Kepler Cheuvreux’s Chris McConville, global head of execution services and trading, Serge Reydellet, head of quant execution, and Anvar Karimson, chief technology officer, discuss how the trading landscape has changed over the years – and the value that algo traders bring to the firm.
How has trading evolved over the last decade?
Chris McConville [CMC]: The biggest shift in execution has happened with the growth of electronic trading. Electronic trading integrates computer science and financial markets knowledge to execute orders based on programmed instructions. Utilising a variety of strategies, buy-side and sell-side dealers leverage electronic trading extensively in today’s financial markets. Also known as low-touch, automated, or algo trading, these algorithms use programming languages to follow predefined instructions for placing orders or portfolios of orders. These instructions are built into multi-factor models, considering factors such as volume-weighted average price, time-weighted average price, quantity, liquidity access, index fund rebalancing, and arbitrage opportunities. Buy-side desks can determine the timing for opening and closing trades. In theory, algo trading enhances market liquidity and mitigates the influence of human emotions, promoting more efficient trade execution in contrast to human trading, which is often affected by behaviourally biased factors.
What are the potential benefits and drawbacks of algorithmic trading?
CMC: Algo trading depends heavily on technology and data, meaning that technical issues can disrupt trading and impact profit and loss (P&L). Algorithmic trading must adhere to strict regulatory requirements, that are often detailed and time-consuming, necessitating the hiring of additional compliance and risk management personnel. Developing algo trading models requires a significant investment due to the high costs associated with software and reference/market data fees.
The biggest benefit of algo trading is the ability to integrate multiple factors that affect optimal trading behaviour into a single model. It is simply impossible for a human trader to be able to exhibit the same decision-making at the same speed. More advanced algorithmic trading is also able to continually learn from past behaviour and incorporate new patterns, adjusting intraday. Additionally, algo trading ensures best execution by executing trades at optimal prices, provides low latency through accurately timed order placement, and reduces transaction costs.
How do you integrate algo trading at KCx?
CMC: We introduced the algo trader role as a new addition to KCx in response to increasing client demand for personnel with advanced technical skillsets . As clients become more knowledgeable about mathematical models, technology, and data, they seek deeper insights and support. In just two years, it has become evident that clients greatly appreciate this addition.
Serge Reydellet [SR]: The algo trader role bridges the gaps between trading, sales trading, and quants, breaking down traditional barriers across teams. Our investment into this role demonstrates our commitments to people and innovation, as represented by new hires in quant execution and internal promotions. Algo traders embody a new era of integrated financial services, providing a seamless connection between various departments that historically operated in silos. By fostering collaboration and innovation, this role ensures that KCx remains at the forefront of technological advancements and client service excellence.
How do algo traders enhance client service?
CMC: Algo traders collaborate with our sales traders and traders to enhance our white glove service, providing real-time support, creating bespoke TCA reports, and interacting with exchanges during outages. Their expertise in computer science and financial markets enables them to work closely with technology and operations to develop new UI tools for order performance monitoring, pre-trade, live TCA, and post-trade analysis. This hands-on approach ensures that our clients receive the highest level of service and support, tailored to their specific needs and objectives.
Can you give us some examples where the algo trading team contributes to innovation?
SR: Algo traders have been crucial, working with technology teams to build the KCx API Analytical Suite and opening our algo logic directly to clients. Additionally, they play a key role in developing our custom framework for creating bespoke algorithms tailored to individual client needs. This framework allows us to design and implement strategies that align perfectly with the unique requirements of each client, enhancing their trading performance, execution and operational efficiency. The ability to offer personalised solutions sets KCx apart in a competitive market, showcasing our dedication to meeting and exceeding client expectations.
Anvar Karimson [AK]: Following our partnership with Adaptive to build KCx Omni, the NextGen trade execution platform, algo traders collaborated with technology teams to design the intuitive UI, known as Algo Centre, for live monitoring of outliers and outperformers. This ambitious project aims to create a proprietary, scalable, sequencer-based architecture that operates both on-premises and in the cloud, allowing KCx to continue innovating at a rapid pace.
CMC: In product innovation, algo traders work with quant to develop portfolio optimisers and new ETF algorithms, ensuring functionality on a global scale and across different regions such as the US and APAC. They are also essential in connecting and validating new venues, ELP SIs, and periodic auctions. This collaborative effort ensures that our product offerings are robust, versatile, and capable of meeting the diverse needs of our global client base. By continually refining and expanding our product suite, we maintain our position as a leader in the financial services industry.
What are the key skills required from an algo trader?
AK: For algo traders to succeed, they must possess skills in computer software, hardware, and financial markets. This unique combination of expertise enables them to navigate the complexities of modern trading environments and deliver exceptional results. Algo traders need to exhibit a blend of computer science expertise and interpersonal skills. We are in fact seeing a growing interest among finance professionals in mastering programming skills, especially around the use of Python. Python’s simplicity and versatility make it an attractive option for developing sophisticated trading algorithms and analytical tools. In conclusion, the Algo Trader role embodies the values of diversity and agility, driving innovation and excellence at KCx.
CMC: By leveraging a diverse skill set and fostering a culture of continuous improvement, we ensure that KCx remains at the cutting edge of financial technology and client service. The integration of algo traders into our team has not only enhanced our capabilities but also has reinforced our commitment to delivering outstanding value to our clients. As we look to the future, the algo trader role will continue to be a key driver of our success, enabling us to adapt to evolving market demands and capitalise on new opportunities.
©Markets Media Europe 2024
