With Lee Porter, Head of Asia Pacific, Liquidnet
How is block trading evolving with new technologies?
Trading large blocks of shares remains challenging, particularly in markets where volumes are thin and spreads are wide. Technology has enabled traders across the globe, including those in Asia, to efficiently access liquidity without moving the market.
Technology has increasingly allowed investors to buy and sell large blocks of shares in a safe and secure environment. Our members understand the need for an institutional network, where volume discovery complements the price discovery on public exchanges.
How are the sell-side trader’s relationships with the buy-side changing for block trading?
While interpersonal relationships are important, traders are ultimately judged on their ability to execute orders in the most cost-efficient and timely manner. The concept of relationships has also evolved with technology. Asset managers on our network today are connected to peers around the globe through technology and presented with trading matches in a safe and secure platform. These relationships, benefit from the network effect, where members are able to tap into large pools of liquidity from their desktops.
As many bulge-bracket brokers face challenges, including cost reduction, we have continued to see strong growth which is supported by rising demand.
What new technologies are needed by the sell-side to enhance the block trading desk?
The approach of most sell-side block traders hasn’t significantly evolved, in regards to new technology. It is still very much a relationship-driven business, which is about matching a buyer and seller through a personal relationship. There are today, however, more effective options available to traders.
It is also important to look beyond technology to meet the needs of the trader and help them grow in their roles. Liquidnet’s Headway Head Trader Programme helps buy-side traders develop skills for a competitive edge. We work with traders across the world, including those in Asia, to develop management and leadership skills, understand the role of technology and how to work successfully as part of a fully integrated team within large institutions.
How has the trend of slicing trades affected the buy-side attitudes towards the cost/benefit of traditional block trading?
Algorithms continue to see increased demand in Asia and globally. What the buy-side understands is that simply slicing an order doesn’t necessarily lead to anonymous trading, as it can result in an even bigger footprint in the market. There is also a cost factor associated with higher volume of trading.
Ultimately, the preferred outcome for many asset managers is to trade large volume of shares in a single transaction without market impact. At the same time, a buy-side trader does need to have the full range of solutions – and the ability to draw upon the solution at the correct time – for the best performance.
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For example, when a trader is unable to complete an entire order, it may make sense to access additional liquidity in the broader market through an algorithm. We believe that an algorithm is only as good as the liquidity it can access.
