise liquidity across asset classes?

TCA has become one of the most important components for buy-side trading desks in recent years. It gives the trader a quantitative measure and a deep analysis of exactly what has happened with each and every execution. TCA gives traders insights to better assess the difficulty of their trades in pre-trade, during the execution with real-time fills, and a deep overview in post-trade. There is a big topic at the moment about real-time TCA. I think it is at a too early stage because there is yet to be a strong solution. We have tools with some providers already but they are limited in terms of scope and options. I think we can do better and I trust the brokers and execution management systems (EMS) providers to deliver in the coming months. Brokers already have tools including machine learning (ML) or artificial intelligence (AI) which feed their SOR to improve trading decisions or behaviours of their algorithms. If we could have those kinds of tools available it would help the liquidity search and avoid toxic venues, while also readjusting size to avoid adverse selection etc. We could get the information in dedicated dashboards and/or alerts directly integrated into our EMS.

Do you think institutional interest in trading cryptocurrencies and digital assets is ramping up and how do you expect TCA to be evolved to reflect this?

Definitely, the appetite is growing. The high returns generated in the past and the endless innovation around the blockchain technology and decentralised finance (DeFi) are two sources of expectations. This asset class can bring diversification and can generate alpha. The limitations today are around the legal framework but we are making progress. TCA is a field that can be complicated because it relies on clean data. The cryptocurrencies world is still not that regulated and the prices can be different from one exchange to another. I think it is still at an early stage. Rebuilding a tape will be tricky. At the moment, taking an exposure to these assets is quite limited for our industry with the use of products like exchange traded funds (ETFs) which are expensive at the moment. I’m not sure if TCA would be a great help.

What limitations remain for multi-asset TCA, how can these be improved?

Certain asset classes such as fixed income are lagging in terms of TCA, and there is not a one size fits all. A good TCA relies on good (and public) data. Some tools just rely on the client’s data and it can mean the sample is not a good proxy of the market if the set of data is too small. Collecting data has a cost and companies will probably need to create a team to analyse it to justify the cost of spending. I think that as of today, most of the trading desks – except the big ones – use the tools included sometimes in the EMS (like we have with Virtu for equities and FXall for FX). To have clean, cheaper and consolidated data would be a game changer.

What role does automation play on a multi-asset desk, is full automation desirable?

As a multi-asset trading desk, automation is the key to success to strengthen order workflows. It helps traders to save some time so they can focus on more complex orders or code and develop other tools. Full automation depends on your style, your flows and your size. We went for partial automation as we think full automation may not be appropriate given our order flow. From our point of view and given the complexity of some of the orders we trade, there is little room for a full automation process which could incur any additional operational risk and unsolicited costs. We saw that during Covid where we decided to handle 100% of the orders by ourselves regarding the level of volatility in the markets. For larger companies it definitely makes sense especially when orders are liquid and small in dollar value.

The post Stéphane Marie-François: Exploring transaction cost analysis appeared first on The TRADE.

Among them is the Australian Securities Exchange (ASX), Germany’s Deutsche Börse, the Tokyo Stock Exchange (TSE), Mexico’s Bolsa Mexicana de Valores, the New Zealand Exchange (NZX), and arguably the most severely impacted markets operator, Euronext.  

The most recent outage at ASX occurred in November when the market was shut down for almost an entire day. Deutsche Börse experienced two separate outages during the year. The first lasted for four hours on its Frankfurt Stock Exchange in April, and the second in July on its trading platform Xetra which endured for almost three hours. 

Tokyo’s bourse, owned by the Japan Exchange Group (JPX), was forced to halt trading for almost an entire day in October, while Mexico’s main stock market was disrupted for half a day in the same month. In New Zealand, the exchange operator fell victim to a cyber-attack in a slightly different type of outage which nonetheless continued for a staggering four days in August. 

Elsewhere, Euronext reported a three-hour shut down in October with trading ceased across all stocks and derivatives across Europe. Just after trading resumed on the day of the outage, the closing auction disastrously failed. The following day, traders reported that some of their executions had the wrong buy/sell direction as the misfortune seemingly lingered.  

In a statement outlining what had caused the issue, Euronext apologised and assured market participants that action had been taken to ensure that a similar issue does not happen again. 

The result of such outages though has been felt by institutional investors globally. It has been particularly difficult for market participants to withstand the outages that gripped markets this year due to a surge in volatility not seen for over a decade. 

