Live from Miami at the Equities Leaders Summit (ELS), we talk exclusively to Enrico Cacciatore, currently head of market structure and trading analytics at Voya, who delves into the intricate challenges and opportunities within the equity trading landscape, offering a nuanced perspective on advancements and strategies essential for staying ahead in this dynamic environment.
How is the equities landscape looking as we move into 2024? What are the biggest pressure points for the trading desk this year?
In 2023, the focus was on the commoditization of strategy algorithmic wheels. This development has been instrumental in enhancing the objectivity in broker selection, minimizing biases, and driving a more data-centric approach in evaluating broker performance.
This has led to an increasing sophistication in algorithmic trading. Sell-side brokers have responded to algo commoditization by escalating investments in algorithmic trading infrastructures, notably in algorithmic containers, routing engines, and sophisticated algorithmic logic. This close evaluation means people are performing better. It’s more transparent and it creates a much stronger relationship between the buy and sell side. We’re seeing brokers really build out their algo stack and be much more performance driven.
How can traders address the current dearth of liquidity, and how do you work with your desk to best locate liquidity in difficult markets?
Addressing liquidity challenges requires a deep understanding of the portfolio manager’s objectives and the attributes of specific stocks, especially in terms of volatility and market moves. We focus on analyzing order attributes and market conditions to optimize our entry and exit strategies. Utilizing real-time data and sophisticated algorithms is key to identifying liquidity opportunities and managing market impact, especially for large orders.
The current market scenario poses significant liquidity challenges, calling for innovative approaches to locate and secure liquidity. Understanding the specific objectives of portfolio managers and the nuanced attributes of stocks is crucial in this endeavor.
A notable development has been the emergence of hybrid trading venues, which combine the characteristics of both dark and lit venues. These venues offer a unique solution to the liquidity puzzle, providing a balance between the high uncertainty of fill in dark venues and the higher probability of fill, albeit with associated risks, in lit venues.
Leveraging real-time data is becoming increasingly crucial in assessing and responding to liquidity challenges. This involves a continuous evaluation of market conditions, order flows, and the strategic placement of trades to optimize liquidity utilization while minimizing market impact.
When you compare the US to Europe we’re in a much more fragmented ecosystem, which creates transparency issues. You need to know the kind of liquidity you want, and where to look for it. The sell side are developing their own methods, and the buy-side need to understand that.
Which areas of technology or innovation are having the biggest impact right now in equity trading?
Cloud computing and the integration of multiple data sources are having a significant impact. These technologies allow for more sophisticated AI and ML designs, which are essential for processing large data sets. The application of AI and ML technologies has shown significant potential, particularly in pattern recognition, predictive analytics, and the development of adaptive trading algorithms. The potential for future growth lies in crowdsourcing data to share factors and findings across asset managers, enhancing the systematic and automated approach to trading.
As we move into 2024, this shift towards the integration of generative AI and large data sets is propelling us towards a more automated trading infrastructure. One of the major pressure points for trading desks this year is navigating these technological advancements while maintaining efficient, compliant trading operations.
The utilization of real-time broker data, encompassing all orders, cancellations, and fills, will also transform venue analytics, enabling deeper insights into market activities and more strategic trading decisions.
What are the biggest value-adds on the equity trading desk today, and what are your focus areas in terms of R&D and investment?
The biggest value-adds are advanced analytical tools that provide real-time insights and predictive analytics, along with automated trading systems that enhance execution efficiency. Our R&D is heavily focused on leveraging cloud technologies and AI/ML to improve data analysis, risk management, and systematic trading strategies.
Regarding the SEC market structure reforms, what do you think will be the best and worst outcomes for the buy-side if these proposals pass in their current form?
The best outcomes would include increased market transparency and more efficient pricing mechanisms. However, there’s a concern that over-regulation could potentially stifle innovation and lead to market inefficiencies. The challenge lies in implementing these reforms in a way that balances market integrity with the need for innovation and growth.
A critical aspect of the SEC proposals is the reform of tick sizes. The industry advocates for an approach more aligned with the NASDAQ intelligent tick proposal, emphasizing the need for tick sizes that correspond better with the natural liquidity and spreads of stocks.
The role of access fees in different market conditions is another area of focus. While reducing fees in highly liquid markets is beneficial, in less liquid markets, these fees can incentivize liquidity provision.
What’s one change you’d like to see in your industry right now?
I’d advocate for increased collaboration and transparency among buy-side, sell-side, and trading venues. An open-source and integrated infrastructure is crucial for fostering innovation and optimizing the trading ecosystem. I believe it would facilitate greater collaboration among buy-side, sell-side, and trading venues, leading to a more cohesive and efficient trading ecosystem.
What are your top focus areas for 2024 and beyond?
Our top focus areas include harnessing the power of big data and AI for more informed trading decisions, and developing adaptive trading algorithms that can respond to market changes in real time. By this time next year, I aim to see us leveraging these technological advancements to create a more efficient, transparent, and responsive trading environment.
Addressing the concentration of liquidity and the hesitancy among large asset managers to engage in low-touch or block venues is also vital. Promoting transparency and demonstrating the efficiency of these platforms can help in bridging this gap.
As we look towards the future, the focus will be on embracing and integrating technological advancements, enhancing collaborative efforts, and adapting to evolving regulatory landscapes. The goal is to create a trading ecosystem that is not only efficient and transparent but also resilient and adaptable to the ever-changing market dynamics.
READ MORE: Voya Investment Management to lose senior trader in further management shake-up
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