CHANGING CONTENT.

Mike Powell, global head of enterprise information at Thomson Reuters assesses the latest industry trends and explains how the company is responding.

It has been about 18 months since the financial crisis hit, what do you see as some of the long lasting impacts?

Although the credit crisis has grabbed the headlines, many of the underlying trends that we are seeing today were already happening before the financial crisis and continue to shape the market.  For example, high frequency traders are taking the place of traditional market makers in providing liquidity, while we have seen a blurring between the traditional mutual fund managers and hedge funds in that they are launching similar products to generate returns. The buyside is also beginning to take more control or their own trade execution through leveraging direct market access and sponsored access capabilities.

What type of regulation do you foresee being passed and do you think it will be too onerous?

The full impact of the financial crisis will be seen in the types of regulation such as the Volcker rules and the AIFM (Alternative Investment Fund Managers) directive.  At the moment there is still a lot of discussion and the industry is trying to plot a course to see what is meaningful and how it can be practically implemented.  For example, if banks under the Volcker rules have to split out prop trading, what impact does this have on market liquidity? Similarly the SEC review of high frequency trading and the fairness of co-location infrastructure has the potential to change how the more liquid markets are currently being traded. It is too early to tell though what the outcome will be which is why many investors seem to be taking a wait and see attitude.

Do you think MiFID delivered its promise?

MiFID and the break-up of the concentration rules have dramatically changed the market landscape. It has fuelled fragmentation and the need for low latency access to trading venues. Before MiFID, if you wanted to trade Vodafone for example, there was one primary venue to execute on – the London Stock Exchange. Today, there are a slew of MTFs such as Chi-X Europe, BATS and Turquoise as well as broker-sponsored dark pools that traders can leverage. I have seen estimates that in 2010 approximately 30% of cash equity market trading will be executed off the primary exchanges in Europe. What this has meant is that the buyside cannot afford to ignore the larger MTFs which now provide meaningful liquidity. They have become more nimble and have had to invest in broadening and increasing the sophistication of their market infrastructure in order to access these different sources of liquidity.  This has increased the automation of the trading process through the use of algos and smart order routing. For example, about 56% of US equity cash trading is currently executed via algorithms.

What about the challenges on the data management front?

Fragmentation of the markets has generated a significant volume of new data and the buyside not only have to look at scaling its infrastructure to consume the volume but also how to use the content and derive value in a meaningful way.  There is also a greater demand from the high frequency and algo trading communities to get the data faster and more efficiently. They want the noise stripped out and to ensure that accurate data is delivered as fast as possible into their trading applications. It is not just about trading strategies though. People are looking for greater consistency and quality of data across the front, middle and back-office in order to support their risk as well as compliance systems due to growing regulatory demands.

What about the consolidated tape debate?

One of the key issues in the industry is the lack of the consolidated tape given the fragmentation of liquidity over the last few years. The London Stock Exchange is still seen as the benchmark but I think that one of the challenges of creating a consolidated tape for the industry is the underlying costs of exchange and venue fees for the data on top of what users may already be paying.  If this can be addressed there are a number of independent market data providers such as ourselves who are well placed to deliver the service.  One of our advantages is that we are broker neutral and not a source of  liquidity ourselves – this was a key factor behind our agreement with Alpha Trading in Canada whereby we will provide a consolidated view to the market of all cash equity liquidity across the various exchanges and alternative trading facilities in Canada.

Co-location has also become a hot topic. Do you see demand for those services?

It depends on the business strategy of the trading firm. For example, there is greater demand from high frequency traders who are in and out of the markets multiple times a day, trading on small price anomalies. The larger sellsides, particularly the Prime Brokers, are also looking to locate trading applications as close to the market as possible on behalf of these and other type of active trading clients. However, the long only traditional fund managers who operate on different strategies and typically rely on broker execution, do not feel the need to co-locate as the cost and complexity is not relevant to their trading strategy.

What type of data management solutions are you offering?

We have a wide variety of solutions on the market as we believe the days of ‘one size fits all’ are long gone. For example, there is our collaboration with Savvis, where we have launched a series of scalable, performance-tuned data centres in New York, Chicago, London, Frankfurt, Tokyo, and Singapore that offer our low latency market data, analytics and data management platform. There is also our NewsScope Direct service, which is geared towards providing algo traders the fastest possible access to machine-readable news content. It allows them to connect and integrate news feeds into their trading strategies from their own data centres or our proximity hosting solutions.

What about the recent deal with the Tokyo Stock Exchange’s new trading platform, Arrowhead?

We launched a new market data delivery solution called Thomson Reuters Data Feed Direct for the Arrowhead platform which was introduced by the TSE earlier in the year. The service not only allows clients to receive low latency data via a direct connection to the TSE, but they also gain access to full depth-of-order-book data. Simultaneously we launched the new Arrowhead service across our global consolidated feed, meaning customers can access the data cost-efficiently anywhere in the world. Our low latency direct feed gives clients the flexibility to connect the feed into their own data centre, the TSE’s co-location facility or leverage Thomson Reuters proximity hosting solution with the performance needed to fuel algo trading applications.