The pandemic led to a surge in trading volumes from both institutional and retail investors as people and organisations battled to work out what the events of 2020 could mean for various sectors and geographies.

“When the issue first occurred at Euronext, we thought it was like any other outage we had previously experienced,” says Stéphane Marie-Françoise, SVP, equities trading at Unigestion. “Whilst it was frustrating, the alternative exchanges played their role and the stocks continued to trade, albeit with lower volumes. The closing auction problem, however, could have been a more serious one for us if there had been a large inflow/outflow in our funds.

“Unfortunately, due to duties imposed by Euronext, we also had some prints cancelled and we had to complete the trading the next day. This meant we had to do some reconciliation work before re-entering the market, which was not an ideal situation but at the end of the day no damage was done.”

Systemic risks

Many market commentators and participants agree that the outage at Euronext was the most disruptive. The error with the Euronext closing auction after markets had resumed the day of the outage was a surprising and harmful event. The closing auction is by far the most important phase of the trading day. 

Closing auctions occur across national stock exchanges once continuous trading has ended and allow the fundamental process of establishing fair closing prices on securities to be carried out. The percentage of total trading volumes that takes place at the close has dramatically increased in Europe in recent years.

“Outages that close the whole market are really unusual,” adds Marie-Françoise. “Euronext’s communication and the way in which it handled the situation was very poor, but the brokers did a great job disseminating information and they helped their clients with position reconciliation. 

“The exchange is now being challenged on its closing auction mechanism and it has strengthened the case for alternative closing auction mechanisms. Furthermore, more questions have been raised on the concerns on the monopoly of exchanges.”  

Questions have indeed been raised about larger exchange operators such as Euronext that operates multiple key markets across Europe. Following several acquisitions in recent years, the exchange group now owns exchanges across Europe and the technical glitch saw trading immobilised in Belgium, France, Ireland, the Netherlands and Portugal. It is currently in the process of also acquiring Milan-based stock exchange Borsa Italiana. 

The stock market consolidation that has accelerated in recent years has brought to light the operational and systemic risks of a single large exchange owning and operating multiple other exchanges. 

“We are seeing the bigger players hoover up the smaller players to try and consolidate the market down to a small number of large players, which is causing a lot of change,” says Guy Warren, CEO of technology provider and financial operations specialist, ITRS. 

“Euronext is looking to standardise its exchanges onto the Optiq platform that it provides, which is a lot of change going through markets that otherwise would have been stable. If you have extended changes going through, there will be more opportunity for problems or an outage.

“Even if there are other venues that you could trade those shares and get that liquidity on the important stocks, but most traders won’t trade without the volume that goes through Euronext, because that’s the benchmark. So, in fact, it can be massively disruptive because in an outage the other venues stop trading the Euronext securities.” 

Weak responses

ASX, Deutsche Börse and Euronext blamed the outages on third-party software issues, while JPX pointed to a hardware error. Warren argues, however, that blaming either third-party software or hardware are weak responses to outage instances as exchanges should not have a single point of failure.

Maybe pointing to third-party systems was considered a means of providing some clarity to market participants that it wasn’t the operator’s code. But whether it’s a third-party system or their own, exchange groups are responsible for its quality and availability. Such important institutions perhaps should not have gone live with a system or hardware if it could not provide the performance required. 

Regardless of the reasons behind outages, whether that’s technical glitches or third-party software provider woes, the most difficult element for exchanges when trading goes offline is knowing when it’s safe to get back online.

“The problem is knowing when you’re healthy again. You’re under pressure the entire time you’re out to bring the service back as quickly as possible,” Warren explains. 

“In Euronext’s case, would it have been better to stay down the whole day, work out exactly what the fix was and come back live the next day? Or get it back in three hours only to find that that auction process can’t function? There may have been some calculated risk in that scenario in terms of not knowing for sure if the closing auction would work properly. Unfortunately, in that case it didn’t.”

More must be done to ensure that global financial markets are less vulnerable to both outages and cyber-attacks, as apparently demonstrated in 2020. While some believe regulators must step up and do more to stop the reoccurring instances of disruption, others see the problem as systemic. 

“In Europe, when the traditional primary market closes, all other trading seemingly stops as well,” says Richard Worrell, head of EMEA equity trading at Janus Henderson. “We need to address this failure by reviewing where market infrastructure, including index price calculation and the closing price mechanism, is yet to adapt to the MiFID II competitive framework. This is not a criticism of any exchange but if we really want truly efficient capital markets, we must improve and collectively work on solutions.”

