BUILDING A BRAND.
Damian Bunce and James Day explain how Barclays Capital, which bought Lehman’s US operations two years ago, are choosing the best of breed services and products from both organisations to create the optimal business.
How have things developed in Europe since Barclays Capital bought the US assets of Lehman in 2008 and Brian Fagen took over as head of global equities electronic trading distribution?
Damian Bunce – As well as all the technical integration work that has been undertaken there has been organisational change at a global level to ensure we have an optimised structure. We have regional heads of electronic sales and trading who drive commercial efforts in the region, and regional heads of electronic product who refine products for local markets. Brian’s appointment was a reflection of the need to ensure that, at a client level, we pull together a global structure to reflect the needs of our global clients. As we have evolved the business structure supporting functions have quickly evolved with us, for instance, we have regional algorithmic development teams supported by regional quant teams, but it also made sense to appoint a global head of quant to shape the inner working of the product from a central source and allow regions to deal with local market nuances.
At a product level there were natural synergies at play, both Barcap and Lehman were market leaders in services to the high frequency community so speed, latency and throughput have been at the heart of the product cycle from the outset. We took advantage of niche strengths, for instance Barcap’s strength in cross-asset spread trading and integrated fx capabilities stood out, as well as the strength of the “Barx” electronic brand.
James Day – We spent a great deal of time assessing technology capabilities of each firm, and the underlying infrastructure they were built on. We enhanced the strongest products and cut the weaker ones. For example, we retired the technology underpinning the smart order router and crossing functions from Barcap in Europe, and following Europeanisation of the functionality imported the former Lehman products from the US that were tried and tested. We enhanced the former Lehman analytics products that were market leading and rebranded them as part of Barclays Capital Live, The algorithmic framework (LMX) was stronger from Lehman but the algorithmic code in Europe from Barcap was stronger so we combined the two. We plan to re-launch LX (liquidity cross) in Q3 and have taken advantage of some of the differentiating functionality that this offered. As well as integrating internal products, as part of the acquisition of Lehman, we acquired Townsend Analytics and the Realtick EMS product. This gave the firm an independent, multi-broker solution that we have integrated into our suite of services.
How have you developed the business on the people front?
Damian Bunce – We were fortunate to have had a blank sheet of paper when it came to hiring so we were able to put the right people in the seats straight away. We offered the appeal and excitement of a start-up that had investment, but because we had a rich technology base we were able to avoid many of the growing pains associated with a start-up. The technology base coupled with experienced staff gave us a huge head start in terms of time to market. Integral to our offering at the outset was the quality of the service model. We recognised the increased importance of the electronic sales trader to many clients. The particular role has developed significantly over the last few years, particularly as electronic volumes have grown amongst clients. It was once considered a training ground for graduates and a reactive role to trade problems. We encourage our service desk to be proactive with clients that value it, to spot problems before clients do and to add value to the execution strategy. Integral to this approach was a real focus on development of leading edge monitoring tools that show graphical representations of how algos are operating. This gives our desk an edge when advising clients. We think that if clients know their orders are being monitored by capable people with strong trading skills and market knowledge, throughout all forms of market conditions, that over time this will earn longevity of our service to clients. Additionally we bucked the trend by hiring from the buyside, to inject a greater understanding of the portfolio process into the team to better refine client service. On the technology side we brought all the tech support functions into the front office making it an integral part of the business – this approach helped us to attract high calibre candidates whilst at the same time control the overall service levels to clients.
How do you see the landscape unfolding in Europe in terms of the execution venues?
Damian Bunce – We think it is still a bit early to draw any firm conclusions. For instance, we have seen signs of consolidation such as the LSE and Turquoise but at the same time we have seen businesses winding down such as NASDAQ OMX Europe; businesses start up such as Getco Execution Services; others being re-invigorated with investment (Equiduct and Citadel for example), and firms that are showing positive signs of growth like Knightlink in Europe. Additionally there was what appeared to be a growing desire for broker dealers to own and operate dark pools as MTFs. This, however, seems to have cooled.
Looking at best execution, what do you see as the main challenges?
James Day – I think one of the key areas that still needs to be addressed is on the post trade side. Europe still has an inefficient clearing model that adds significant costs, particularly to those that contribute significant volume levels. Interoperability between clearers has been moving very slowly; in fact there are signs that the vertical model will be introduced with the recent announcement of NYSE Euronext to set up its own clearing operations. In order for Europe to become as competitive as the US, and for firms to achieve best execution in far more liquid markets, issues around post trade need to be accelerated.
Do you think regulation will move things forward?
James Day – We engage with the regulators through AFME and other organisations and play our role as much as we can in shaping the future of trading. Many of the perceived inefficiencies (some around definition as much as functionality) are being debated as part of the call for evidence and the MIFID 2 review, so we are confident the right issues are on the table. Wat we cannot ascertain right now is the timeframe over which we will see decisions implemented.
Aside from regulation, what other challenges do you see the industry facing?
Damian Bunce – The electronic trading industry is fast-paced and constantly evolving. Of late we have seen the spotlight turned on the industry overall due to discussions around the “flash crash”, and data dissemination in dark pools etc. During these times it is more important than ever to stay close to our customers and clients help them navigate the changing environment and manage their risks effectively.
James Day – Another challenge continues to be the bottleneck that brokers face when trying to release a product to the independent vendor community that resides on the desktop of clients. The vendors are understandably jammed with requests and the certification process can be lengthy. Broader adoption of FIXatdl (algorithmic trading definition language) should come some way to removing this problem but the rollout remains slow.
[BIOGRAPHIES]
Damian Bunce is a director and head of equities electronic sales & trading, Europe at Barclays Capital. Based in London, he joined Barclays Capital in March 2009, previously having worked at Goldman Sachs, where he held various positions in London and New York during his nine years with the firm. His most recent position was head of execution sales in Europe. Bunce started his career with IBM, selling systems solutions to financial services clients. Following this he worked for Barings Bank, London. Bunce has an undergraduate degree, BA (Hons), in English from the University of Surrey, and a master’s degree (MSc) in computer science from the University of Hull.
James Day is a director and head of European equities electronic product at Barclays Capital. Based in London, he is responsible for electronic equities trading products such as pre- and post-trade analytics, RealTick EMS, algorithmic trading strategies, smart order routing, and crossing. Day joined Barclays Capital in 1998 from Daiwa Securities where he was responsible for equity finance and execution. Prior to that, he worked at Nomura Securities.
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