ELS panellists note a more complex landscape, but one that’s also more advantageous for market participants.
What are the new frontiers in liquidity? That topic was explored in the aptly named Panel: New Frontiers in Liquidity, Tuesday morning at WBR’s Equity Leaders Summit in Miami.
The panel started with a look at the definition of liquidity, which at its core is the ease at which securities can be bought and sold. While that traditional definition still holds, “it has evolved as the landscape has changed,” said Uma Seshamani, Institutional Sales & Trading, Jane Street.
As a quantitative trading firm and liquidity provider, Jane Street positions itself at the intersection of human and machine, which Seshamani said is a reflection of how the marketplace has changed from a liquidity perspective.
One core component of liquidity is accessibility. Scott Graczyk, Head of Business Development at trading venue IntelligentCross and a three-decade industry veteran, said years ago, accessibility was determined by working with a broker.
“Now it’s about how you can get order flow together, with various co-mingled order types, and give everybody a good outcome,” Graczyk said. “A venue can add that component of letting orders interact with each other.”
Panelists drew the distinction between fragmentation, which refers to the number of trading venues and connotes dispersed liquidity, and segmentation, which refers to how a trading venue may manage the interaction of orders within its own four walls.
“Segmentation happens based on the rules of engagement” within a given venue, said Jason Siegendorf, Head of Trading Analytics at Harris Associates. He cited the example of private e-trading rooms that enable curation of counterparty.
Segmentation “is a function of innovation in the marketplace,” Siegendorf said. “Complexity is people trying to solve problems – the alternative is no innovation. It’s more complex but there is a net benefit.”
On the topic of block trading, Siegendorf noted blocks have represented about the same percentage of markets for decades, and the key to improving block liquidity is thinking about blocks differently. That is happening in the form of innovation from traditional crossing networks, as well as a reassessment of the interaction between principal and agency trading.
“The lines have blurred,” said Seshamani of Jane Street. It used to feel like it was either or, principal vs agency, but now there’s a more complementary approach. This ties in with more innovation and collaboration between the buy side and sell side.”
Tim Reilly, Senior Director at NYSE and the panel moderator, summed up the current landscape of price discovery and liquidity discovery as “marrying machine to human and solving problems.”
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