Regulators are indeed looking at the issue and hope to bring in new rules that will address the issue. While disruptions such as Brexit may have forced the problem to the bottom of the pile, there is light at the end of this blackout tunnel. 

New regulation dubbed Operational Resilience, tipped to come into force in 2021, will force change in operations for the financial industry. The UK’s financial watchdog stated in late 2019 that Operational Resilience is a step change, where it expects firms to be forward looking and making decisions now to prevent harm tomorrow.

“To not be able to trade almost ¤4 trillion in equities for three hours is just unacceptable. Operational resilience should say that you cannot prioritise your profit over providing a service. The regulation should say buy the tools or bring on board the expertise, whatever it takes, or I will take your license away. I can’t let you prioritise profit over delivering a resilient service,” Warren concludes. 

The post Blackout 2020 appeared first on The TRADE.

Eric Champenois, head of the multi-asset trading desk, and Stéphane Marie-Françoise, senior vice president for equities trading, Unigestion

 Integrating trading of new asset classes in a straight through processing (STP) model is no mean feat. As buy-side trading desks continue to migrate towards multi-asset operations, harmonising workflows and ensuring talent across instruments being traded are at the same high standards can be a real challenge.

For Geneva-based specialist asset manager Unigestion, with $19.7 billion in assets under management, the formation of the cross-asset solutions team several years ago meant that Eric Champenois, head of the multi-asset trading desk, and Stéphane Marie-Françoise, senior vice president for equities trading, were about to tackle that challenge head-on.

“As of today, we trade everything. The bulk of what we trade is definitely equities, but we also trade a lot of futures and options, rates, bonds, credit derivatives and FX,” Champenois tells The TRADE. “We are quite active in most asset classes now. When we moved to an STP model, it was absolutely vital the operational workflows across those additional asset classes were as good as what we had already established. For us, the challenge was replicating the stability we had achieved in equities.”

Handling new investment strategies with new asset classes meant handling and implementing new systems. Following a widespread review of its IT infrastructure and an in-depth due diligence exercise, Unigestion selected a global front-to-back portfolio and order management system (OMS), and several dedicated execution management systems (EMS).

The asset manager has a large proportion of clients based in Europe and the team decided the business would be best placed adhering to Europe’s principal, and arguably most burdensome regulatory regime, MiFID II. With this in mind, the trading desk was split. Champenois and Marie-Françoise are trading out of Geneva, while ex-BlackRock trader Frank Galouzidis and former British Steel Pension Scheme trader Edward Gladwyn operate from London.

“It made sense from a business perspective for us to have front-office activities in London,” Champenois explains. “We had gained more clients in the UK and although it was challenging, we knew in that sense we had to be global. We can say today the platform is truly global, it’s a multi-asset platform and all of our traders are using the same systems.”

He says the team were handed complete control by the most senior managers at Unigestion when reviewing and choosing which vendors to work with as the trading desk shifted to multi-asset and the business became MiFID II compliant. This, Champenois says, made the process and decision-making far smoother, as they were essentially handed a blank cheque to choose the very best option for the trading desk.

“The regulation is of course a very important point,” Marie-Françoise, recognised Rising Star under The TRADE’s Rising Stars of Trading Execution initiative, and two-time nominee at The TRADE’s Leaders in Trading buy-side awards, adds. “There was a lot of additional administrative work and adjustments that needed to be made to the trading platform. We are now closely tied to MiFID II in terms of systems and processes, despite it being very new to Switzerland and our desk being a bit of an exception in Switzerland.”

In-depth discussions with peers and brokers were perhaps the most important tool for the traders when implementing such vast changes, and in becoming a MiFID II-compliant asset manager. Brokers also provided additional and regular training sessions to help the traders in Geneva and London, most of whom had a strong background in equities trading, gain the required expertise to trade the new instruments.

“It was an obstacle to overcome in terms of gaining the expertise for trading these new asset classes and to work with the most appropriate counterparts,” Champenois explains. “We are still learning every day, and the real benefit I would say comes from the proximity we have with the portfolio managers. We are interacting with them constantly and discussing strategies or pricings on a daily basis. Our brokers were also key partners in training and providing us with advice.”

