Investment managers continue to place a high premium on the sourcing of natural liquidity.
The emergence of non-exchange trading venues, each with their own unique way of gathering and offering liquidity, has made an already complex landscape more complex.
Navigating the new framework was the topic for discussion on the Streamline Your Liquidity Sourcing – Tools to Interact With, Automate, and Consolidate Access to New, Untapped Liquidity, which took place Tuesday afternoon at WBR’s Equity Leaders Summit in Miami.
Jesse Forster, Head of Equity Research, Market Structure & Technology at Coalition Greenwich and panel moderator, set the tone for the discussion by noting his firm’s research shows that the most important attribute of trading counterparties is the ability to source natural institutional liquidity, reported by 63% of firms.
“If institutions say this is a challenge, we need to take it seriously,” said Jesse Greif, Chief Operating Officer at OneChronos, a venue that fosters competition on quality of liquidity rather than speed.
Grief said if there are 10,000 shares of a stock available to a prospective buyer or seller at a given price, a benchmark for a venue with an innovation or new tools or incentives would be to increase that number to 50,000.
Charlie Whitlock, Head of Americas Distribution at algorithmic trading firm XTX Markets, said while there is a common perception that liquidity is challenged, the underlying problem is workflow issues that prevent liquidity from getting into the marketplace.
Noel Reyes, Head of Americas Electronic Trading Product at Goldman Sachs, said there is “no conclusive evidence” that liquidity has become significantly better or worse over the past 10-15 years.
“What we do know is that market structure has changed and market participants have changed,” Reyes said, citing changes such as higher overall trading volume, lower average trade size, and more volume taking place at closing auctions.
Jack Sarkissian, Managing Director at FMI Technologies, President at Quantum Intelligence Systems, and formerly CIO of a $3 billion investment management firm, said the buy side faces a “buzzsaw” of sell-side offerings, each of which need careful review.
“Statisticians are doing the best they can to present the data, but the question is that every time there are assumptions which may not be mentioned,” Sarkissian said. “A lot of details go into those numbers, and they need to be questioned.”
Sell-side brokers are a critical constituency in the market ecosystem, both for the service and metrics they provide to institutional clients, plus their vantage point as a distributor of new innovation, Greif said.
Reyes said the brokers who can best aggregate the puzzle of today’s new liquidity sources are likely to be atop their industry in five years’ time.
The panel closed on the topic of artificial intelligence. “AI is the most profound technological innovation that we have seen in our lifetime,” Whitlock said.
Other panellists were also constructive on AI, though they indicated the need to understand, explain and manage client expectations presents a speed bump, because if an AI application works great but can’t be properly explained, that application would need a pause. “We have to make sure we understand the outcomes,” Reyes said.
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