STARTING FROM SCRATCH.

Eric Krueger, head of equities electronic, program and ETF distribution, EMEA, at Barclays, discloses the secrets to successfully building an equity franchise.

What was the driver behind the decision to build a European equity franchise?

The Lehman acquisition in 2008 gave Barclays a top-ranked US equity franchise. But to be truly global we needed to build a presence in both Europe and Asia. Barclays’ strength in the other asset classes proved that it knew how to build successful trading businesses, so it made the decision to build out Equities organically in Europe – a much easier one to make. Also, we could look at our US equity franchise as a template and quickly implement many of the things that made it so successful. Being a start-up has its challenges, but it also gives you the rare ability to build everything properly and to give your business a strong and flexible foundation. We had an advantage here because we did not have to deal with any legacy systems or infrastructure. Also, I think the past few years have been tough for equities in general and we were investing in our trading technology in a period when many others were focusing on cutting costs.

How did you think you could break into such a competitive industry?

Breaking into a very mature and competitive business is never easy, but there was a lot we could leverage from across the franchise when starting out. Barclays was already very strong in the other asset classes and we had a top ranked US equity franchise from day one. This meant that most of our clients were already executing with the bank in some respect as we built out our European capabilities.

Also, we have many competitive advantages thanks to the UK being our home market. We have been able to internalize much of our retail flow, which has helped our dark pool LX, and this gives us a unique liquidity proposition to offer our clients. Last year (2013) we were number one in UK IPOs and number two in UK rights issues. If you look at LSE volumes, we are already number three there. So, in a very short period of time, we’ve been able to show our clients a unique offering in both the US and the UK, which are two of the largest markets in the world.

What are some of the lessons that you have learned over the past few years?

That innovating and bringing new products, or ways of doing things, is crucial. The execution space is extremely competitive and even commoditised in some ways. We felt that the best way to break into a market like this was to continue to innovate and invest in our product offering. We wouldn’t have been as successful if we had just offered the same product as everyone else. We understand that we need to do things differently. An example of this is the automated capital commitment feature that we launched last year. This is on top of our most used strategies allowing our clients to access capital from us in an automated and anonymous manner. This product has helped our clients improve their execution performance and lower order duration.

Also, we are one of the few firms that is fully transparent in our trade reporting. We show if volume in a name has printed off our cash desk or via our electronic strategies. Our clients can use this information when deciding on how they’d like to engage with us to execute.

This is just the start, we will continue to work with our clients and bring new tools out to help their execution process.

What about your dark pool?

2013 was a great year for our dark pool LX. It is now the number one dark pool in the US and it was 2013’s fastest growing pool in Europe according to Rosenblatt’s figures. We learned a lot from our US franchise and were able to emulate many of the things that made them successful. For example, we also rolled out the Liquidity Profiling framework which allows us to monitor all participants in our pool on a real time basis. This allows us to grow our liquidity offering while protecting our clients from aggressive behaviour. Clients have become comfortable with how we police our pool and this has helped us grow.

How have you developed the research group?

The strength of your content offering is important to many clients and we invested a lot in this area. In Europe we took our time and hired many well-known and top-ranked sector analysts. This shows in the fact that we were number one in the year in the Starmine broker rankings. Also, the US research offering was very strong from the Lehman franchise. We can show our clients a strong global and cross asset product that is very unique.

What were some of your biggest worries building a business from scratch?

We hired a lot of people, from many different firms, in a very short period of time. These people all had different ways of doing things and maybe a different perspective on how the business should be built out. At first I thought that this might pose a challenge but I think it turned into one of our biggest strengths. Even though we all came from different firms, we all joined because we wanted to be part of this project. As a result, I think the teamwork we have is really rare. Also, we were able to implement many of the best practices from across the Street and avoid many of the mistakes that we saw in our previous firms. I think this all fed into the business as we built out and will continue to pay dividends in the future.

© BestExecution 2014

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