Extreme market conditions

The new multi-asset set-up, which had taken Champenois and his team several years to fine-tune, would prove useful come March this year. News of the global spread of coronavirus hit markets hard at the end of the first quarter in 2020, with volatility reaching levels unseen for a decade. As spreads widened, market depth plummeted and some brokers pulled back from the market entirely, trading floors across the world closed and the industry was forced into a remote working environment.

Unigestion was not immune to the developments, and as a global asset manager with a footprint in Europe, North America and Asia, the business acted fast to ensure the safety of its staff. All employees were asked to work remotely at the peak of the pandemic, except for a few sensitive departments where weekly rotations and safety precautions were put in place to guarantee continuity of services to clients. This applied to trading, risk, IT, and logistics.

“Given the fact that we have been extremely active in terms of flows, everything has been pretty smooth technically speaking,” Marie-Françoise says. “Of course, markets have been extremely active, but coverage has been super steady and there was no disruption to trading.”

Communication, as most workers in any industry would likely agree, was impacted both internally and externally. Ensuring instructions were efficient and clear for everyone from the traders, brokers, portfolio managers through to operations has been a focus for the entire community.

Champenois outlines how at the height of the market volatility, it became more and more difficult in terms of communication with brokers. Traders were quick to turn to electronic channels to gain access to the market and ultimately get business done as high-touch desks became less reactive under the strain.

“Brokers were busy and there was sometimes a lack of reactiveness, especially in the derivatives space,” Champenois adds. “If you were relying on a high-touch desk, then you risked losing a lot of time and not getting anything done. The quickest way to trade in those severe market conditions was through electronic platforms, which were robust and suffered no disruptions.”

In options, Champenois and Marie-Françoise agree the volatility was particularly extreme. With large options trades, the desk often opts for request for quote (RFQ) with its counterparts, but they explain the quotes and prices were so wide that in most cases they didn’t want to trade. In the end, it was easier and more effective to go on-screen with direct market access (DMA) and avoid losing precious time amid wild price swings across the market.

“I think the sell-side did the best they could under the circumstances,” Marie-Françoise says. “It was clear that some of their taskforce was at home, others were in the office, but everyone was all over the place. We are a bit more centralised, so maybe the way in which brokers are set-up made the process less effective. It is an unprecedented situation and we have all had to adjust to the new landscape. Fortunately, the DMA and electronic channels were our safety net.”

For algorithmic benchmark-style usage, Champenois and Marie-Françoise witnessed market participants increase their adoption of percentage of volume (POV) and implementation shortfall (IS) amid the volatility to minimise risk and opportunity cost.

Unigestion’s trading desk also adapted its processes and strategies to combat the high intraday volatility and handle large rotations, depending on the nature of the flow. When using an IS benchmark, Champenois explains the open slippage sometimes multiplied two or three times in less than an hour making it even more difficult to trade.

Both traders had agreed with investment lines to be more passive for multi-days USD neutral rotations and sliced orders gently during the day rather than act aggressively. In these cases, they switched from IS benchmark to volume weighted average price (VWAP) benchmark, knowing that from a transaction cost analysis (TCA) perspective, it is their main valuation metric. While this meant risk increased slightly, in the end everyone agreed it was better to get the trade done.

“The thing with these rotations is that you may have two or three days of volume to trade on some stocks and the opportunity cost and open slippage we were moving so much in such a short amount of time that to us, it didn’t make sense for us to trade quickly,” Champenois explains.

“That’s why communication between traders and the portfolio managers has to be extremely smooth because we have to make these decisions quickly. It is so important to communicate efficiently – not sitting next to each other was very difficult.”

When it came to single stock orders however, the traders shifted towards more aggressive DMA and liquidity seeking strategies, a trend which they agree other market participants had also adopted to ensure the trade was done in a quicker time frame. Interaction with periodic auctions and dark liquidity seeking strategies were also more widely used.

“Looking at the volume curve, we noticed the way liquidity was forming during the day had shifted compared to other market events,” Marie-Françoise explains. “Although the close was still a huge part of the day, we noticed it was slightly lower than it used to be. Traders were avoiding the open too, and executing in a more closely fitted time frame through venues like periodic auctions more than usual.

“Liquidity on-screen was also larger than usual, in some cases two or three times larger – but with a trade-off. Do you want to sacrifice however many basis points to get the trade done, or do you want to try your chance somewhere else? I’d say the fragmentation we had before has tilted towards dark and auction venues. We certainly used those venues more. When analysing the TCA regarding our algo strategies, it showed we were very much involved in the periodic auction more so than usual. It was very efficient to be fair.”

Evolving partnerships

Champenois and Marie-Françoise place extreme value on their partnerships with vendors and system providers, similar to the value they place on their relationships with brokers. They are in constant communication with their EMS providers, seeking custom development and training to get the very best out of the platforms the trading desk is using. In return, the trading desk plays a role in testing new systems or upgraded versions for their vendors, and providing valuable knowledge of trading that the firms may not have.

Relationships, whether that be with vendors or brokers, have evolved in recent years for the trading desk at Unigestion. Upon becoming MiFID II compliant, and as the fallout from the separation of payments for research and trading under unbundling played out, Champenois and Marie-Françoise noted a shift in some of the broker partners.

“When MiFID II introduced unbundling, we saw the level of service with some of our brokers decrease quite significantly,” Marie-Françoise explains. “We didn’t want that and opened up discussions with some of these brokers. We reached a point where our broker list was reduced, but I would say our relationships with our brokers now are stronger than ever. Several years ago, we were just a number to some of our brokers, but that has shifted and we have become solid partners. We offer them good commitment because we give them a good amount of business, and in return we expect a good level of service.”

Like asset managers in Europe, Champenois and Marie-Françoise are keeping a close eye on the ongoing review of MiFID II. They agree, as many other market participants would, that a consolidated tape for trades and quotes should be prioritised to improve transparency, strengthen best execution, and boost competitiveness.

Both note the regulator’s lack of commitment in laying out plans for the tape, and point to the recent consultation on the MiFID II review which also seemingly lacked commitment in terms of which direction the regime will be heading in the future.

“We would have liked to see things move faster,” Champenois says. “These topics around the consolidated tape and MiFID II have been circulating since MiFID was introduced and they have still not been applied. We may see a new version of MiFID II soon, but as of today, it is unfortunate that it has taken so much time to have something concrete in place.”

On the potential changes to dark trading and the double volume caps (DVCs), Champenois adds the adjustments put forward by the European Securities and Markets Authority recently could be problematic from a technological point of view. Brokers and the buy-side have developed tools to monitor and take into consideration the data to trade.

Imposing changes to systems to accommodate adaptations to the DVCs after three years would prove burdensome for many market participants, he says. Dark venues would also likely see an uptick in market share, at the expense of lit markets. For Marie-Françoise, the increased fragmentation and complexity born out of the MiFID II regime is further highlighted by the simplicity of trading Swiss markets nowadays.

“In terms of MiFID II, the addressable liquidity is very difficult to evaluate and the more venues you have the more difficult it becomes. If you don’t know the right venue to go to then you simply don’t have the liquidity,” Marie-Françoise says. “Even for the brokers, constantly having to adjust their algorithms and strategies, it’s very complicated. Systematic internalisers have not really played their role either, and the size they offer is very low for us.

“On the opposite side, in the Swiss market, there is very little fragmentation since the EU decided not to renew equivalence. With just one dark venue, we find it much easier than before to trade – even in illiquid names. The liquidity on-screen is just magnificent. Of course, there is spread. But if you remain passive or stay mid-spread on the bid/offer, you will always get your business done. I would argue we may not need this complexity and Europe should be far less complex than it is now.”

Champenois and Marie-Françoise concur that automation and technological improvements implemented recently, and as they became a MiFID II-compliant multi-asset operation, has also ensured their processes are as efficient as they can be.

Market structure issues remain, whether that be the ongoing MiFID II review, the share trading obligation or lack of intraday liquidity. But both traders continue to prioritise relationships with brokers and vendors and expanding their expertise across asset classes, but most importantly, continuing to deliver for end clients.

“The main point for us at Unigestion is that we are continually looking to manage risk – this is part of our DNA,” Champenois concludes. “It is our main priority and the trading has to operate smoothly with a controlled operational risk across all asset classes – and we already have this in place. Sure, we have room for automation in some areas, but we are different from other asset managers. For us, a full automation could in fact add additional risk.

“With recent developments, all market participants are in the same position. Liquidity has been good in terms of flows traded, but stress and volatility have spiked and transaction costs have increased heavily since the beginning of the year. But on that, we have been able to deliver good results overall for our clients. I don’t see why we can’t continue to do that and improve further on that throughout the rest of the year.”

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The disagreement in question centred on Switzerland’s equivalence status, which the EU decided not to renew on 30 June, the result of which meant that EU-listed securities could no longer be traded in Switzerland. In response, Switzerland moved to ban Swiss shares from being traded on venues within the EU the very next day. The result is that European traders can only trade Swiss equities on the SIX Swiss primary exchange via a recognised broker, or through a systematic internaliser (SI) operating in the EU, as the ban does not apply to over the counter (OTC) activity. 

The impact, traders feared, would be severe. Historically, around 30% of Swiss equities are traded on EU-based venues such as Cboe Europe, Turquoise and Aquis Exchange, and the ban implemented on 1 July saw more than 300 stocks delisted from those venues. The primary concern was that less competition and choice in Switzerland would drive the costs of trading up over time. Several weeks later, high-speed trading firm and market maker Virtu Financial published a damning report, which stated the fears of increased trading costs had indeed been realised. 

“While the impact to end investors from ending equivalence of Swiss stocks is not fully understood yet, we do observe increases in trading costs for the 100+ institutional managers included in our peer universe, with small and mid-cap Swiss stocks becoming around 20% more expensive,” Virtu Financial said. 

“With essentially only two options to source liquidity now (SIX Exchange for lit liquidity or SIX SwissAtMid for dark liquidity), anyone capturing mid-price liquidity is going to trigger a reaction on the SIX lit market from other market participants who need to cross the spread (as all other lit options have basically disappeared), thus further driving away the price on the main lit market.”

SIX Swiss Exchange, however, tells a different story.

The new landscape

Immediately after the non-equivalence decision, trading in Swiss stocks moved from the EU-based venues and multilateral trading facilities (MTFs) to the SIX primary exchange and its dark venue, SwissAtMid. SIX Swiss Exchange gathered statistics from independent data providers, including big xyt and IHS Markit, and found that SIs and OTC did see marginal increases in activity, but the primary exchange picked up the bulk of activity. 

“I don’t think I’ve ever been so popular in my life to be honest, with the amount of phone calls I received immediately after the decision,” says Tony Shaw, executive director for London at SIX Securities and Exchanges. “It was a surprise for some market participants and certain aspects, such as the dual-listed securities, did cause a few headaches for some. But overall, if you speak to the market now, they say that the market is operating efficiently.”  

Looking at the percentage of average daily turnover in Swiss equities, the statistics show that volumes in SIs increased from 22% of market share in June prior to the ban, to 25.6% the following month, while OTC activity increased over the same period from 20.8% to 23.3%. The SIX primary exchange  swept up the remaining volumes from MTFs, with a significant increase in share from 37% in June to 50.9% the following month. 

By September, the data from SIX Swiss Exchange shows a clear shift in market structure as the fallout from the non-equivalence decision becomes more apparent, with SIs, OTC and the SIX primary exchange making up 23.9%, 23.3% and 52.7% of the average daily turnover in Swiss equities respectively. 

Overall, however, trading volumes in Swiss equities were down in the months of July and August, before activity picked up again in September. The decline during July and August could be attributable to the summer period when volumes are generally lower.

SIX Swiss Exchange demonstrates through data from IHS Markit and its own database that relative spreads in blue chip and small and mid-cap stocks did widen slightly in August. Come September, however, spreads narrowed significantly. Despite the findings of Virtu Financial that spreads in Swiss equities had widened considerably in the in the wake of the non-equivalence, the data reveals that relative spread in blue chips narrowed from 4.0 bps in June, to 3.6 bps in September. Similarly, relative spread for small and mid-cap Swiss stocks narrowed from 20.4 bps in June to 18.9 bps in September. According to Shaw, spreads could tighten even further as traders and algorithms adapt to the new Swiss trading landscape. 

“It takes a while for the liquidity providers to recalibrate their algorithms from fragmentation to just the one venue,” Shaw explains. “You can see this in the data, they almost back away from the market immediately after the decision until they have sufficient data to come back in. I expect that over time the spreads will tighten even more as the liquidity providers get more comfortable with the risk profile of the market. The more comfortable on risk they are, the tighter they will start quoting, and we are seeing that with one or two of our members already.” 

At the same time, the order-to-trade ratio declined significantly following non-equivalence in July from seven – meaning that for every seven orders, one is executed – to four in September. Shaw says that this shows greater certainty of execution on the order book because the liquidity is concentrated on a single venue, so traders are more likely to get a fill. Subsequently, the number of updates in the order book dropped considerably, with the average daily number of price updates in blue chips declining from just under 8,000 in the second quarter 2019, to just over 5,000 in the third quarter. 

Positive development 

This picture painted by SIX Swiss Exchange since non-equivalence, with tighter spreads, greater certainty of execution, and a less ‘noisy’ order book, coincides with that of buy-side traders, many of whom agree that the political development and removal of fragmentation introduced under MiFID I has, in fact, turned out to be very positive for the buy-side, despite the initial sense of cautiousness.   

“What has happened with Swiss equivalence has been great for us. We are seeing more liquidity, which is evenly distributed throughout the day, less volatility and tighter spreads,” says one London-based asset management trading head who spoke to The TRADE on the condition of anonymity. “We are back in a situation pre-MiFID I where there was only one exchange. Nobody really wanted the fragmentation that came with regulation, and with Swiss liquidity there’s no reversion because all of the liquidity is one place.”

For domestic asset managers, the outcome of non-equivalence has been similarly positive. Eric Champenois, head of the trading desk at Swiss asset manager Unigestion, says that not only has the concentration of liquidity on a single venue led to great operational efficiency, it has also seen the costs of trading decline. 

Champenois states that in certain small and mid-cap Swiss securities, his trading desk saw a hugely significant 25% reduction in spread in the third quarter of 2019 from around 4.5 bps in the previous quarter to 3.3 bps. Similarly, spreads in the blue chips, he adds, have narrowed quite heavily by more than 10 bps in some cases.

“Generally speaking, we saw a real improvement in terms of liquidity, and trading on one exchange is making things a lot easier for us. It’s more transparent and our execution costs have been declining as well,” Champenois explains. “Immediately of course, we saw trading volumes move to the Swiss Exchange. Before the non-equivalence decision, we saw around 73% of flow traded on the primary versus 27% traded on the MTFs. Now, 100% of that flow is traded purely on the Swiss Exchange and it’s been a very positive development for our trading desk.

“For Swiss equities we do a lot of electronic trading compared to other regions. We use a mix of DMA (Direct Market Access) and algorithms, and I would say there hasn’t been a substantial change in our strategy or methodology. However, venues like SwissAtMid have been a good addition to our workflow in the dark space. If you look at our statistics in terms of execution venues, we see clearly the benefits of more midpoint crossing opportunities with SwissAtMid. Most of the brokers we know have been connecting to SwissAtMid over the past few months, and the algorithm we use is seeing massive flow to the venue.” 

Resting block liquidity 

SwissAtMid, SIX Swiss Exchange’s dark venue, has arguably been the biggest winner of the removal of Swiss equivalence. Prior to the decision, SwissAtMid held around 40% of the Swiss dark market, competing with the likes of Turquoise, UBS MTF, Cboe LIS, Goldman Sachs SIGMA X MTF, ITG Posit and Instinet BlockMatch MTF. By September, SwissAtMid absorbed all the dark flow in Swiss equities that was previously traded across other dark pools. At the same time, the market saw more dark trading in the third quarter of 2019 following non-equivalence compared to the prior quarter. 

“It’s important here that there is actually more dark trading happening now than before, meaning that the pie isn’t getting smaller,” SIX’s Shaw says. “Furthermore, we see that a significant 86% of resting liquidity in SwissAtMid is large-in-scale, providing market participants with greater ability to get that block by interacting with larger scale volume that’s coming in.”

Switzerland is not subject to MiFID II’s double volume caps, which restrict dark trading across Europe, and there is significant block liquidity resting in the SwissAtMid dark pool. If there’s one thing traders are seeking, it is block liquidity and the ability to cross without moving the market. Due to the lack of restrictions on dark trading, rather than establishing periodic auctions or large-in-scale liquidity pools as many exchanges across Europe have done to help market participants manage the requirements, SwissAtMid now encompasses all of the dark volumes, including block liquidity. 

There are several key features on the dark venue which could help SIX Swiss Exchange retain the increase in activity should the political climate shift and equivalence be reinstated. SwissAtMid has introduced new order types, including the limit plus and iceberg plus orders for dual representation in both the lit and dark order books, to help traders navigate and interact with SIX as a single venue. SwissAtMid also offers ‘sweep’ functionality, which essentially means traders can choose whether to post an order in the dark and rest there until the other side is found, or they can sweep from the dark book straight through to the lit book to find the other side. For those looking to ‘aggress’ the order book rather than resting liquidity on the central limit order book, there is a chance to match midpoint on the way through, so there is potential to save half the spread. 

The sweep functionality may not be unique to SwissAtMid, but the fact that it sits on the same matching engine as the lit order book is. It means the venue looks at orders in the same cycle, removing the potential risk of getting ‘gamed’ on the way through as nobody can get ahead of your order. This feature is also particularly attractive to those posting liquidity because it means fills are more likely; the more comfortable liquidity providers are with the venue, the tighter they will quote. 

Hanging on

“Equivalence with the EU is desired by SIX as we believe that in the long-term it is beneficial to the Swiss financial centre, offers a fair and level-playing field for competition and is wished for by investors and clients/market participants,” reads SIX Group’s official position on equivalence. 

There are several scenarios whereby the market could see the end of non-equivalence. The UK’s departure from the European Union means it will become a third country to Europe, so technically the UK and Switzerland could recognise each other, in which case the UK-based MTFs would likely pick up that volume up again. Switzerland could also sign the trade agreement which started the disagreement in the first place, or the EU could move to renew the equivalence. 

“The Swiss exchange needs to do something to hang on to that liquidity,” the London-based buy-side trading head adds. “Our algorithms and smart order routers are now pre-programmed to go to one exchange, and if we see more exchanges in the future in light of further developments, there is no reason that liquidity should go back to the other exchanges. It has been interesting to see this play out in the market. We measure the transaction cost analysis on SwissAtMid, and we are getting great execution.”

Much like Brexit, it’s unclear how this will play out, but it is clear that there is an opportunity for SwissAtMid and SIX Swiss Exchange to retain the surge of activity and volumes that it has seen in the third quarter this year. As SIX Swiss Exchange is now the only game in town, so to speak, it has seen an uptick in the use of its services whereby traders who may have only interacted with the central limit order book are now also using the dark venue. 

It is, in some sense, becoming increasingly unlikely that in the event of renewed equivalence the market would see an ‘elastic band’ effect, with volumes returning to the MTFs and European venues. With the new functionality, recalibrated algorithms and smart order routers, SIX Swiss Exchange might just retain its spot as the third-largest exchange operating in Europe. Although, as Shaw concludes, the group is not leaving this to chance. 

“We are not resting on our laurels,” he says. “We know that this isn’t a long-term development so we are looking to get more into the order book and improve. There is various new functionality that we want to roll out next year to further increase the attractiveness of our venue.”   

The post The only game in town appeared first on The TRADE.

Hywel Franklin, senior portfolio manager, global equities, UBS Global Asset Management

After graduating from Oxford University, Hywel Franklin joined UBS Global Asset Management in 2001 as a fund manager in equities and has remained with the buy-side firm ever since. Throughout his time with UBS, Franklin has worked his way up from fund manager to head of global small cap equities and eventually became head of thematic equities. He is currently a senior portfolio manager for global equities.

Stephane Marie-Francoise, vice president, senior equities trading, Unigestion

As vice president for equities trading for the past four years at Unigestion, Stephane Marie-Francoise is responsible for equities program trading and single equities, global dealing, pre-trade and post-trade monitoring and best execution. He has ten years experience and was the former head of the global dealing desk at CPR Asset Management. Stephane specialises in European, US, EMEA, Emerging markets, MENA and Asian equities.

Katie Ramsey, portfolio manager/trader, Vanguard

Katie Ramsey has held various positions at major financial institutions including Nomura, Credit Suisse, RBC and Macquarie Group. Ramsey is currently a portfolio manager and trader at Vanguard after joining the firm in November 2016. In addition to her trading role she is the founder of FinanceInterns, an online blog that soon became a mentoring and recruitment platform for graduates wanting to begin a career in trading and finance. She was also nominated for the Queen's Young Leader Award in 2015. 

Pasi Hyttinen, head of bond indexing and senior portfolio manager, Europe, Vanguard

Currently Pasi Hyttinen is a portfolio manager for the European fixed income indexing team at Vanguard after joining the firm in 2012. Prior to this, Hyttinen worked as a fixed income portfolio manager for State Street Global Advisors after joining the firm in 2008. His first portfolio management role was with Danske Capital the year before he joined State Street. 

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